ALLIANCE VARIABLE PRODUCTS SERIES FUND INC, 485BPOS, 1995-05-01

ALLIANCE VARIABLE PRODUCTS SERIES FUND INC
485BPOS, 1995-05-01

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<PAGE>

As filed with the Securities and Exchange
Commission on May 1, 1995

File Nos. 33-18647
811-5398

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

___________________________________

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF l933

Pre-Effective Amendment No.

Post-Effective Amendment No. 13 X
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 14 X

____________________________________

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)

1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)

Registrant's Telephone Number, including Area Code:
(800) 221-5672

____________________________________

EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York l0105
(Name and address of agent for service)

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

x immediately upon filing pursuant to paragraph (b)
_____ on (date), 1995 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)

<PAGE>

_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:

_____ this post-effective amendment designates a new
effective date for a previous filed post-effective
amendment.

Registrant has registered an indefinite number of shares of
common stock pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Registrant's Rule 24f-2 notice for its fiscal year
ended December 31, 1994 was filed on February 28, 1995.

<PAGE>

CROSS REFERENCE SHEET
(as required by Rule 404 (c))

N-1A ITEM NO. LOCATION IN PROSPECTUS

PART A

Item 1. Cover Page Cover Page

Item 2. Synopsis Expense Information

Item 3. Condensed Financial Information Financial Highlights

Item 4. General Description of Registrant Description of the Portfolios

Item 5. Management of the Fund Management of the Fund;
General Information

Item 6. Capital Stock and Other Securities General Information; Dividends,
Distributions and Taxes

Item 7. Purchase of Securities Being Offered Purchase and Redemption of
Shares; General Information

Item 8. Redemption or Repurchase Purchase and Redemption of
Shares; General Information

Item 9. Pending Legal Proceedings Not Applicable

PART B LOCATION IN STATEMENT
OF ADDITIONAL INFORMATION

Item 10. Cover Page Cover Page

Item 11. Table of Contents Cover Page

Item 12. General Information and History Management of the Fund;
General Information

Item 13. Investment Objectives and Policies Investment Policies and
Restrictions

<PAGE>

CROSS REFERENCE SHEET
(as required by Rule 404 (c))

PART B
(Continued)

Item 14. Management of the Fund Management of the Fund

Item 15. Control Persons and Principal
Holders of Securities Management of the Fund;
General Information

Item 16. Investment Advisory and Other
Services Management of the Fund

Item 17. Brokerage Allocation Portfolio Transactions

Item 18. Capital Stock and Other Securities General Information

Item 19. Purchase, Redemption and Pricing Purchase and
of Securities Being Offered Redemption of Shares;
Net Asset Value

Item 20. Tax Status Dividends, Distributions
and Taxes

Item 21. Underwriters General Information

Item 22. Calculation of Performance Data General Information

Item 23. Financial Statements Financial Statements; Report
of Independent Auditors

4
00250292.AM8

<PAGE>

[LOGO OF ALLIANCE CAPITAL APPEARS HERE]

ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.

- -------------------------------------------------------------------------------
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520 TOLL FREE (800) 221-5672

- -------------------------------------------------------------------------------
Alliance Variable Products Series Fund, Inc. (the "Fund") is an open-end se-
ries investment company designed to fund variable annuity contracts and vari-
able life insurance policies to be offered by the separate accounts of certain
life insurance companies. The Fund currently offers an opportunity to choose
among the separately managed pools of assets (the "Portfolios") described be-
low which have differing investment objectives and policies.

- -------------------------------------------------------------------------------
A DIVERSIFIED SELECTION OF INVESTMENT ALTERNATIVES

- -------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO -- seeks safety of principal, maintenance of liquidity
and maximum current income by investing in a broadly diversified portfolio of
money market securities. An investment in the Money Market Portfolio is nei-
ther insured nor guaranteed by the U.S. Government. There can be no assurance
that the Portfolio will be able to maintain a stable net asset value of $1.00
per share, although it expects to do so.
PREMIER GROWTH PORTFOLIO -- seeks growth of capital rather than current in-
come. In pursuing its investment objective, the Premier Growth Portfolio will
employ aggressive investment policies. Since investments will be made based
upon their potential for capital appreciation, current income will be inciden-
tal to the objective of capital growth. The Portfolio is not intended for in-
vestors whose principal objective is assured income or preservation of capi-
tal.
GROWTH AND INCOME PORTFOLIO -- seeks to balance the objectives of reasonable
current income and reasonable opportunities for appreciation through invest-
ments primarily in dividend-paying common stocks of good quality.
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO -- seeks a high level of cur-
rent income consistent with preservation of capital by investing principally
in a portfolio of U.S. Government Securities and other high grade debt securi-
ties.
HIGH-YIELD PORTFOLIO -- seeks the highest level of current income available
without assuming undue risk by investing principally in high-yielding fixed
income securities. As a secondary objective, this Portfolio seeks capital ap-
preciation where consistent with its primary objective. Many of the high-
yielding securities in which the High-Yield Portfolio invests are rated in the
lower rating categories (i.e., below investment grade) by the nationally rec-
ognized rating services. These securities, which are often referred to as
"junk bonds," are subject to greater risk of loss of principal and interest
than higher rated securities and are considered to be predominantly specula-
tive with respect to the issuer's capacity to pay interest and repay princi-
pal.
TOTAL RETURN PORTFOLIO -- seeks to achieve a high return through a combination
of current income and capital appreciation by investing in a diversified port-
folio of common and preferred stocks, senior corporate debt securities, and
U.S. Government and agency obligations, bonds and senior debt securities.
INTERNATIONAL PORTFOLIO -- seeks to obtain a total return on its assets from
long-term growth of capital and from income principally through a broad port-
folio of marketable securities of established non-United States companies (or
United States companies having their principal activities and interests out-
side the United States), companies participating in foreign economies with
prospects for growth, and foreign government securities.
(R) :This is a registered mark used under license from the owner, Alliance
Capital Management L.P.

- -------------------------------------------------------------------------------
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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

PROSPECTUS/May 1, 1995
Investors are advised to carefully read this Prospectus and to retain it for
future reference.
<PAGE>

SHORT-TERM MULTI-MARKET PORTFOLIO -- seeks the highest level of current in-
come, consistent with what the Fund's Adviser considers to be prudent invest-
ment risk, that is available from a portfolio of high-quality debt securities
having remaining maturities of not more than three years.
GLOBAL BOND PORTFOLIO -- seeks a high level of return from a combination of
current income and capital appreciation by investing in a globally diversified
portfolio of high quality debt securities denominated in the U.S. Dollar and a
range of foreign currencies.
NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO -- seeks the highest level of cur-
rent income, consistent with what the Fund's Adviser considers to be prudent
investment risk, that is available from a portfolio of debt securities issued
or guaranteed by the governments of the United States, Canada and Mexico,
their political subdivisions (including Canadian Provinces but excluding the
States of the United States), agencies, instrumentalities or authorities. The
Portfolio seeks high current yields by investing in government securities de-
nominated in local currency and U.S. Dollars. Normally, the Portfolio expects
to maintain at least 25% of its assets in securities denominated in the U.S.
Dollar.
GLOBAL DOLLAR GOVERNMENT PORTFOLIO -- seeks a high level of current income
through investing substantially all of its assets in U.S. and non-U.S. fixed
income securities denominated only in U.S. Dollars. As a secondary objective,
the Portfolio seeks capital appreciation. Substantially all of the Portfolio's
assets will be invested in high yield, high risk securities that are low-rated
(i.e., below investment grade), or of comparable quality and unrated, and that
are considered to be predominately speculative as regards the issuer's capac-
ity to pay interest and repay principal.
UTILITY INCOME PORTFOLIO -- seeks current income and capital appreciation by
investing primarily in the equity and fixed-income securities of companies in
the "utilities industry." The Portfolio's investment objective and policies
are designed to take advantage of the characteristics and historical perfor-
mance of securities of utilities companies. The utilities industry consists of
companies engaged in the manufacture, production, generation, provision,
transmission, sale and distribution of gas, electric energy, and communica-
tions equipment and services, and in the provision of other utility or utili-
ty-related goods and services.
CONSERVATIVE INVESTORS PORTFOLIO -- seeks the highest total return without, in
the view of the Fund's Adviser, undue risk to principal by investing in a di-
versified mix of publicly traded equity and fixed-income securities.
GROWTH INVESTORS PORTFOLIO -- seeks the highest total return consistent with
what the Fund's Adviser considers to be reasonable risk by investing in a di-
versified mix of publicly traded equity and fixed-income securities.
GROWTH PORTFOLIO -- seeks long-term growth of capital by investing primarily
in common stocks and other equity securities.
WORLDWIDE PRIVATIZATION PORTFOLIO -- seeks long-term capital appreciation by
investing principally in equity securities issued by enterprises that are un-
dergoing, or have undergone, privatization. The balance of the Portfolio's in-
vestment portfolio will include equity securities of companies that are be-
lieved by the Fund's Adviser to be beneficiaries of the privatization process.

- -------------------------------------------------------------------------------
PURCHASE INFORMATION

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

The Fund will offer and sell its shares only to separate accounts of certain
life insurance companies, for the purpose of funding variable annuity con-
tracts and variable life insurance policies. Sales will be made without sales
charge at each Portfolio's per share net asset value. Further information can
be obtained from Alliance Fund Services, Inc. at the address or telephone num-
ber shown above.

An investment in the Fund is not a deposit or obligation of, or guaranteed or
endorsed by, any bank and is not federally insured by the Federal Deposit In-
surance Corporation, the Federal Reserve Board or any other agency.

- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION

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

This Prospectus sets forth concisely the information which a prospective in-
vestor should know about the Fund and each of the Portfolios before applying
for certain variable annuity contracts and variable life insurance policies
offered by participating insurance companies. It should be read in conjunction
with the Prospectus of the separate account of the specific insurance product
which accompanies this Prospectus. A "Statement of Additional Information"
dated May 1, 1995, which provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to some investors,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, call or write Alliance Fund Services,
Inc. at the address or telephone number shown above.

2
<PAGE>

EXPENSE INFORMATION

SHAREHOLDER TRANSACTION EXPENSES

The Fund has no sales load on purchases or reinvested dividends, deferred
sales load, redemption fee or exchange fee. High Yield Portfolio is an inac-
tive portfolio of the Fund.

<TABLE>
<CAPTION>
U.S.
GROWTH GOVERNMENT/
MONEY PREMIER AND HIGH GRADE HIGH TOTAL
MARKET GROWTH INCOME SECURITIES YIELD RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees........ 0%* .55%* .62%* 0%* 0%* 0%*
Other Expenses......... .95%* .40%* .28%* .95%* .95%* .95%*
--- --- --- --- --- ---
Total Portfolio
Operating Expenses.... .95% .95% .90% .95% .95% .95%
=== === === === === ===
- --------
* Net of expense reimbursement.

<CAPTION>
SHORT- NORTH
TERM AMERICAN GLOBAL
INTER- MULTI- GLOBAL GOVERNMENT UTILITY DOLLAR
NATIONAL MARKET BOND INCOME INCOME GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO** PORTFOLIO** PORTFOLIO**
--------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees........ 0%* .50%* 0%* 0%* 0%* 0%*
Other Expenses......... .95%* .44%* .95%* .95%* .95%* .95%*
--- --- --- --- --- ---
Total Portfolio
Operating Expenses.... .95% .94% .95% .95% .95% .95%
=== === === === === ===
</TABLE>
- --------
* Net of expense reimbursement.

<TABLE>
<CAPTION>
CONSERVATIVE GROWTH WORLDWIDE
INVESTORS INVESTORS GROWTH PRIVATIZATION
PORTFOLIO** PORTFOLIO** PORTFOLIO** PORTFOLIO**
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS)
Management Fees............ 0%* 0%* 0%* 0%*
Other Expenses............. .95%* .95%* .95%* .95%*
--- --- --- ---
Total Portfolio Operating
Expenses.................. .95% .95% .95% .95%
=== === === ===
</TABLE>
- --------
* Net of expense reimbursement.

** Annualized.

3
<PAGE>

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return (cumulatively through the end of each time period).

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio......................... $10 $30 $52 $116
Premier Growth Portfolio....................... $10 $30 $52 $116
Growth and Income Portfolio.................... $10 $30 $52 $116
U.S. Government/High Grade Securities Portfo-
lio........................................... $10 $30 $52 $116
High Yield Portfolio........................... $10 $30 $52 $116
Total Return Portfolio......................... $10 $30 $52 $116
International Portfolio........................ $10 $30 $52 $116
Short-Term Multi-Market Portfolio.............. $10 $30 $52 $116
Global Bond Portfolio.......................... $10 $30 $52 $116
North American Government Income Portfolio..... $10 $30 $52 $116
Utility Income Portfolio....................... $10 $30 $52 $116
Global Dollar Government Portfolio............. $10 $30 $52 $116
Conservative Investors Portfolio............... $10 $30 $52 $116
Growth Investors Portfolio..................... $10 $30 $52 $116
Growth Portfolio............................... $10 $30 $52 $116
Worldwide Privatization Portfolio.............. $10 $30 $52 $116
</TABLE>

4
<PAGE>

The purpose of the foregoing table is to assist the investor in understand-
ing the various costs and expenses that an investor in the Fund will bear di-
rectly and indirectly. "Other Expenses" for the High Yield Portfolio are based
on estimated amounts for such Portfolio's current fiscal year. Expense Infor-
mation for the Money Market Portfolio, Premier Growth Portfolio, U.S.
Government/High Grade Securities Portfolio, Total Return Portfolio, Interna-
tional Portfolio, Growth and Income Portfolio, Short-Term Multi-Market Portfo-
lio and Global Bond Portfolio have been restated to reflect current fees. The
expenses listed in the table for the Money Market Portfolio, Premier Growth
Portfolio, Growth and Income Portfolio, U.S. Government/High Grade Securities
Portfolio, High Yield Portfolio, Total Return Portfolio, International Portfo-
lio, Short-Term Multi-Market Portfolio, Global Bond Portfolio, North American
Government Income Portfolio, Global Dollar Government Portfolio, Utility In-
come Portfolio, Conservative Investors Portfolio, Growth Investors Portfolio,
Growth Portfolio and Worldwide Privatization Portfolio are net of voluntary
expense reimbursements, which are not required to be continued indefinitely;
however, the Adviser intends to continue such reimbursements for the foresee-
able future. The expenses of the following Portfolios, before expense reim-
bursements, would be: Money Market Portfolio: Management Fees -- .50%, Other
Expenses -- 3.96% and Total Portfolio Operating Expenses -- 4.46%; Premier
Growth Portfolio: Management Fees -- 1.00%, Other Expenses -- .40% and Total
Portfolio Operating Expenses -- 1.40%; Growth and Income Portfolio: Management
Fees -- .63%, Other Expenses -- .28% and Total Portfolio Operating Expenses --
.91%; U.S. Government/High Grade Securities Portfolio: Management Fees --
.60%, Other Expenses -- 3.13% and Total Portfolio Operating Expenses --
3.73%; Total Return Portfolio: Management Fees -- .63%, Other Expenses --
18.86% and Total Portfolio Operating Expenses -- 19.49%; International Port-
folio: Management Fees -- 1.00%, Other Expenses -- 6.26% and Total Portfolio
Operating Expenses -- 7.26%; Short-Term Multi-Market Portfolio: Management
Fees -- .55%, Other Expenses -- .44% and Total Portfolio Operating Expenses --
.99%; Global Bond Portfolio: Management Fees -- .65%, Other Expenses -- 1.40%
and Total Portfolio Operating Expenses -- 2.05%; North American Government In-
come Portfolio: Management Fees -- .65%, Other Expenses -- 3.78% and Total
Portfolio Operating Expenses -- 4.43%; Global Dollar Government Portfolio:
Management Fees -- .75%, Other Expenses -- 14.25% and Total Portfolio Operat-
ing Expenses -- 15.00%; Utility Income Portfolio: Management Fees -- .75%,
Other Expenses -- 15.23% and Total Portfolio Operating Expenses -- 15.98%. The
estimated expenses of the following Portfolios before expense reimbursements
would be: Worldwide Privatization Portfolio: Management Fee -- 1.00%, Other
Expenses -- 17.47% and Total Portfolio Operating Expenses -- 18.47%; Conserva-
tive Investors Portfolio: Management Fees -- .75%, Other Expenses -- 19.60%
and Total Portfolio Operating Expense -- 20.35%; Growth Investors Portfolio:
Management Fees -- .75%, Other Expenses -- 40.87% and Total Portfolio Operat-
ing Expenses -- 41.62%; Growth Portfolio: Management Fees -- .75%, Other Ex-
penses -- 3.44% and Total Portfolio Operating Expenses -- 4.19%. The example
should not be considered representative of future expenses; actual expenses
may be greater or less than those shown.

5
<PAGE>

FINANCIAL HIGHLIGHTS

The following information as to net asset value, ratios and certain supple-
mental data for each of the periods shown below has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose unqualified report thereon
(referring to Financial Highlights) appears in the Statement of Additional In-
formation. The following information should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. Information has not been included in the following "Financial
Highlights" tables for the High-Yield Portfolio because the High Yield Portfo-
lio is an inactive portfolio of the Fund. Once this Portfolio has been in op-
eration for all or a portion of the Fund's fiscal year, the required informa-
tion will be set forth for the Portfolio in a "Financial Highlights" table.
Further information about the Fund's performance is contained in the Fund's
annual report, which is available without charge upon request.

PREMIER GROWTH PORTFOLIO
-----------------------------------------------
YEAR ENDED DECEMBER 31, JUNE 26, 1992(A)
-------------------------- TO
1994 1993 DECEMBER 31, 1992
----------- ----------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of
period........................ $ 12.79 $ 11.38 $10.00
----------- ----------- ------
INCOME FROM INVESTMENT OPERA-
TIONS
Net investment income(b)...... .03(c) -0-(c) .06(c)
Net realized and unrealized
gain (loss) on investments... (.41) 1.43 1.32
----------- ----------- ------
Net increase (decrease) in net
asset value from operations.. (.38) 1.43 1.38
----------- ----------- ------
LESS: DISTRIBUTIONS
Dividends from net investment
income....................... (.01) (.01) -0-
Distributions from net real-
ized gains................... (.03) (.01) -0-
----------- ----------- ------
Total dividends and distribu-
tions........................ (.04) (.02) -0-
----------- ----------- ------
Net asset value, end of peri-
od........................... $ 12.37 $ 12.79 $11.38
=========== =========== ======
TOTAL RETURN
Total investment return based
on net asset value(d)........ (2.96)% 12.63% 13.80%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted).............. $ 37,669 $ 13,659 $3,760
Ratio to average net assets
of:
Expenses, net of waivers and
reimbursements.............. .95% 1.18% .95%(f)
Expenses, before waivers and
reimbursements.............. 1.40% 2.05% 4.20%(f)
Net investment income........ .42% .22% .96%(f)
Portfolio turnover rate....... 38% 42% 14%
</TABLE>

<TABLE>
<CAPTION>
GLOBAL BOND PORTFOLIO
------------------------------------------------
YEAR ENDED DECEMBER 31, JULY 15, 1991(A)
----------------------------- TO
1994 1993 1992 DECEMBER 31, 1991
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 11.33 $ 11.24 $ 11.10 $10.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPERA-
TIONS
Net investment income(b)..... .57(c) .77(c) .64 .28
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions................ (1.16) .43 (.13) .82
------- ------- ------- ------
Net increase (decrease) in
net asset value from opera-
tions....................... (.59) 1.20 .51 1.10
------- ------- ------- ------
LESS: DISTRIBUTIONS
Dividends from net investment
income...................... (.62) (.85) (.28) -0-
Distributions from net
realized gains.............. (.30) (.26) (.09) -0-
------- ------- ------- ------
Total dividends and distribu-
tions....................... (.92) (1.11) (.37) -0-
------- ------- ------- ------
Net asset value, end of peri-
od.......................... $ 9.82 $ 11.33 $ 11.24 $11.10
======= ======= ======= ======
TOTAL RETURN
Total investment return based
on net asset value(d)....... (5.16)% 11.15% 4.87% 11.00%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)............. $ 7,298 $ 6,748 $ 5,876 $5,551
Ratio to average net assets
of:
Expenses, net of waivers and
reimbursements............. .95% 1.50% 1.50% 1.50%(f)
Expenses, before waivers and
reimbursements............. 2.05% 1.50% 1.97% 2.15%(f)
Net investment income....... 6.01% 4.85% 5.85% 5.77%(f)
Portfolio turnover rate...... 102% 125% 78% 25%
</TABLE>
- -------

(a) Commencement of operations.

(b) Net of expenses reimbursed or waived by investment adviser.

(d) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and re-
demption on the last day of the period.

(e) Total investment return calculated for a period of less than one year is
not annualized.

(f) Annualized.

6
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
-------------------------------------------------------
YEAR ENDED DECEMBER 31, JANUARY 14, 1991(A)
-------------------------------- TO
1994 1993 1992 DECEMBER 31, 1991
-------- -------- ------- -------------------
<S> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 12.18 $ 10.99 $ 10.35 $10.00
-------- -------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .10 (c) .01(c) .10(c) .35(c)
Net realized and
unrealized gain (loss)
on investments........ (.16) 1.27 .71 -0-
-------- -------- ------- ------
Net increase (decrease)
in net asset value
from operations....... (.06) 1.28 .81 .35
-------- -------- ------- ------
LESS: DISTRIBUTIONS
Dividends from net in-
vestment income....... (.10) (.06) (.17) -0-
Distributions from net
realized gains........ (.17) (.03) -0- -0-
-------- -------- ------- ------
Total dividends and
distributions......... (.27) (.09) (.17) -0-
-------- -------- ------- ------
Net asset value, end of
period................ $ 11.85 $ 12.18 $ 10.99 $10.35
======== ======== ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. (.35)% 11.69% 7.92% 3.50%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted).. $ 41,702 $ 22,756 $ 7,803 $1,431
Ratio to average net
assets of:
Expenses, net of waiv-
ers and reimburse-
ments................ .90% 1.18% .99% 1.79%(f)
Expenses, before waiv-
ers and reimburse-
ments................ .91% 1.28% 2.09% 9.43%(f)
Net investment income. 1.71% 1.76% 2.42% 3.59%(f)
Portfolio turnover
rate.................. 95% 69% 49% 0%
</TABLE>

<TABLE>
<CAPTION>
SHORT-TERM MULTI-MARKET PORTFOLIO
-------------------------------------------------------------
YEAR ENDED DECEMBER 31, NOVEMBER 28, 1990(A)
--------------------------------------- TO
1994 1993 1992 1991 DECEMBER 31, 1990
------- ------- ------- ------ --------------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 11.07 $ 10.77 $ 10.68 $10.03 $10.00
------- ------- ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .47(c) .28(c) .63(c) .36 .03
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... (1.16) .43 (.54) .34 -0-
------- ------- ------- ------ ------
Net increase (decrease)
in net asset value
from operations....... (.69) .71 .09 .70 .03
------- ------- ------- ------ ------
LESS: DISTRIBUTIONS
Dividends from net in-
vestment income....... (.46) (.41) -0- (.03) -0-
Distributions from net
realized gains........ -0- -0- -0- (.02) -0-
Return of capital...... (.01) -0- -0- -0- -0-
------- ------- ------- ------ ------
Total dividends and
distributions......... (.47) (.41) -0- (.05) -0-
------- ------- ------- ------ ------
Net asset value, end of
period................ $ 9.91 $ 11.07 $ 10.77 $10.68 $10.03
======= ======= ======= ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. (6.51)% 6.62% .84% 7.01% .30%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $20,921 $23,560 $14,841 $5,858 $296
Ratio to average net
assets of:
Expenses, net of waiv-
ers and reimburse-
ments................ .94% 1.17% .99% 1.79% 2.50%(f)
Expenses, before waiv-
ers and reimburse-
ments................ .99% 1.24% 1.66% 4.40% 10.62%(f)
Net investment income. 6.52% 6.39% 7.18% 7.53% 5.76%(f)
Portfolio turnover
rate.................. 134% 210% 153% 51% 0%
</TABLE>
- --------

(a) Commencement of operations.

(b) Net of expenses reimbursed by investment adviser.

(e) Total investment return calulated for a period of less than one year is not
annualized.

(f) Annualized.

7
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 17, 1992(A)
---------------------------------- TO
1994 1993 DECEMBER 31, 1992
--------------- --------------- ---------------------------
<S> <C> <C> <C>
Net asset value, begin-
ning of period......... $10.72 $ 9.89 $10.00
--------------- --------------- ---------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .28(c) .43(c) .14(c)
Net realized and
unrealized gain (loss)
on investments........ (.71) .48 (.25)
--------------- --------------- ---------------
Net increase (decrease)
in net asset value
from operations....... (.43) .91 (.11)
--------------- --------------- ---------------
LESS: DISTRIBUTIONS
Dividends from net in-
vestment income....... (.21) (.08) -0-
Distributions from net
realized gains........ (.14) -0- -0-
--------------- --------------- ---------------
Total dividends and
distributions......... (.35) (.08) -0-
--------------- --------------- ---------------
Net asset value, end of
period................ $ 9.94 $10.72 $ 9.89
=============== =============== ===============
TOTAL RETURN
Total investment return
based on net asset
value(d).............. (4.03)% 9.20% (1.10)%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted).. $ 5,101 $ 1,350 $785
Ratio to average net
assets of:
Expenses, net of waiv-
ers and reimburse-
ments................ .95% 1.16% .95%(f)
Expenses, before waiv-
ers and reimburse-
ments................ 3.73% 5.42% 11.56%(f)
Net investment income. 5.64% 4.59% 4.82%(f)
Portfolio turnover
rate.................. 32% 177% 13%
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
----------------------- TO
1994 1993 DECEMBER 31, 1992
----------- ----------- --------------------
<S> <C> <C> <C>
Net asset value, beginning
of period.................. $10.97 $10.01 $10.00
----------- ----------- ------
INCOME FROM INVESTMENT OPER-
ATIONS
Net investment income(b)... .15(c) .15(c) .01
Net realized and unrealized
gain (loss) on investments
.......................... (.56) .81 -0-
----------- ----------- ------
Net increase (decrease) in
net asset value from oper-
ations.................... (.41) .96 .01
----------- ----------- ------
LESS: DISTRIBUTIONS
Dividends from net invest-
ment income............... (.09) -0- -0-
Distributions from net re-
alized gains ............. (.06) -0- -0-
----------- ----------- ------
Total dividends and distri-
butions................... (.15) -0- -0-
----------- ----------- ------
Net asset value, end of pe-
riod...................... $10.41 $10.97 $10.01
=========== =========== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).................. (3.77)% 9.59% .10%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)........... $750 $360 $95
Ratio to average net assets
of:
Expenses, net of waivers
and reimbursements....... .95% 1.20% 0%
Expenses, before waivers
and reimbursements....... 19.49% 25.96% 0%
Net investment income..... 2.29% 1.45% 2.21%(f)
Portfolio turnover rate.... 83% 25% 0%
</TABLE>
- --------

(a) Commencement of operations.

(b) Net of expenses reimbursed or waived by investment adviser.

(e) Total investment return calculated for a period of less than one year is
not annualized.

(f) Annualized.

8
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
----------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 28, 1992(A)
---------------- TO
1994 1993 DECEMBER 31, 1992
------ ------ --------------------
<S> <C> <C> <C>
Net asset value, beginning of period.. $12.16 $10.00 $10.00
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)............. .10(c) .03(c) -0-
Net realized and unrealized gain on
investments and foreign currency
transactions........................ .72(d) 2.13 -0-
------ ------ ------
Net increase in net asset value from
operations.......................... .82 2.16 -0-
------ ------ ------
LESS: DISTRIBUTIONS
Dividends from net investment income. (.02) -0- -0-
Distributions from net realized
gains............................... (.08) -0- -0-
------ ------ ------
Total dividends and distributions.... (.10) -0- -0-
------ ------ ------
Net asset value, end of period....... $12.88 $12.16 $10.00
====== ====== ======
TOTAL RETURN
Total investment return based on net
asset value(e)...................... 6.70% 21.60% 0%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)............................ $7,276 $688 $79
Ratio of average net assets of:
Expenses, net of waivers and reim-
bursements......................... .95% 1.20% 0%
Expenses, before waivers and reim-
bursements......................... 7.26% 39.28% 0%
Net investment income............... .90% .26% 2.07%(g)
Portfolio turnover rate.............. 95% 85% 0%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 28, 1992(A)
------------- TO
1994 1993 DECEMBER 31, 1992
------ ----- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period....... $1.00 $1.00 $1.00
------ ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b).................. .03 .22 -0-
Net realized and unrealized gain on
investments.............................. -0- -0- -0-
------ ----- -----
Net increase in net asset value from
operations............................... .03 .22 -0-
------ ----- -----
LESS: DISTRIBUTIONS
Dividends from net investment income...... (.03) (.22) -0-
Distributions from net realized gains..... -0- -0- -0-
------ ----- -----
Total dividends and distributions......... (.03) (.22) -0-
------ ----- -----
Net asset value, end of period............ $1.00 $1.00 $1.00
====== ===== =====
TOTAL RETURN
Total investment return based on net asset
value(e)................................. 3.27% 2.25% .02%(f)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted). $6,899 $102 $30
Ratio of average net assets of:
Expenses, net of waivers and reimburse-
ments................................... .95% 1.16% 0%
Expenses, before waivers and reimburse-
ments................................... 4.46% 68.14% 0%
Net investment income.................... 3.98% 2.15% 3.05%(g)
Portfolio turnover rate................... N/A N/A N/A
</TABLE>
- --------
(a) Commencement of operations.

(b) Net of expenses reimbursed by investment adviser.
(c) Based on average shares outstanding.

(d) The amount shown in this caption for a share outstanding throughout the pe-
riod may not accord with the change in realized and unrealized gains and
losses in the portfolio securities for the period because of the timing of
sales and repurchases of Portfolio's shares in relation to fluctuating mar-
ket values for the Portfolio.

(e) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and re-
demption on the last day of the period.

(f) Total investment return calculated for a period of less than one year is
not annualized.

(g) Annualized.

9
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
NORTH AMERICAN
GLOBAL DOLLAR GOVERNMENT
GOVERNMENT PORTFOLIO INCOME PORTFOLIO
-------------------- ---------------------
MAY 2, 1994(A) MAY 3, 1994(A)
TO TO
DECEMBER 31, 1994 DECEMBER 31, 1994
-------------------- ---------------------
<S> <C> <C>
Net asset value, beginning of peri-
od................................. $10.00 $10.00
------ -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)........... .36(c) .50(c)
Net realized and unrealized loss on
investments and foreign currency
transactions...................... (.52) (1.71)
------ -------
Net decrease in net asset value
from operations................... (.16) (1.21)
------ -------
LESS: DISTRIBUTIONS
Dividends from net investment in-
come ............................. -0- -0-
Distributions from net realized
gains ............................ -0- -0-
------ -------
Total dividends and distributions . -0- -0-
------ -------
Net asset value, end of period..... $ 9.84 $ 8.79
====== =======
TOTAL RETURN
Total investment return based on
net asset value(d)................ (1.60)%(e) (12.10)%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted).......................... $1,146 $3,848
Ratio to average net assets of:
Expenses, net of waivers and reim-
bursements....................... .95%(f) .95%(f)
Expenses, before waivers and reim-
bursements....................... 15.00%(f) 4.43%(f)
Net investment income............. 6.02%(f) 8.49%(f)
Portfolio turnover rate............ 9% 15%
<CAPTION>
UTILITY GROWTH
INCOME PORTFOLIO PORTFOLIO
-------------------- ---------------------
MAY 10, 1994(A) SEPTEMBER 15, 1994(A)
TO TO
DECEMBER 31, 1994 DECEMBER 31, 1994
-------------------- ---------------------
<S> <C> <C>
Net asset value, beginning of peri-
od................................. $10.00 $10.00
------ -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)........... .28(c) .03(c)
Net realized and unrealized gain
(loss) on investments............. (.32) .50
------ -------
Net increase (decrease) in net as-
set value from operations......... (.04) .53
------ -------
LESS: DISTRIBUTIONS
Dividends from net investment in-
come.............................. -0- -0-
Distributions from net realized
gains ............................ -0- -0-
------ -------
Total dividends and distributions . -0- -0-
------ -------
Net asset value, end of period..... $ 9.96 $10.53
====== =======
TOTAL RETURN
Total investment return based on
net asset value(d)................ (.40)%(e) 5.30%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted).......................... $1,254 $5,492
Ratio to average net assets of:
Expenses, net of waivers and reim-
bursements....................... .95%(f) .95%(f)
Expenses, before waivers and reim-
bursements....................... 15.98%(f) 4.19%(f)
Net investment income............. 4.62%(f) 1.17%(f)
Portfolio turnover rate............ 31% 25%
</TABLE>
- --------
(a) Commencement of operations.

(b) Net of expenses reimbursed by investment adviser.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and re-
demption on the last day of the period.
(e) Total investment return calculated for a period of less than one year is
not annualized.
(f) Annualized.

10
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
WORLDWIDE PRIVATIZATION CONSERVATIVE INVESTORS
PORTFOLIO PORTFOLIO
----------------------- ----------------------
SEPTEMBER 23, 1994(A) OCTOBER 28, 1994(A)
TO TO
DECEMBER 31, 1994 DECEMBER 31, 1994
----------------------- ----------------------
<S> <C> <C>
Net asset value, beginning of
period......................... $10.00 $10.00
------ ------
INCOME FROM INVESTMENT OPERA-
TIONS
Net investment income(b)....... .10(c) .06(c)
Net realized and unrealized
gain (loss) on investments.... -0- .01
------ ------
Net increase in net asset value
from operations............... .10 .07
------ ------
LESS: DISTRIBUTIONS
Dividends from net investment
income........................ -0- -0-
Distributions from net realized
gains......................... -0- -0-
------ ------
Total dividends and distribu-
tions......................... -0- -0-
------ ------
Net asset value, end of period. $10.10 $10.07
====== ======
TOTAL RETURN
Total investment return based
on net asset value(d)......... 1.00%(e) 0.70%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)............... $1,127 $701
Ratio to average net assets of:
Expenses, net of waivers and
reimubursements.............. .95%(f) .95%(f)
Expenses, before waivers and
reimbursements............... 18.47%(f) 20.35%(f)
Net investment income......... 4.27%(f) 3.55%(f)
Portfolio turnover rate........ 0% 2%
<CAPTION>
GROWTH INVESTORS
PORTFOLIO
-----------------------
OCTOBER 28, 1994(A)
TO
DECEMBER 31, 1994
-----------------------
<S> <C> <C>
Net asset value, beginning of
period......................... $10.00
------
INCOME FROM INVESTMENT OPERA-
TIONS
Net investment income(b)....... .04(c)
Net realized and unrealized
loss on investments........... (.18)
------
Net decrease in net asset value
from operations............... (.14)
------
LESS: DISTRIBUTIONS
Dividends from net investment
income........................ -0-
Distributions from net realized
gains ........................ -0-
------
Total dividends and distribu-
tions ........................ -0-
------
Net asset value, end of period. $ 9.86
======
TOTAL RETURN
Total investment return based
on net asset value(d)......... (1.40)%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)............... $321
Ratio to average net assets of:
Expenses, net of waivers and
reimbursements............... .95%(f)
Expenses, before waivers and
reimbursements............... 41.62%(f)
Net investment income......... 2.29%(f)
Portfolio turnover rate........ 3%
</TABLE>
- --------
(a) Commencement of operations.

11
<PAGE>

DESCRIPTION OF THE PORTFOLIOS
INTRODUCTION TO THE FUND

The Fund was established as a corporation in Maryland. The Fund is an open-end
management investment company commonly known as a "mutual fund" whose shares
are offered in separate series each referred to as a "Portfolio." Because the
Fund offers multiple Portfolios, it is known as a "series fund." Each Portfolio
is a separate pool of assets constituting, in effect, a separate fund with its
own investment objectives and policies.

A shareholder in a Portfolio will be entitled to his or her pro rata share of
all dividends and distributions arising from that Portfolio's assets and, upon
redeeming shares of that Portfolio, the shareholder will receive the then cur-
rent net asset value of that Portfolio represented by the redeemed shares. (See
"Purchase and Redemption of Shares"). While the Fund has no present intention
of doing so, the Fund is empowered to establish, without shareholder approval,
additional portfolios which may have different investment objectives.

The Fund currently has 16 Portfolios: the Money Market Portfolio, the Premier
Growth Portfolio, the Growth and Income Portfolio, the U.S. Government/High
Grade Securities Portfolio, the High-Yield Portfolio, the Total Return Portfo-
lio, the International Portfolio, the Short-Term Multi-Market Portfolio, the
Global Bond Portfolio, the North American Government Income Portfolio, the
Global Dollar Government Portfolio, the Utility Income Portfolio, the Conserva-
tive Investors Portfolio, the Growth Investors Portfolio, the Growth Portfolio
and the Worldwide Privatization Portfolio.

The Fund is intended to serve as the investment medium for variable annuity
contracts and variable life insurance policies to be offered by the separate
accounts of certain life insurance companies.

It is conceivable that in the future it may be disadvantageous for variable an-
nuity and variable life insurance separate accounts to invest simultaneously in
the Fund. Currently, however, the Fund does not foresee any disadvantage to the
holders of variable annuity contracts and variable life insurance policies
arising from the fact that the interests of the holders of such contracts and
policies may differ. Nevertheless, the Fund's Directors intend to monitor
events in order to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be taken in re-
sponse thereto.

The investment objectives and policies of each Portfolio are set forth below.
There can be, of course, no assurance that any of the Portfolios will achieve
its respective investment objectives.

INVESTMENT OBJECTIVES AND POLICIES

GENERAL

Each Portfolio has different investment objectives which it pursues through
separate investment policies as described herein. The differences in objectives
and policies

12
<PAGE>

among the Portfolios determine the types of portfolio securities in which each
Portfolio invests, and can be expected to affect the degree of risk to which
each Portfolio is subject and each Portfolio's yield or return. Each Portfo-
lio's investment objectives cannot be changed without approval by the holders
of a majority of such Portfolio's outstanding voting securities, as defined in
the Investment Company Act of 1940, as amended (the "Act"). The Fund may
change each Portfolio's investment policies that are not designated "fundamen-
tal policies" within the meaning of the Act upon notice to shareholders of the
Portfolio, but without their approval. The types of portfolio securities in
which each Portfolio may invest are described in greater detail below.

MONEY MARKET PORTFOLIO

The Money Market Portfolio's investment objectives are in the following order
of priority -- safety of principal, excellent liquidity, and maximum current
income to the extent consistent with the first two objectives. An investment
in the Money Market Portfolio is neither insured nor guaranteed by the U.S.
Government. As a matter of fundamental policy, the Money Market Portfolio pur-
sues its objectives by maintaining a portfolio of high quality money market
securities, all of which at the time of investment have remaining maturities
of one year or less (which maturities may extend to 397 days).

The securities in which the Money Market Portfolio invests include: (1) mar-
ketable obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities (collectively, the "U.S. Government"); (2) cer-
tificates of deposit, bankers' acceptances and interest bearing savings depos-
its issued or guaranteed by banks or savings and loan associations having to-
tal assets of more than $1 billion and which are members of the Federal De-
posit Insurance Corporation; (3) commercial paper of prime quality (i.e.,
rated A-1+ or A-1 by Standard & Poor's Corporation ("S&P") or Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or, if not rated, issued by compa-
nies having outstanding debt securities rated AAA or AA by S&P, or Aaa or Aa
by Moody's) and participation interests in loans extended by banks to such
companies; and (4) repurchase agreements that are collateralized in full each
day by liquid securities of the types listed above. (See "Other Investment
Policies and Techniques -- Repurchase Agreements"). The Money Market Portfolio
may also invest in certificates of deposit issued by, and time deposits main-
tained at, foreign branches of domestic banks described in (2) above, prime
quality dollar-denominated commercial paper issued by foreign companies meet-
ing the criteria specified in (3) above, and in certificates of deposit and
bankers' acceptances denominated in U.S. dollars that are issued by U.S.
branches of foreign banks having total assets of at least $1 billion that are
believed by Alliance Capital Management L.P. ("the Adviser") to be of quality
equivalent to that of other such investments in which the Portfolio may
invest.

The Money Market Portfolio will comply with Rule 2a-7 under the Act, as
amended from time to time, including the diversity, quality and maturity con-
ditions imposed by the Rule. Accordingly, in any case in which there is a
variation between the conditions

13
<PAGE>

imposed by the Rule and the Portfolio's investment policies and restrictions,
the Portfolio will be governed by the more restrictive of the two requirements.
See the Statement of Additional Information for a further description of Rule
2a-7.

The Portfolio may purchase restricted securities that are determined by the Ad-
viser to be liquid in accordance with procedures adopted by the Directors of
the Fund. Restricted Securities are securities subject to contractual or legal
restrictions on resale, such as those arising from an issuer's reliance upon
certain exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act").

PREMIER GROWTH PORTFOLIO

General. The investment objective of the Premier Growth Portfolio is growth of
capital by pursuing aggressive investment policies. Since investments will be
made based upon their potential for capital appreciation, current income will
be incidental to the objective of capital growth. Because of the market risks
inherent in any investment, the selection of securities on the basis of their
appreciation possibilities cannot ensure against possible loss in value, and
there is, of course, no assurance that the Portfolio's investment objective
will be met. The Portfolio is therefore not intended for investors whose prin-
cipal objective is assured income and conservation of capital.

The Portfolio will invest predominantly in the equity securities (common
stocks, securities convertible into common stocks and rights and warrants to
subscribe for or purchase common stocks) of a limited number of large, care-
fully selected, high-quality U.S. companies that, in the judgment of the Advis-
er, are likely to achieve superior earnings growth. The Portfolio investments
in the 25 such companies most highly regarded at any point in time by the Ad-
viser will usually constitute approximately 70% of the Portfolio's net assets.
Normally, approximately 40 companies will be represented in the Portfolio's in-
vestment portfolio. The Portfolio thus differs from more typical equity mutual
funds by investing most of its assets in a relatively small number of inten-
sively researched companies.

The Portfolio will, under normal circumstances, invest at least 85% of the
value of its total assets in the equity securities of U.S. companies. The Port-
folio defines U.S. companies to be entities (i) that are organized under the
laws of the United States and have their principal office in the United States,
and (ii) the equity securities of which are traded principally in the United
States securities markets.

Within the investment framework described herein, Alfred Harrison, who heads
the Adviser's "Large Cap Growth Group," is ultimately responsible for the in-
vestment decisions for the Portfolio. In managing the Portfolio's assets, the
Adviser's investment strategy emphasizes stock selection and investment in the
securities of a limited number of issuers. The Adviser depends heavily upon the
fundamental analysis and research of its large internal research staff in mak-
ing investment decisions for the Portfolio. The research staff generally fol-
lows a primary research universe of approximately 600 companies which are con-
sidered by the Adviser to have strong

14
<PAGE>

management, superior industry positions, excellent balance sheets and the
ability to demonstrate superior earnings growth. As one of the largest multi-
national investment firms, the Adviser has access to considerable information
concerning all of the companies followed, an in-depth understanding of the
products, services, markets and competition of these companies and a good
knowledge of the managements of most of the companies in its research
universe.

The Adviser's analysts prepare their own earnings estimates and financial mod-
els for each company followed. While each analyst has responsibility for fol-
lowing companies in one or more identified sectors and/or industries, the lat-
eral structure of the Adviser's research organization and constant communica-
tion among the analysts result in decision-making based on the relative at-
tractiveness of stocks among industry sectors. The focus during this process
is on the early recognition of change on the premise that value is created
through the dynamics of changing company, industry and economic fundamentals.
Research emphasis is placed on the identification of companies whose substan-
tially above average prospective earnings growth is not fully reflected in
current market valuations.

The Adviser continually reviews its primary research universe of approximately
600 companies to maintain a list of favored securities, the "Alliance 100,"
considered by the Adviser to have the most clearly superior earnings potential
and valuation attraction. The Adviser's concentration on a limited universe of
companies allows it to devote its extensive resources to constant intensive
research of these companies. Companies are constantly added to and deleted
from the Alliance 100 as fundamentals and valuations change. The Adviser's
Large Cap Growth Group, in turn, further refines, on a weekly basis, the se-
lection process for the Portfolio with each portfolio manager in the Group se-
lecting the 25 such companies which appear to the manager to be most attrac-
tive at their current prices. These individual ratings are then aggregated and
ranked to produce a composite list of the 25 most highly regarded stocks, the
"Favored 25." As noted above, approximately 70% of the Portfolio's net assets
will usually be invested in the Favored 25 with the balance of the Fund's in-
vestment portfolio consisting principally of other stocks in the Alliance 100.
Portfolio emphasis upon particular industries or sectors is a by-product of
the stock selection process rather than the result of assigned targets or
ranges.

In the management of the Portfolio's investment portfolio, the Adviser will
seek to utilize market volatility judiciously (assuming no change in company
fundamentals) to adjust the Portfolio's positions. The Portfolio will strive
to capitalize on apparently unwarranted price fluctuations, both to purchase
or increase positions on weaknesses and to sell or reduce overpriced holdings.
Under normal circumstances, the Portfolio will remain substantially fully in-
vested in equity securities and will not take significant cash positions for
market timing purposes. Rather, during a market decline, while adding to posi-
tions in favored stocks, the Portfolio will tend to become somewhat more
aggressive, gradually reducing somewhat the number of companies represented in
the

15
<PAGE>

Portfolio's portfolio. Conversely, in rising markets, while reducing or elimi-
nating fully valued positions, the Portfolio will tend to become somewhat more
conservative, gradually increasing the number of companies represented in the
Portfolio's portfolio. Through this "buying into declines" and "selling into
strength," the Adviser seeks to gain positive returns in good markets while
providing some measure of protection in poor markets.

The Adviser expects the average weighted market capitalization of companies
represented in the Portfolio's portfolio (i.e., the number of a company's
shares outstanding multiplied by the price per share) to normally be in the
range of or exceed the average weighted market capitalization of companies com-
prising the Standard & Poor's 500 Composite Stock Price Index, a widely recog-
nized unmanaged index of market activity based upon the aggregate performance
of a selected portfolio of publicly traded stocks, including monthly adjust-
ments to reflect the reinvestment of dividends and distributions.

The Portfolio intends to invest in special situations from time to time. A spe-
cial situation arises when, in the opinion of the Portfolio's management, the
securities of a particular company will, within a reasonably estimable period
of time, be accorded market recognition at an appreciated value solely by rea-
son of a development particularly or uniquely applicable to that company and
regardless of general business conditions or movements of the market as a
whole.

Short Sales. The Premier Growth Portfolio may not sell securities short, except
that it may make short sales "against the box." A short sale is effected by
selling a security which the Portfolio does not own, or if the Portfolio does
own such security, it is not to be delivered upon consummation of the sale. A
short sale is "against the box" to the extent that the Portfolio contem-
poraneously owns or has the right to obtain securities identical to those sold
short without payment. Not more than 15% of the value of the Portfolio's net
assets will be in deposits on short sales "against the box."

Puts and Calls. The Premier Growth Portfolio may write call options and may
purchase and sell put and call options written by others, combinations thereof
or similar options. The Portfolio may not write put options. The buyer of an
option, upon payment of a premium obtains, in the case of a put option, the
right to deliver to the writer of the option and, in the case of a call option,
the right to call upon the writer to deliver, a specified number of shares of a
specified stock on or before a fixed date at a predetermined price.

Writing, purchasing and selling call options are highly specialized activities
and entail greater than ordinary investment risks. When calls written by the
Portfolio are exercised, the Portfolio will be obligated to sell stocks below
the current market price. A call written by the Portfolio will not be sold un-
less the Portfolio at all times during the option period owns either (a) the
optioned securities, or securities convertible into or carrying rights to
acquire the optioned securities, or (b) an offsetting call option on the same
securities.

16
<PAGE>

The Premier Growth Portfolio will not sell a call option written or guaranteed
by it if, as a result of such sale, the aggregate of the Portfolio's securi-
ties subject to outstanding call options (valued at the lower of the option
price or market value of such securities) would exceed 15% of the Portfolio's
total assets. The Portfolio will not sell any call option if such sale would
result in more than 10% of the Portfolio's assets being committed to call op-
tions written by the Portfolio, which, at the time of sale by the Portfolio,
have a remaining term of more than 100 days.

As noted, the Portfolio may also purchase and sell put and call options writ-
ten by others, combinations thereof, or similar options, but the aggregate
cost of all outstanding options purchased and held by the Portfolio shall at
no time exceed 10% of the Portfolio's total assets. There are markets for put
and call options written by others and the Portfolio may from time to time
sell or purchase such options in such markets. If an option is not so sold and
is permitted to expire without being exercised, its premium would be lost by
the Portfolio.

Options on Market Indices. The Portfolio may purchase and sell exchange-
traded index options. An option on a securities index is similar to an option
on a security except that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the chosen index is greater than (in the case of a call)
or less than (in the case of a put) the exercise price of the option.

GROWTH AND INCOME PORTFOLIO

The Growth and Income Portfolio's investment objective is to seek reasonable
cur-rent income and reasonable opportunity for appreciation through invest-
ments primarily in dividend-paying common stocks of good quality. Whenever the
economic outlook is unfavorable for investment in common stock, investments in
other types of securities, such as bonds, convertible bonds, preferred stock
and convertible preferred stocks may be made by the Portfolio. Purchases and
sales of portfolio securities are made at such times and in such amounts as
are deemed advisable in light of market, economic and other conditions.

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO

The investment objective of the U.S. Government/High Grade Securities Portfo-
lio is high current income consistent with preservation of capital. In seeking
to achieve this objective, the Portfolio will invest principally in a portfo-
lio of: (i) obligations issued or guaranteed by the U.S. Government and repur-
chase agreements pertaining to U.S. Government Securities, and (ii) other high
grade debt securities rated AAA, AA or A by S&P or Aaa, Aa or A by Moody's or
that have not received a rating but are determined to be of comparable quality
by the Adviser. As a fundamental investment policy, the Portfolio will invest
at least 65% of its total assets in these types of securities, including the
securities held subject to repurchase agreements. The average weighted matur-
ing of the Portfolio's portfolio of U.S. Government securities is expected to
vary between one year or less and 30 years. See "Other Investment

Policies and Techniques -- Fixed-Income

17
<PAGE>

Securities." The Portfolio will utilize certain other investment techniques,
including options and futures contracts, intended to enhance income and reduce
market risk. The Portfolio is designed primarily for long-term investors and
investors should not consider it a trading vehicle. As with all investment
company portfolios, there can be no assurance that the Portfolio's objective
will be achieved.

The Portfolio is subject to the diversification requirements prescribed by the
U.S. Treasury Department which, among other things, limits the Portfolio to
investing no more than 55% of its total assets in any one investment. For this
purpose, all securities issued or guaranteed by the U.S. Government are con-
sidered a single investment. Accordingly, the U.S. Government/High Grade Secu-
rities Portfolio will limit its purchases of U.S. Government Securities to 55%
of the total assets of the Portfolio. Consistent with this limitation, the
Portfolio will, as a matter of fundamental policy, invest at least 45% of its
total assets in U.S. Government Securities. Nevertheless, the Portfolio re-
serves the right to modify the percentage of its investments in U.S. Govern-
ment Securities in order to comply with all applicable tax requirements.

U.S. Government Securities. Securities issued or guaranteed by the U.S. Gov-
ernment include: (i) U.S. Treasury obligations, which differ only in their in-
terest rates, maturities and times of issuance: U.S. Treasury bills (maturity
of one year or less), U.S. Treasury notes (maturities of one to 10 years), and
U.S. Treasury bonds (generally maturities of greater than 10 years), all of
which are backed by the full faith and credit of the United States; and (ii)
obligations issued or guaranteed by the U.S. Government, including government
guaranteed mortgage-related securities, some of which are backed by the full
faith and credit of the U.S. Treasury, e.g., direct pass-through certificates
of the Government National Mortgage Association; some of which are supported
by the right of the issuer to borrow from the U.S. Government, e.g., obliga-
tions of Federal Home Loan Banks; and some of which are backed only by the
credit of the issuer itself, e.g., obligations of the Student Loan Marketing
Association. See the Statement of Additional Information of the Fund for a de-
scription of obligations issued or guaranteed by the U.S. Government.

High Grade Securities. High grade debt securities which, together with U.S.
Government Securities, will constitute at least 65% of the Portfolio's assets,
include:

1. Debt securities which are rated AAA, AA or A by S&P or Aaa, Aa or A by
Moody's;

2. Obligations of, or guaranteed by, national or state bank holding compa-
nies, which obligations, although not rated as a matter of policy by either
S&P or Moody's, are rated AAA, AA or A by Fitch Investors Services, Inc.
("Fitch");

3. Commercial paper rated A-1+, A-1, A-2 or A-3 by S&P or Prime-1, Prime-2
or Prime-3 by Moody's; and

4. Bankers' acceptances or negotiable certificates of deposit issued by
banks rated AAA, AA or A by Fitch.

Other Securities. While the Portfolio's investment strategy normally empha-
sizes

18
<PAGE>

U.S. Government Securities and high grade debt securities, the Portfolio may,
where consistent with its investment objective, invest up to 35% of its total
assets in other types of securities, including (i) Foreign Government Securi-
ties (see "Other Investment Policies and Techniques -- Foreign Securities," be-
low), (ii) investment grade corporate debt securities of a type other than the
high grade debt securities described above (including collateralized mortgage
obligations), (iii) certificates of deposit, bankers' acceptances and interest-
bearing savings deposits of banks having total assets of more than $1 billion
and which are members of the Federal Deposit Insurance Corporation, and (iv)
put and call options, futures contracts and options on futures contracts, op-
tions on Foreign Government Securities, options on foreign currencies, and for-
ward currency exchange contracts. Investment grade debt securities described in
(ii) above are those rated BBB or higher by S&P or Baa or higher by Moody's or,
if not so rated, are of equivalent investment quality in the opinion of the Ad-
viser. Securities rated BBB by S&P or Baa by Moody's normally provide higher
yields but may be considered to have speculative characteristics. See "Other
Investment Policies and Techniques -- Securities Ratings." " -- Investment in
Securities Rated Baa and BBB" and Appendix A.

HIGH-YIELD PORTFOLIO

The primary investment objective of the High-Yield Portfolio is to earn the
highest level of current income available without assuming undue risk by in-
vesting principally in high-yielding fixed-income securities rated Baa or lower
by Moody's or BBB or lower by S&P or, if not rated, of comparable investment
quality as determined by the Adviser. As a secondary objective, the High-Yield
Portfolio will seek capital appreciation, but only when consistent with its
primary objective. Capital appreciation may result, for example, from an
improvement in the credit standing of an issuer whose securities are held by
the Portfolio or from a general decline in interest rates or a combination of
both. Conversely, capital depreciation may result, for example, from a lowered
credit standing or a general rise in interest rates, or a combination of both.

Consistent with the High-Yield Portfolio's primary investment objective, it is
anticipated that, under normal conditions, at least 65% of the total assets of
the High-Yield Portfolio will be invested in fixed-income securities rated be-
low Baa by Moody's or below BBB by S&P or, if unrated, of comparable investment
quality as determined by the Adviser. Such high-risk, high-yield securities are
considered to have speculative or, in, the case of relatively low ratings, pre-
dominantly speculative characteristics. See "Other Investment Policies and
Techniques -- Securities Ratings," " -- Investments in Lower-Rated Fixed-Income
Securities" and Appendix A. There is no minimum rating requirement applicable
to the Portfolio's investments in fixed-income securities.

When the spreads between the yields derived from lower rated securities and
those derived from higher-rated issues are relatively narrow, the Portfolio may
invest in the higher-rated issues since they may provide similar yields with
somewhat less risk. Fixed-income securities appropriate for the

19
<PAGE>

Portfolio may include both convertible and non-convertible debt securities and
preferred stock.

Municipal Securities. In circumstances where the Adviser determines that in-
vestment in municipal obligations would facilitate the High-Yield Portfolio's
ability to accomplish its investment objectives, it may invest up to 20% of
its assets in such obli- gations, including municipal bonds issued at a dis-
count. Dividends on shares attributable to interest on municipal securities
held by the Portfolio will not be exempt from Federal income taxes.

Public Utilities. The High-Yield Portfolio's investments in public utilities,
if any, may be subject to certain risks incurred by the Portfolio due to Fed-
eral, state or municipal regulatory changes, insufficient rate increases or
cost overruns.

Mortgage-Related Securities. The High-Yield Portfolio may invest without limi-
tation in mortgage-related securities that provide funds for mortgage loans
made to residential homeowners. These include securities which represent in-
terests in pools of fixed and adjustable mortgage loans made by lenders such
as savings and loan institutions, mortgage bankers, commercial banks and oth-
ers. Pools of mortgage loans are assembled for sale to investors (such as the
High-Yield Portfolio) by various governmental, government-related and private
organizations.

Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates. In-
stead, these securities provide for a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal re-
sulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers
may in addition be the originators of the underlying mortgage loans as well as
the guarantors of the mortgage-related securities. Pools created by such non-
governmental issuers generally offer a higher rate of interest than govern-
ment and government-related pools because there are no direct or indirect gov-
ernment guarantees of payments in such pools. However, timely payment of in-
terest and principal of these pools is supported by various forms of 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. The High-Yield Portfolio may buy mortgage-related securi-
ties without insurance or guarantees if through an examination of the loan ex-
perience and practices of the poolers the Adviser determines that the
securities meet the Portfolio's investment criteria. Although the market for
such securities is becoming increasingly liquid,

20
<PAGE>

securities issued by certain private organizations may not be readily market-
able. The High-Yield Portfolio will not purchase mortgage-related securities
or any other assets which in the Adviser's opinion are illiquid if, as a re-
sult, more than 10% of the value of the Portfolio's total assets will be il-
liquid.

The Adviser expects that governmental, government-related or private entities
may create mortgage loan pools offering pass-through investments in addition
to those described above. The mortgages underlying these securities may be
second mortgages or alternative mortgage instruments, that is, mortgage in-
struments whose principal or interest payments may vary or whose terms to ma-
turity may differ from customary long-term fixed rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, the Ad-
viser will, consistent with the High-Yield Portfolio's investment objective
and policies, consider making investments in such new types of securities.

The High-Yield Portfolio may invest up to 5% of the value of its total assets
directly in mortgages secured by residential real estate. Unlike pass-through
securities, whole loans constitute direct investment in mortgages inasmuch as
the Portfolio, rather than a financial intermediary, becomes the mortgagee
with respect to such loans purchased by the Portfolio. At present, such in-
vestments are considered to be illiquid by the Adviser.

Writing Covered Put and Call Options. The High-Yield Portfolio may write cov-
ered call options listed on one or more national se-curities exchanges and on
foreign curren cies in an aggregate amount not to exceed 25% of its total as-
sets. (See "Other Investment Policies and Techniques -- Writing Covered Call
Options").

In addition to writing covered call options, the High-Yield Portfolio may
write covered put options listed on one or more national securities exchanges
and on foreign currencies. A put option gives the purchaser of the option,
upon payment of a premium, the right to deliver a specified amount of a secu-
rity to the writer of the option on or before a fixed date at a predetermined
price. When the High-Yield Portfolio writes a put option it maintains in a
segregated account cash or U.S. Government securities in an amount adequate to
purchase the underlying security should the put be exercised. The High-Yield
Portfolio will not write a put option if, as a result thereof, the aggregate
of its portfolio securities subject to outstanding options (valued at the
lower of the option price or market value of such securities) would exceed 15%
of such Portfolio's total assets.

Purchasing Put and Call Options. In addition to writing put and call options,
the High-Yield Portfolio may purchase put and call options written by others
covering the types of securities in which the Portfolio may invest, and may
purchase put and call options on foreign currencies. The Portfolio may pur-
chase put and call options to provide protection against adverse price or

yield effects from anticipated changes in prevailing interest rates in the
same man-ner discussed below under "Other Investment Policies and Tech-
niques -- When-Issued Securities and Forward Com-

21
<PAGE>

mitments." In purchasing a call option, the Portfolio would be in a position
to realize a gain if, during the option period, the price of the security in-
creased by an amount in excess of the premium paid. It would realize a loss if
the price of the security declined or remained the same or did not increase
during the period by more than the amount of the premium. By purchasing a put
option, the Portfolio would be in a position to realize a gain if, during the
option period, the price of the security declined by an amount in excess of
the premium paid. It would realize a loss if the price of the security in-
creased or remained the same or did not decrease during that period by more
than the amount of the premium. If a put or call option purchased by the Port-
folio were permitted to expire without being sold or exercised, its premium
would represent a realized loss to the Portfolio.

The High-Yield Portfolio may dispose of an option which it has purchased by
entering into a "closing sale transaction" with the writer of the option. A
closing sale transaction terminates the obligation of the writer of the option
and does not result in the ownership of an option. The Portfolio realizes a
profit or loss from a closing sale transaction if the premium received from
the transaction is more than or less than the cost of the option.

When the High-Yield Portfolio purchases put or call options, or when it writes
covered put or call options as described above, it does so in negotiated
transactions. The Portfolio effects such transactions only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan institutions) deemed creditworthy by the Adviser, and the Adviser has
adopted procedures for monitoring the creditworthiness of such entities.
Options purchased or written by the Portfolio in negotiated transactions are
illiquid and it may not be possible for the Portfolio to effect a closing sale
transaction at a time when the Adviser believes it would be advantageous to do
so.

Futures Contracts and Options on Futures. The High-Yield Portfolio may invest
in financial futures contracts ("futures contracts") and related options
thereon. If the Adviser anticipates that interest rates will rise, the Portfo-
lio may sell a futures contract or a call option thereon or purchase a put op-
tion on such futures contracts as a hedge against a decrease in the value of
the Portfolio's securities. If the Adviser anticipates that interest rates
will decline, the Portfolio may purchase a futures contract or a call option
thereon to protect against an increase in the price of the securities the
Portfolio intends to purchase. These futures contracts and related options
thereon will be used only as a hedge against anticipated interest rate
changes.

Subject to appropriate regulatory relief, the Portfolio may not enter into
futures contracts or related options thereon if immediately thereafter the
amount committed to margin plus the amount paid for premiums for unexpired op-
tions on futures contracts exceeds 5% of the value of the Portfolio's total
assets. The Portfolio may not purchase or sell futures contracts or related
options thereon if immediately thereafter more than 30% of its net assets
would be hedged. See "Other Investment

22
<PAGE>

Policies and Techniques -- Hedging Techniques -- Futures Contracts and Options
on Futures Contracts."

TOTAL RETURN PORTFOLIO

The investment objective of the Total Return Portfolio is to achieve a high
return through a combination of current income and capital appreciation. The
Total Return Portfolio's assets are invested in U.S. Government and agency ob-
ligations, bonds, fixed-income senior securities (including short and long-
term debt securities and preferred stocks to the extent their value is attrib-
utable to their fixed-income characteristics), preferred and common stocks in
such proportions and of such type as are deemed best adapted to the current
economic and market outlooks. The percentage of the Portfolio's assets in-
vested in each type of security at any time shall be in accordance with the
judgment of the Adviser.

INTERNATIONAL PORTFOLIO

The International Portfolio's primary investment objective is to seek to ob-
tain a total return on its assets from long-term growth of capital principally
through a broad portfolio of marketable securities of established non-United
States companies (e.g., companies incorporated outside the United States),
companies participating in foreign economies with prospects for growth, and
foreign government securities. As a secondary objective, the Portfolio will
attempt to increase its current income without assuming undue risk. The Ad-
viser considers it consistent with these objectives to acquire securities of
companies incorporated in the United States and having their principal activi-
ties and interests outside of the United States. The International Portfolio
intends to be invested primarily in such issuers and under normal circum-
stances more than 80% of its assets will be so invested.

In seeking its objective, the International Portfolio expects to invest its
assets primarily in common stocks of established non-United States companies
which in the opinion of the Adviser have potential for growth of capital or
income or both. There is no requirement, however, that the Portfolio invest
exclusively in common stocks or other equity securities, and, if deemed advis-
able, the International Portfolio may invest in any other type of security in-
cluding, but not limited to, preferred stocks, bonds, notes and other debt se-
curities of foreign issuers (Euro-dollar securities), warrants, or obligations
of the United States or foreign governments and their political subdivisions.
When the Adviser believes that the total return on debt securities will equal
or exceed the return on common stocks, the International Portfolio may, in
seeking its objective of total return, substantially increase its holdings in
such debt securities. The International Portfolio may establish and maintain
temporary balances for defensive purposes or to enable it to take advantage of
buying opportunities. The International Portfolio's temporary cash balances
may be invested in United States as well as foreign short-term money-market
instruments, including, but not limited to, government obligations, certifi-
cates of deposit, bankers' acceptances, commercial paper, short-term corporate
debt securities and repurchase agreements.

The International Portfolio intends to diversify investments broadly among
coun-

23
<PAGE>

tries and normally to have represented in the portfolio, business activities
of not less than three different countries. The Portfolio may invest all or a
substantial portion of its assets in one or more of such countries. The Port-
folio may purchase securities of companies, wherever organized, which, in the
judgment of the Adviser, have their principal activities and interests outside
the United States determined on the basis of such factors as location of the
company's assets, or personnel, or sales and earnings. See "Other Investment
Policies and Techniques -- Foreign Securities."

The Portfolio may purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Portfolio from
adverse changes in the relationship between the U.S. Dollar and other curren-
cies. A forward contract is an obligation to purchase or sell a specific cur-
rency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. The Portfolio's
dealings in forward contracts will be limited to hedging involving either spe-
cific transactions or portfolio positions. Transaction hedging is the purchase
or sale of forward contracts with respect to specific receivables or payables
of the Portfolio accruing in connection with the purchase and sale of its
portfolio securities or the payment of dividends and distributions by the
Portfolio. Position hedging is the sale of forward contracts with respect to
portfolio security positions denominated or quoted in such foreign currency.
The Portfolio will not speculate in forward contracts and, therefore, the Ad-
viser believes that the Portfolio will not be subject to the risks frequently
associated with the speculative use of such transactions. The Portfolio may
not position hedge with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in that
particular foreign currency. If the Portfolio enters into a position hedging
transaction, its custodian bank will place cash or liquid securities in a sep-
arate account of the Portfolio in an amount equal to the value of the Portfo-
lio's total assets committed to the consummation of such forward contract. If
the value of the securities placed in the separate account declines, addi-
tional cash or securities will be placed in the account so that the value of
the account will equal the amount of the Portfolio's commitment with respect
to such contracts. Hedging against a decline in the value of a currency does
not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. Such transactions also pre-
clude the opportunity for gain if the value of the hedge currency should rise.
Moreover, it may not be possible for the Portfolio to hedge against a devalua-
tion that is so generally anticipated that the Portfolio is not able to con-
tract to sell the currency at a price above the devaluation level it antici-
pates. The Portfolio will not enter into a forward contract with a term of
more than one year or if, as a result thereof, more than 50% of the Portfo-
lio's total assets would be committed to such contracts.

The Portfolio may also invest in warrants which entitle the holder to buy eq-
uity secu-

24
<PAGE>

rities at a specific price for a specific period of time.

It is the present intention of the Adviser to invest the Portfolio's assets in
companies based in (or governments of or within) East Asia (Japan, Hong Kong,
Singapore and Malaysia), Western Europe (the United Kingdom, Germany, The
Netherlands, France and Switzerland), Australia, Canada, and such other areas
and countries as the Adviser may determine from time to time. However, invest-
ments may be made from time to time in companies in, or governments of, devel-
oping countries as well as developed countries. Shareholders should be aware
that investing in the equity and fixed-income markets of developing countries
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability
than those of developed countries. The Adviser at present does not intend to
invest more than 10% of the International Portfolio's total assets in compa-
nies in, or governments of, developing countries. On December 31, 1994, 39.7%
of the Portfolio's net assets were invested in debt securities of Japanese is-
suers. For a description of certain risks associated with investing in foreign
securities, see "Other Investment Policies and Techniques -- Foreign Securi-
ties," "-- Investment in Japanese Issuers" and (for a further description of
Japan)Appendix E to the Statement of Additional Information.

SHORT-TERM MULTI-MARKET PORTFOLIO

The investment objective of the Short-Term Multi-Market Portfolio is to seek
the highest level of current income, consistent with what the Adviser consid-
ers to be prudent investment risk, that is available from a portfolio of high-
quality debt securities having remaining maturities of not more than three
years. The Portfolio seeks high current yields by investing in a portfolio of
debt securities denominated in the U.S. Dollar and selected foreign curren-
cies. Accordingly, the Portfolio will seek investment opportunities in for-
eign, as well as domestic, securities markets. While the Portfolio normally
will maintain a substantial portion of its assets in debt securities denomi-
nated in foreign currencies, the Portfolio will invest at least 25% of its net
assets in U.S. Dollar-denominated securities. The Portfolio is designed for
the investor who seeks a higher yield than a money market fund or certificate
of deposit and less fluctuation in net asset value than a longer-term bond
fund.

In pursuing its investment objective, the Portfolio seeks to minimize credit
risk and fluctuations in net asset value by investing only in shorter-term
debt securities. Normally, a high proportion of the Portfolio's investments
consist of money market instruments. The Adviser actively manages the Portfo-
lio in accordance with a multi-market investment strategy, allocating the
Portfolio's investments among securities denominated in the U.S. Dollar and
the currencies of a number of foreign countries and, within each such country,
among different types of debt securities. The Adviser adjusts the Portfolio's
exposure to each currency based on its perception of the most favorable mar-
kets and issuers. In this regard, the percentage of assets invested in securi-
ties of a particular country or denominated in a particular currency will vary
in accordance with the Adviser's assessment

<PAGE>

of the relative yield and appreciation potential of such securities and the
relationship of a country's currency to the U.S. Dollar. Fundamental economic
strength, credit quality and interest rate trends are the principal factors
considered by the Adviser in determining whether to increase or decrease the
emphasis placed upon a particu-lar type of security or industry sector within
the Portfolio's investment portfolio. The Portfolio will not invest more than
25% of its net assets in debt securities denominated in a single currency
other than the U.S. Dollar.

The Portfolio invests in debt securities denominated in the currencies of
countries whose governments are considered stable by the Adviser. In addition
to the U.S. Dollar, such currencies include, among others, the Australian Dol-
lar, Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish Kro-
ne, Dutch Guilder, European Currency Unit ("ECU"), French Franc, German Mark,
Irish Pound, Italian Lira, Japanese Yen, New Zealand Dollar, Norwegian Krone,
Spanish Peseta, Swedish Krona and Swiss Franc. An issuer of debt securities
purchased by the Portfolio may be domiciled in a country other than the coun-
try in whose currency the instrument is denominated.

The Portfolio seeks to minimize investment risk by limiting its portfolio in-
vestments to high-quality debt securities having remaining maturities of not
more than three years. Accordingly, the Portfolio's investments consist only
of: (i) debt securities issued or guaranteed by the U.S. gov-ernment, its
agencies or instrumentalities; (ii) obligations issued or guaranteed by a for-
eign government or any of its political subdivisions, authorities, agencies,
or instrumentalities, or by supranational entities, all of which are rated AAA
or AA by S&P or Aaa or Aa by Moody's ("High Quality Ratings") or, if unrated,
determined by the Adviser to be of equivalent quality; (iii) corporate debt
securities having at least one High Quality Rating or, if unrated, determined
by the Adviser to be of equivalent quality; (iv) certificates of deposit and
bankers' acceptances issued or guaranteed by, or time deposits maintained at,
banks (including foreign branches of U.S. banks or U.S. or foreign branches of
foreign banks) having total assets of more than $500 million and determined by
the Adviser to be of high quality; and (v) commercial paper rated A-1 by S&P,
Prime-1 by Moody's, Fitch-1 by Fitch Investors Service, Inc., or Duff 1 by
Duff & Phelps Inc. or, if not rated, issued by U.S. or foreign companies hav-
ing outstanding debt securities rated AAA, AA or A by S&P, or Aaa, Aa or A by
Moody's and determined by the Adviser to be of high quality.

The Portfolio may invest in debt securities issued by supranational organiza-
tions such as: the International Bank for Reconstruction and Development (com-
monly referred to as the "World Bank"), which was chartered to finance devel-
opment projects in developing member countries; the European Community, which
is a twelve-nation organization engaged in cooperative economic activities;
the European Coal and Steel Community, which is an economic cooperative whose
members are various European nations' steel and coal industries; and the Asian
Development Bank, which is an international development bank established to
lend funds, promote investment and pro

26
<PAGE>

vide technical assistance to member nations in the Asian and Pacific regions.

The Portfolio may invest in debt securities denominated in the ECU, which is a
"basket" consisting of specified amounts of the currencies of certain of the
twelve member states of the European Community. The specific amounts of curren-
cies comprising the ECU may be adjusted by the Council of Ministers of the Eu-
ropean Community to reflect changes in relative values of the underlying cur-
rencies. The Adviser does not believe that such adjustments will adversely af-
fect holders of ECU-denominated obligations or the marketability of such secu-
rities. European governments and supranationals, in particular, issue ECU-
denominated obligations.

Under normal circumstances, and as a matter of fundamental policy, the Portfo-
lio "concentrates" at least 25% of its total assets in debt instruments issued
by domestic and foreign companies engaged in the banking industry, including
bank holding companies. Such investments may include certificates of deposit,
time deposits, bankers' acceptances, and obligations issued by bank holding
companies, as well as repurchase agreements entered into with banks (as dis-
tinct from non-bank dealers) in accordance with the policies set forth in
"Other Investment Policies and Techniques -- Repurchase Agreements" below. How-
ever, when business or financial conditions warrant, the Portfolio may, for
temporary defensive purposes, vary from its policy of investing at least 25% of
its total assets in the banking industry. For example, the Portfolio may reduce
its position in debt instruments issued by domestic and foreign banks and bank
holding companies and increase its position in U.S. Government Securities or
cash equivalents.

Due to the Portfolio's investment policy with respect to investments in the
banking industry, the Portfolio will have greater exposure to the risk factors
which are characteristic of such investments. In particular, the value of and
investment return on the Portfolio's shares will be affected by economic or
regulatory developments in or related to the banking industry. Sustained in-
creases in interest rates can adversely affect the availability and cost of
funds for a bank's lending activities, and a deterioration in general economic
conditions could increase the exposure to credit losses. The banking industry
is also subject to the effects of: the concentration of loan portfolios in par-
ticular businesses such as real estate, energy, agriculture or high technology-
related companies; national and local regulation; and competition within those
industries as well as with other types of financial institutions. In addition,
the Portfolio's investments in commercial banks located in several foreign
countries are subject to additional risks due to the combination in such banks
of commercial banking and diversified securities activities. As discussed
above, however, the Portfolio will seek to minimize its exposure to such risks
by investing only in debt securities which are determined to be of high quali-
ty.

The net asset value of the Portfolio's shares will change as the general levels
of interest rates fluctuate. When interest rates decline, the value of a port-
folio primarily invested in debt securities can be expected to rise. Converse-
ly, when interest rates rise, the value of a portfolio primarily invested in
debt securities can be expected

27
<PAGE>

to decline. However, a shorter average maturity is generally associated with a
lower level of market value volatility and, accordingly, it is expected that
the net asset value of the Portfolio's shares normally will fluctuate less
than that of a long-term bond fund.

In order to reduce the Portfolio's exposure to foreign currency fluctuations
versus the U.S. Dollar, the Portfolio will utilize certain investment strate-
gies, including the purchase and sale of forward foreign currency exchange
contracts and other currency hedging techniques. For a discussion of these in-
vestment policies of the Portfolio, see "Other Investment Policies and Tech-
niques -- Hedging Techniques," below. For a description of certain risks asso-
ciated with investing in foreign securities, see "Other Investment Policies
and Techniques -- Foreign Securities," below.

GLOBAL BOND PORTFOLIO

The investment objective of the Global Bond Portfolio is to seek a high level
of return from a combination of current income and capital appreciation by in-
vesting in a globally diversified portfolio of high quality debt securities
denominated in the U.S. Dollar and a range of foreign currencies. The average
weighted maturity of the Portfolio's portfolio of fixed-income securities is
expected to vary between one year or less and 10 years. See "Other Investment
Policies and Techniques -- Fixed-Income Securities."

Over the past 13 years, debt securities offered by certain foreign governments
provided higher investment returns than U.S. government debt securities. Such
returns reflect interest rates prevailing in those countries and the effect of
gains and losses in the denominated currencies, which have had a substantial
impact on investment in foreign fixed income securities. The relative perfor-
mance of various countries' fixed income markets historically has reflected
wide variations relating to the unique characteristics of each country's econ-
omy. Year-to-year fluctuations in certain markets have been significant, and
negative returns have been experienced in various markets from time to time.
The Adviser and AIGAM International Limited (the "Sub-Adviser") believe that
investment in a composite of foreign fixed income markets and in the U.S. gov-
ernment and corporate bond market is less risky than a portfolio invested ex-
clusively in foreign debt securities, and provides investors with more oppor-
tunities for attractive total return than a portfolio invested exclusively in
U.S. debt securities.

The Portfolio will invest only in securities of issuers in countries whose
governments are deemed stable by the Adviser and the Sub-Adviser. Their deter-
mination that a particular country should be considered stable depends on
their evaluation of political and economic developments affecting the country
as well as recent experience in the markets for foreign government securities
of the country. Examples of foreign governments which the Adviser and Sub-Ad-
viser currently consider to be stable, among others, are the governments of
Australia, Austria, Canada, Denmark, France, Germany, Ireland, Italy, Japan,
New Zealand, The Netherlands, Norway, Spain, Sweden, Switzerland and the
United Kingdom. The Adviser does not believe that the credit risk

28
<PAGE>

inherent in the obligations of such stable foreign governments is signifi-
cantly greater than that of U.S. government debt securities. The Portfolio in-
tends to spread investment risk among the capital markets of a number of coun-
tries and will invest in securities of the governments of, and companies based
in, at least three, and normally considerably more, such countries. The per-
centage of the Portfolio's assets invested in the debt securities of the gov-
ernment of, or a company based in, a particular country or denominated in a
particular currency will vary depending on the relative yields of such securi-
ties, the economies of the countries in which the investments are made and
such countries' financial markets, the interest rate climate of such countries
and the relationship of such countries' currencies to the U.S. Dollar. Cur-
rency is judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments sta-
tus, and economic policies) as well as technical and political data. Under
normal market conditions, it is expected that approximately 25% of the Portfo-
lio's net assets will be invested in debt securities denominated in the U.S.
Dollar.

On December 31, 1994, 27.0% of the Portfolio's net assets were invested in
debt securities of Japanese issuers. See "Other Investment Policies and Tech-
niques -- Foreign Securities," "-- Investment in Japanese Issuers" and (for a
further description of Japan) Appendix E, to the Statement of Additional In-
formation.

The Portfolio seeks to minimize investment risk by limiting its portfolio in-
vestments to high-quality debt securities of U.S. or foreign governments or
supranational organizations, high-quality U.S. or foreign corporate debt secu-
rities, including commercial paper and high-quality debt obligations of banks
and bank holding companies. The Portfolio's investments consist only of debt
securities rated within one of the two highest grades assigned by S&P or
Moody's or, if unrated, judged by the Adviser and Sub-Adviser to be of compa-
rable quality. See "Other Investment Policies and Techniques -- Securities
Ratings" and Appendix A. Pending investment, to maintain liquidity or for tem-
porary defensive purposes, the Portfolio may commit all or any portion of its
assets to cash or money market instruments of U.S. or foreign issuers. The
Portfolio also may engage in certain hedging strategies, including the pur-
chase and sale of forward foreign currency exchange contracts and other hedg-
ing techniques. For a discussion of these investment policies of the Portfo-
lio, see "Other Investment Policies and Techniques -- Hedging Techniques," be-
low.

29
<PAGE>

The Portfolio may invest in debt securities denominated in the European Cur-
rency Unit ("ECU"), which is a "basket" consisting of specified amounts of the
currencies of certain of the twelve member states of the European Community.
The specific amounts of currencies comprising the ECU may be adjusted by the
Council of Ministers of the European Community to reflect changes in relative
values of the underlying currencies. The Adviser does not believe that such
adjustments will adversely affect holders of ECU-denominated obligations or
the marketability of such securities. European governments and supranationals,
in particular, issue ECU-denominated obligations.

For a description of certain risks associated with investing in foreign secu-
rities, see "Other Investment Policies and Techniques -- Foreign Securities,"
below.

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO

The North American Government Income Portfolio's investment objective is to
seek the highest level of current income, consistent with what the Adviser
considers to be prudent investment risk, that is available from a portfolio of
debt securities issued or guaranteed by the governments of the United States,
Canada and Mexico, their political subdivisions (including Canadian Provinces
but excluding States of the United States), agencies, instrumentalities or au-
thorities ("Government Securities"). The Portfolio seeks high current yields
by investing in Government Securities denominated in the U.S. Dollar, the Ca-
nadian Dollar and the Mexican Peso. Normally, the Portfolio expects to main-
tain at least 25% of its assets in securities denominated in the U.S. Dollar.
In addition, the Portfolio may invest up to 25% of its total assets in debt
securities issued by governmental entities of Argentina ("Argentine Government
securities"). The Portfolio expects that it will not retain a debt security
which is down-graded below BBB or Baa, or, if unrated, determined by the Ad-
viser to have undergone similar credit quality deterioration, subsequent to
purchase by the Portfolio. There may be circumstances, however, such as the
downgrading to below investment grade of all of the securities of a governmen-
tal issuer in one of the countries in which the Portfolio has substantial in-
vestments, under which the Portfolio, after considering all the circumstances,
would conclude that it is in the best interests of the shareholders to retain
its holdings in securities of that issuer. The average weighted maturity of
the Portfolio's portfolio of fixed-income securities is ex-pected to vary be-
tween one year or less and 30 years. See "Other Investment Policies and Tech-
niques -- Fixed-Income Securities." The Portfolio will utilize certain other
investment techniques, including options and futures.

The Adviser believes that the increasingly integrated economic relationship
among the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations
and the growing coordination of their fiscal and monetary policies, will bene-
fit the economic performance of all three countries and promote greater corre-
lation of currency fluctuation among the U.S. and Canadian Dollars and the
Mexican Peso. See, however, "General Information About the

30
<PAGE>

United Mexican States" and the Fund's Statement of Additional Information with
respect to the current economic crisis and Peso devaluation in Mexico.

The Portfolio may invest its assets in Government Securities considered in-
vestment grade or higher (i.e., securities rated at least BBB by S&P or at
least Baa by Moody's or, if not so rated, of equivalent investment quality as
determined by the Portfolio's Adviser). See "Other Investment Policies and
Techniques -- Securities Ratings," "-- Investments in Fixed-Income Securities
Rated Baa and BBB" and Appendix A.

The Portfolio's Adviser will actively manage the Portfolio's assets in rela-
tion to market conditions and general economic conditions in the United
States, Canada and Mexico and elsewhere, and will adjust the Portfolio's in-
vestments in Government Securities based on its perception of which Government
Securities will best enable the Portfolio to achieve its investment objective.
In this regard, subject to the limitations described above, the percentage of
assets invested in a particular country or denominated in a particular cur-
rency will vary the Portfolio's Adviser's assessment of the relative yield and
appreciation potential of such securities and the relationship of the
country's currency to the U.S. Dollar.

The Portfolio will invest at least, and normally substantially more than, 65%
of its total assets in Government Securities. To the extent that its assets
are not invested in Government Securities, however, the Portfolio may invest
the balance of its total assets in debt securities issued by the governments
of countries located in Central and South America or any of their political
subdivisions, agencies, instrumentalities or authorities, provided that such
securities are denominated in their local currencies and are rated investment
grade or, if not so rated, are of equivalent investment quality as determined
by the Portfolio's Adviser. The Portfolio will not invest more than 10% of its
total assets in debt securities issued by the governmental entities of any one
such country, provided, however, that the Portfolio may invest up to 25% of
its total assets in Argentine Government Securities. Under normal market con-
ditions, the Portfolio will invest at least 65% of its total assets in income-
producing securities.

U.S. Government Securities. Securities issued or guaranteed by the United
States Government, its agencies or instrumentalities include: (i) U.S. Trea-
sury obligations, which differ only in their interest rates, maturities and
times of issuance: U.S. Treasury bills (maturity of one year or less), U.S.
Treasury notes (maturities of one to 10 years), and U.S. Treasury bonds (gen-
erally maturities of greater than 10 years), all of which are backed by the
full faith and credit of the United States, and (ii) obligations issued or
guaranteed by U.S. Government agencies or instrumentalities, including govern-
ment guaranteed mortgage-related securities, some of which are backed by the
full faith and credit of the U.S. Treasury, e.g., direct pass-through certifi-
cates of the Government National Mortgage Association ("GNMA"); some of which
are supported by the right of the issuer to borrow from the U.S. Government,
e.g., obligations of Federal Home Loan Banks; and some of which are backed
only by the credit of the issuer itself, e.g., obligations

31
<PAGE>

of the Student Loan Marketing Association. See the Statement of Additional In-
formation for a description of obligations issued or guaranteed by U.S. Gov-
ernment agencies or instrumentalities.

U.S. Government Securities in which the Portfolio may invest also include
"zero coupon" Treasury securities, which are U.S. Treasury bills that are is-
sued without interest coupons, U.S. Treasury notes and bonds which have been
stripped of their unmatured interest coupons, and receipts or certificates
representing interests in such stripped debt obligations and coupons. A zero
coupon security is a debt obligation that does not entitle the holder to any
periodic payments prior to maturity but; instead, is issued and traded at a
discount from its face amount. The discount varies depending on the time re-
maining until maturity, prevailing interest rates, liquidity of the security
and perceived credit quality of the issuer. The market prices of zero coupon
securities are generally more volatile than those of interest-bearing securi-
ties, and are likely to respond to changes in interest rates to a greater de-
gree than otherwise comparable securities that do pay periodic interest. Cur-
rent federal tax law requires that a holder (such as the Portfolio) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year, even though the holder receives no interest
payment on the security during the year. As a result, in order to make the
distributions necessary for the Portfolio not to be subject to federal income
or excise taxes, the Portfolio might be required to pay out as an income dis-
tribution each year an amount, obtained by liquidation of portfolio securities
if necessary, greater than the total amount of cash that the Portfolio has ac-
tually received as interest during the year. The Adviser believes, however,
that it is highly unlikely that it would be necessary to liquidate any portfo-
lio securities for this purpose.

Currently the only U.S. Treasury security issued without coupons is the Trea-
sury bill. Although the U.S. Treasury does not itself issue Treasury notes and
bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long term treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal portions ("corpus")
from the coupon portions of the U.S. Treasury bonds and notes and sold them
separately in the form of receipts or certificates representing undivided in-
terests in these instruments (which instruments are generally held by a bank
in a custodial or trust account). The staff of the Commission has indicated
that, in its view, these receipts or certificates should be considered as se-
curities issued by the bank or brokerage firm involved and, therefore, should
not be included in the Portfolio's categorization of U.S. Government Securi-
ties. The Portfolio disagrees with the staff's interpretation but has under-
taken that it will not invest in such securities until final resolution of the
issue. If such securities are deemed to be U.S. Government Securities the
Portfolio will not be subject to any limitations on their purchase.

U.S. Government Securities do not generally involve the credit risks associ-
ated with

32
<PAGE>

other types of interest bearing securities, although, as a result, the yields
available from U.S. Government Securities are generally lower than the yields
available from other interest bearing securities. Like other fixed-income se-
curities, however, the values of U.S. Government Securities change as interest
rates fluctuate.

Canadian Government Securities. Canadian Government Securities include the
sovereign debt of Canada or any of its Provinces (Alberta, British Columbia,
Manitoba, New Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward Is-
land, Quebec and Saskatchewan). Canadian Government Securities in which the
Portfolio may invest include Government of Canada bonds and Government of Can-
ada Treasury bills. The Bank of Canada, acting on behalf of the federal gov-
ernment, is responsible for the distribution of these bonds and Treasury
bills. The Bank of Canada offers new issues, as approved by the Government, to
specific investment dealers and banks. Government of Canada Treasury bills are
debt obligations with maturities of less than one year. A new issue of Govern-
ment of Canada bonds frequently consists of several different bonds with vari-
ous maturity dates representing different segments of the yield curve with ma-
turities ranging from one to 25 years. The Bank of Canada usually purchases a
pre-determined amount of each issue.

All Canadian Provinces have outstanding bond issues and several Provinces also
guarantee bond issues of Provincial authorities, agents and Crown corpora-
tions. Each new issue yield is based upon a spread from an outstanding Govern-
ment of Canada issue of comparable term and coupon. Spreads in the marketplace
are determined by various factors, including the relative supply and the rat-
ing assigned by the rating agencies.

Many Canadian municipalities, municipal financial authorities and Crown
corporations raise funds through the bond market in order to finance capital
expenditures. Unlike U.S. municipal securi-ties, which have special tax sta-
tus, Canadian municipal securities have the same tax status as other Canadian
Government Securities and trade similarly to such securities. The Canadian mu-
nicipal market may be less liquid than the Provincial bond market.

Canadian Government Securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program (the "NHA MBS Program")
established under the National Housing Act of Canada ("NHA"). Certificates is-
sued pursuant to the NHA MBS Program ("NHA Mortgage-Related Securities") bene-
fit from the guarantee of the Canada Mortgage and Housing Corporation ("CMHC",
a federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee (similar to that of GNMA in
the United States) is an unconditional obligation of the Government of Canada
in most circumstances.

Mexican Government Securities. The Portfolio may invest in Mexican Government
Securities of investment grade quality. As of the date of this Prospectus, the
only Mexican Government Securities denominated in the Mexican Peso that have
been rated by either S&P or Moody's are Cetes rated

33
<PAGE>

A-1+ by S&P. The Portfolio's Adviser, however, believes that there are other
Peso-denominated Mexican Government Securities that are of investment grade
quality. Currently there are no Mexican Government Securities denominated in
the U.S. Dollar which qualify for investment by the Portfolio. If qualified
investments of this nature appear in the future, the Portfolio will consider
them for investment.

Mexican Government Securities denominated and payable in the Mexican Peso
include: (i) Cetes, which are book-entry securities sold directly by the Mexi-
can government on a discount basis and with maturities that range from seven
to 364 days; (ii) Bondes, which are long-term development bonds issued di-
rectly by the Mexican government with a minimum term of 364 days; and (iii)
Ajustabonos, which are adjustable bonds with a minimum three-year term issued
directly by the Mexican government with the face amount adjusted each quarter
by the quarterly inflation rate as of the end of the preceding month.

Argentine Government Securities. The Portfolio may invest up to 25% of its to-
tal assets in Argentine Government Securities that are denominated and payable
in the Argentine Peso. Argentine Government Securities include: (i) Bono de
Inversion y Crecimiento ("BIC"), which are investment and growth bonds issued
directly by the Argentine government with maturities of ten years; (ii) Bono
de Consolidacion Economica ("BOCON"), which are economic consolidation bonds
issued directly by the Argentine government with maturities of ten years and
(iii) Bono de Credito a la Exportacion ("BOCREX"), which are export credit
bonds issued directly by the Argentine government with maturities of four
years. To date, Argentine Government Securities are not rated by either S&P or
Moody's. The Adviser, however, believes that there are Argentine Government
Securities that are of investment grade quality.

General Information About Canada. Canada consists of a federation of ten Prov-
inces and two federal territories (which generally fall under federal authori-
ty) with a constitutional division of powers between the federal and Provin-
cial governments. The Parliament of Canada has jurisdiction over all areas not
assigned exclusively to the Provincial legislatures, and has jurisdiction over
such matters as the federal public debt and property, the regulation of trade
and commerce, currency and coinage, banks and banking, national defense, the
postal services, navigation and shipping and unemployment insurance.

The Canadian economy is based on the free enterprise system with business or-
ganizations ranging from small owner-operated businesses to large multina-
tional corporations. Manufacturing and resource industries are large contribu-
tors to the country's economic output, but as in many other highly developed
countries, there has been a gradual shift from a largely goods-producing econ-
omy to a predominantly service-based one. Agriculture and other primary pro-
duction play a small but key role in the economy. Canada is also an exporter
of energy to the United States in the form of natural gas (of which Canada has
substantial reserves) and hydroelectric power, and has significant mineral re-
sources. The Canadian economy had experienced little or no growth over the
past several years, and the rate of growth of

34
<PAGE>

Canada's gross domestic product (on an inflation adjusted basis) has declined.

Canadian Dollars are fully exchangeable into U.S. Dollars without foreign ex-
change controls or other legal restriction. Since the major developed country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has been narrower
than the range of fluctuation between the U.S. Dollar and most other major
currencies. Recently, however, Canada has experienced a weakening of its cur-
rency. Through January 31, 1995, the Canadian Dollar decreased in value com-
pared to the U.S. Dollar by approximately 21% from October 1991 and approxi-
mately 5% from September 1994. The range of fluctuation that occurred in the
past is not necessarily indicative of the range of fluctuation that will occur
in the future. Future rates of exchange cannot be predicted.

General Information About The United Mexican States. The United Mexican States
("Mexico") is a nation formed by 31 states and a Federal District (Mexico
City). The Political Constitution of Mexico, which took effect on May 1, 1917,
established Mexico as a Federal Republic and provides for the separation of
executive, legislative and judicial branches. The President and the members of
the General Congress are elected by popular vote.

While in recent years the Mexican economy has experienced improvement in a
number of areas, including five consecutive years of growth in gross domestic
product and a substantial reduction in the rate of inflation and in public
sector financial deficit, beginning in 1994, Mexico has experienced an eco-
nomic crisis that led to the devaluation of the Peso in December 1994. Much of
the past improvement in the Mexican economy has been attributable to a series
of economic policy initiatives initiated by the Mexican government over the
past decade, which seek to modernize and reform the Mexican economy, control
inflation, reduce the financial deficit, increase public revenues through the
reform of the tax system, establish a competitive and stable currency exchange
rate, liberalize trade restrictions and increase investment and productivity,
while reducing the government's role in the economy. In this regard, the Mexi-
can government has been proceeding with a program for privatizing certain
state owned enterprises, developing and modernizing the securities markets,
increasing investment in the private sector and permitting increased levels of
foreign investment. The recent adoption by Canada, the United States and Mex-
ico of the North American Free Trade Agreement could also contribute to the
growth of the Mexican economy.

Relatively high rates of interest, inflation, unemployment and, most recently,
the economic crisis that led to the devaluation of the Peso beginning in De-
cember 1994 continue to affect the Mexican economy adversely. Mexico is cur-
rently the second largest debtor nation (among developing countries) to com-
mercial banks and foreign governments. The successful implementation of the
economic policy initiatives and the growth of the Mexican economy involve sig-
nificant structural changes to the Mexican economy and will necessitate con-
tinued economic and fiscal

35
<PAGE>

discipline. In addition, as a condition to receiving assistance from the United
States, other countries and certain international agencies to stabilize the
Mexican economy, the Mexican government has agreed to adhere to a program of
strict economic reform. An important aspect of Mexico's economic policy is the
ability of the government to be successful in its continuing efforts to control
its financial deficit, finance its current account deficit, further reduce in-
flation and stabilize the Mexican Peso. Mexico's economy may also be influenced
by international economic conditions, particularly those in the United States,
and by world prices for oil and other commodities. There is no assurance that
Mexico's economic policy initiatives will be successful or that succeeding ad-
ministrations will continue these initiatives.

In August 1976, the Mexican government established a policy of allowing the
Mexican Peso to float against the U.S. Dollar and other currencies. Under this
policy, the value of the Mexican Peso consistently declined against the U.S.
Dollar. Under economic policy initiatives implemented since December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual devalua-
tions continued until December 1994. On December 20, 1994, the Mexican govern-
ment announced a new policy that would allow a more substantial yet still con-
trolled devaluation of the Mexican Peso. On December 22, 1994 the Mexican gov-
ernment announced that it would not continue with the policy announced two days
earlier and would instead permit the Peso to float against other currencies,
resulting in a continued decline against the U.S. Dollar.

In 1982, Mexico imposed strict foreign exchange controls which shortly thereaf-
ter were relaxed and were eliminated in 1991. There is no assurance that future
regulatory actions in Mexico would not affect the Fund's ability to obtain U.S.
Dollars in exchange for Mexican Pesos.

General Information About the Republic of Argentina. The Republic of Argentina
("Argentina") consists of 23 provinces and the federal capital of Buenos Aires.
Its federal constitution provides for an executive branch headed by a Presi-
dent, a legislative branch and a judicial branch. Each province has its own
constitution, and elects its own governor, legislators and judges, without the
intervention of the federal government.

The military has intervened in the political process on several occasions since
the 1930's and has ruled the country for 22 of the past 62 years. The most re-
cent military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.

Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including a large privatization pro-
gram, a reduction in the size of the public sector and an opening of the econ-
omy to international competition.

In the decade prior to the current announcement of a new economic plan in March
1991, the Argentine economy was characterized by low and erratic growth, de

36
<PAGE>

clining investment rates and rapidly worsening inflation. Despite its
strengths, which include a well-balanced natural resource base and a high lit-
eracy rate, the Argentine economy failed to respond to a series of economic
plans in the 1980's. The Economy Minister's plan represented a pronounced de-
parture from its predecessors in calling for raised revenues, reduced expendi-
tures and a reduced public deficit. The extensive privatization program com-
menced in 1989 was accelerated, the domestic economy deregulated and opened up
to foreign trade and the frame-work for foreign investment reformed.

Significant progress was also made in 1992 in rescheduling Argentina's debt
with both external and domestic creditors, which improved fiscal cash flows in
the medium terms and allowed a return to voluntary credit markets. Further re-
forms are currently being implemented in order to sustain and continue the pro-
gress to date. There is no assurance that Argentina's economic policy
initiatives will be successful or that succeeding administrations will continue
these initiatives.

The Argentine Peso has been the Argentine currency since January 1, 1992. The
rate of exchange from the Argentine Peso to the U.S. Dollar has been approxi-
mately one to one. However, the historic range is not necessarily indicative of
fluctuations that may occur in the exchange rate over time and there can be no
assurance that future rates of exchange can be accurately predicted. The Argen-
tine foreign exchange market was highly controlled until December 1989, when a
free exchange rate was established for all foreign currency transactions. Ar-
gentina has eliminated restrictions on foreign direct investment and capital
repatriation. On September 8, 1993, legislation was adopted abolishing previous
requirements of a three-year waiting period for capital repatriation. Under the
new legislation, foreign investors will be permitted to remit profits at any
time.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

The North American Government Income Portfolio may utilize various investment
strategies to hedge its investment portfolio against currency and other risks.
The Portfolio may write covered put and call options and purchase put and call
options on U.S. and foreign securities exchanges and over-the-counter, enter
into contracts for the purchase and sale for future delivery of fixed income
securities or foreign currencies or contracts based on financial indices or
common stocks and purchase and write put and call options on such futures con-
tracts or on foreign currencies and purchase or sell forward foreign currency
exchange contracts. In furtherance of its investment policies, the Portfolio
may enter into interest rate swaps and may purchase or sell interest rate caps
and floors and may purchase and sell options on fixed income securities. The
Portfolio may also enter into forward commitments for the purchase or sale of
securities, enter into repurchase agreements, standby commitments and make se-
cured loans of its portfolio securities. See "Other Investment Policies and
Techniques."

Risks of Investments in Foreign Securities. Investing in securities issued by
foreign governments involves considerations and possible risks not typically
associated with

37
<PAGE>

investing in U.S. Government Securities. For a description of certain risks as-
sociated with investing in foreign securities, see "Other Investment Policies
and Techniques -- Foreign Securities," below.

The Portfolio believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the risks of investment in foreign securities
are not likely to have a material adverse effect on the Portfolio's investments
in the securities of Canadian issuers or investments denominated in Canadian
Dollars. The risks of investment in foreign securities described in "Other
Investment Policies and Techniques --Foreign Securities," below are more likely
to have a material adverse effect on the Portfolio's investments in the securi-
ties of Mexican and other non-Canadian Foreign issuers, including investments
in securities denominated in Mexican Pesos or other non-Canadian Foreign cur-
rencies. If not hedged, however, currency fluctuations could affect the
unrealized appreciation and depreciation of non-Canadian Government Securities
as expressed in U.S. dollars.

Currency Risks. Because Portfolio assets will be invested in fixed income secu-
rities denominated in the Canadian Dollar, the Mexican Peso and other foreign
currencies and because a substantial portion of the Portfolio's revenues will
be received in currencies other than the U.S. Dollar, the U.S. Dollar equiva-
lent of the Portfolio's net assets and distributions will be adversely affected
by reductions in the value of certain foreign currencies relative to the U.S.
Dollar. These changes will also affect the Portfolio's income. If the value of
the foreign currencies in which the Portfolio receives income falls relative to
the U.S. Dollar between receipt of the income and the making of Portfolio dis-
tributions, the Portfolio may be required to liquidate securities in order to
make distributions if the Portfolio has insufficient cash in U.S. Dollars to
meet the distribution requirements that the Portfolio must satisfy to qualify
as a regulated investment company for federal income tax purposes. Similarly,
if an exchange rate declines between the time the Portfolio incurs expenses in
U.S. Dollars and the time cash expenses are paid, the amount of the currency
required to be converted into U.S. Dollars in order to pay expenses in U.S.
Dollars could be greater than the equivalent amount of such expenses in the
currency at the time they were incurred. In light of these risks, the Portfolio
may engage in certain currency hedging transactions, which themselves involve
certain special risks. See "Other Investment Policies and Techniques -- Hedging
Techniques."

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

The Global Dollar Government Portfolio's primary investment objective is to
seek a high level of current income. Its secondary investment objective is cap-
ital appreciation. In seeking to achieve these objectives, the Portfolio will
invest at least 65% of its total assets in fixed income securities issued or
guaranteed by foreign governments, including participations in loans between
foreign governments and financial institutions, and interests in entities orga-
nized and operated for the purpose of restructuring the investment characteris-
tics of instruments issued or guaranteed by foreign governments ("Sovereign
Debt Obligations"). The Portfolio's investments in

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<PAGE>

Sovereign Debt Obligations will emphasize obligations of a type customarily
referred to as "Brady Bonds," that are issued as part of debt restructurings
and that are collateralized in full as to principal due at maturity by zero
coupon obligations issued by the U.S. government, its agencies or instrumen-
talities ("Collateralized Brady Bonds"). The Portfolio may also invest up to
35% of its total assets in U.S. and non-U.S. corporate fixed income securi-
ties. The Portfolio will limit its investments in Sovereign Debt Obligations
and U.S. and non-U.S. corporate fixed income securities to U.S. dollar denomi-
nated securities. The Adviser expects that, based upon current market condi-
tions, the Fund's portfolio of U.S. fixed-income securities will have an aver-
age maturity range of approximately nine to 15 years and the Fund's portfolio
of non-U.S. fixed-income securities will have an average maturity range of
approximately 15 to 25 years. The Adviser anticipates that the Fund's portfo-
lio of sovereign debt obligations will have a longer average maturity.

With respect to its investments in Sovereign Debt Obligations and non-U.S.
corporate fixed income securities, the Fund will emphasize investments in
countries that are considered emerging market countries at the time of pur-
chase. As used in this Prospectus, an "emerging market country" is any country
that is considered to be an emerging or developing country by the Interna-
tional Bank for Reconstruction and Development (commonly referred to as the
"World Bank"). The Portfolio anticipates that a substantial part of its ini-
tial investment focus will be in the U.S. dollar denominated securities or ob-
ligations of Argentina, Brazil, Mexico, Morocco, the Philippines and Venezuela
because these countries are now, or are expected by the Adviser at a future
date to be, the principal participants in debt restructuring programs (includ-
ing, in the case of Argentina, Mexico, the Philippines and Venezuela, issuers
of currently outstanding Brady Bonds) that, in the Adviser's opinion, will
provide the most attractive investment opportunities for the Portfolio. See
Appendix E to the Fund's Statement of Additional Information for information
about those six countries. The Adviser anticipates that other countries that
will provide initial investment opportunities for the Portfolio include, among
others, Bolivia, Costa Rica, the Dominican Republic, Ecuador, Nigeria, Panama,
Peru, Poland, Thailand, Turkey and Uruguay. See "Brady Bonds" below.

The Portfolio may invest up to 30% of its total assets in the Sovereign Debt
Obligations and corporate fixed income securities of issuers in any one of Ar-
gentina, Brazil, Mexico, Morocco, the Philippines or Venezuela, and the Port-
folio will limit investments in the Sovereign Debt Obligations of each such
country (or of any other single foreign country) to less than 25% of its total
assets. The Portfolio expects that it will not invest more than 10% of its to-
tal assets in the Sovereign Debt Obligations and corporate fixed income secu-
rities of issuers in any other single foreign country. At present, each of the
above-named countries is an "emerging market country."

39
<PAGE>

tary policy, external accounts, financial markets, stability of exchange rate
policy and labor conditions. In selecting and allocating assets among corpo-
rate issues within a given country, the Adviser will consider the relative fi-
nancial strength of issues and expects to emphasize investments in securities
of issuers that, in the Adviser's opinion, are undervalued within each market
sector. The Portfolio is not required to invest any specified minimum amount
of its total assets in the securities or obligations of issues located in any
particular country.

Sovereign Debt Obligations held by the Portfolio will take the form of bonds,
notes, bills, debentures, warrants, short-term paper, loan participations,
loan assignments and interests issued by entities organized and operated for
the purpose of restructuring the investment characteristics of other Sovereign
Debt Obligations. Sovereign Debt Obligations held by the Portfolio generally
will not be traded on a securities exchange. The U.S. and non-U.S. corporate
fixed income securities held by the Portfolio will include debt securities,
convertible securities and preferred stocks of corporate issuers. The Portfo-
lio will not be subject to restrictions on the maturities of the securities it
holds. The Adviser expects that, based upon current market conditions, the
Portfolio's investment portfolio of U.S. fixed-income securities will have an
average maturity range of approximately 9 to 15 years and the Portfolio's
portfolio of non-U.S. fixed income securities will have an average maturity
range of approximately 15 to 25 years. The Adviser anticipates that the Port-
folio's portfolio of Sovereign Debt Obligations will have a longer average ma-
turity.

Substantially all of the Portfolio's assets will be invested in high yield,
high risk debt securities that are lower-rated (i.e., below investment grade),
or of comparable quality and unrated, and that are considered to be predomi-
nantly speculative as regards the issuer's capacity to pay interest and repay
principal. See "Other Investment Policies and Techniques -- Securities Rat-
ings," "--Investment in Lower-Rated Fixed-Income Securities" and "Appendix A."

A substantial portion of the Portfolio's investments will be in (i) securities
which were initially issued at discounts from their face values ("Discount Ob-
ligations") and (ii) securities purchased by the Portfolio at a price less
than their stated face amount or, in the case of Discount Obligations, at a
price less than their issue price plus the portion of "original issue dis-
count" previously accrued thereon, i.e., purchased at a "market discount." Un-
der current federal tax law and in furtherance of its primary investment ob-
jective of seeking high current income, the Portfolio will accrue as current
income each year a portion of the original issue and/or market discount at
which each such obligation is purchased by the Portfolio even though the Port-
folio does not receive during the year cash interest payments on the obliga-
tion corresponding to the accrued discount. Under the minimum distribution re-
quirements of the Code, the Portfolio may be required to pay out as an income
distribution each year an amount significantly greater than the total amount
of cash interest the Portfolio has actually received as interest during the
year. Such distributions will be made from the cash assets of the Portfolio,
from borrowings or by liquidation of portfolio securities, if nec-

40
<PAGE>

essary. The risks associated with holding illiquid may be accentuated at such
times. The Portfolio believes, however, that it is highly unlikely that it
would be necessary to liquidate portfolio securities in order to make such re-
quired distributions or to meet its primary investment objective of high cur-
rent income. See "Illiquid Securities."

Brady Bonds. As noted above, a significant portion of the Portfolio's invest-
ment portfolio will consist of debt obligations customarily referred to as
"Brady Bonds," which are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Trea-
sury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued only
recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are dollar-denominated) and they are actively traded in the over-the-
counter secondary market.

Dollar-denominated, Collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
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 inter-
est payments based on the applicable interest rate at that time and is ad-
justed at regular intervals thereafter. Certain Brady Bonds are entitled to
"value recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having three or four valuation components: (i) the
collateralized repayment of principal at final maturity; (ii) the collateral-
ized interest payments; (iii) the uncollateralized interest payments; and (iv)
any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the event of a
default with respect to Collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero cou-
pon obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the sched-
uled maturity of the defaulted Brady Bonds, which will continue to be out-
standing at which time the face amount of the collateral will equal the prin-
cipal payments which would have then been due on the Brady Bonds in the normal
course. In addition, in light of the residual risk of Brady Bonds and, among
other factors, the history of defaults with respect to commercial bank loans
by public and private entities of countries issuing Brady Bonds, investments
in Brady Bonds are to be viewed as speculative.

Structured Securities. The Portfolio may invest up to 25% of its total assets
in interests in entities organized and operated solely for the purpose of re-
structuring the investment characteristics of Sovereign Debt Obligations. This
type of restructur-

41
<PAGE>

ing involves the deposit with or purchase by an entity, such as a corporation
or trust, of specified instruments (such as commercial bank loans or Brady
Bonds) and the issuance by that entity of one or more classes of securities
("Structured Securities") backed by, or representing interests in, the under-
lying instruments. The cash flow on the underlying instruments may be appor-
tioned among the newly issued Structured Securities to create securities with
different investment characteristics such as varying maturities, payment pri-
orities and interest rate provisions, and the extent of the payments made with
respect to Structured Securities is dependent on the extent of the cash flow
on the underlying instruments. Because Structured Securities of the type in
which the Portfolio anticipates it will invest typically involve no credit en-
hancement, their credit risk generally will be equivalent to that of the un-
derlying instruments.

The Portfolio is permitted to invest in a class of Structured Securities that
is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Securities typically have higher yields and
present greater risks than unsubordinated Structured Securities.

Certain issuers of Structured Securities may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). As a result, the Portfolio's investment in these Structured Secu-
rities may be limited by the restrictions contained in the 1940 Act described
below under "Investment in Other Investment Companies."

Loan Participations and Assignments. The Portfolio may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between an
issuer of Sovereign Debt Obligations and one or more financial institutions
("Lenders"). The Portfolio's investments in Loans are expected in most in-
stances to be in the form of participations in Loans ("Participations") and
assignments of all or a portion of Loans ("Assignments") from third parties.
The Portfolio may invest up to 25% of its total assets in Participations and
Assignments. The government that is the borrower on the Loan will be consid-
ered by the Portfolio to be the issuer of a Participation or Assignment for
purposes of the Portfolio's fundamental investment policy that it will not in-
vest 25% or more of its total assets in securities of issuers conducting their
principal business activities in the same industry (i.e., foreign government).
The Portfolio's investment in Participations typically will result in the
Portfolio having a contractual relationship only with the Lender and not with
the borrower. The Portfolio will acquire Participations only if the Lender
interpositioned between the Portfolio and the borrower is a Lender having to-
tal assets of more than $25 billion and whose senior unsecured debt is rated
investment grade or higher (i.e., Baa or higher by Moody's or BBB or higher by
S&P).

42
<PAGE>

gations is restricted by the governing documentation as to the nature of the
assignee such that the only way in which the Portfolio may acquire an interest
in a Loan is through a Participation and not an Assignment. The Portfolio may
have difficulty disposing of Assignments and Participations because to do so
it will have to assign such securities to a third party. Because there is no
liquid market for such securities, the Portfolio anticipates that such securi-
ties could be sold only to a limited number of institutional investors. The
lack of a liquid secondary market may have an adverse impact on the value of
such securities and the Portfolio's ability to dispose of particular Assign-
ments or Participations when necessary to meet the Portfolio's liquidity needs
in response to a specific economic event such as a deterioration in the cred-
itworthiness of the borrower. The lack of a liquid secondary market for As-
signments and Participations also may make it more difficult for the Portfolio
to assign a value to these securities for purposes of valuing the Portfolio's
portfolio and calculating its net asset value.

U.S. and Non-U.S. Corporate Fixed Income Securities. U.S and non-U.S. corpo-
rate fixed income securities include debt securities, convertible securities
and preferred stocks of corporate issuers. Differing yields on fixed income
securities of the same maturity are a function of several factors, including
the relative financial strength of the issuers. Higher yields are generally
available from securities in the lower rating categories. When the spread be-
tween the yields of lower rated obligations and those of more highly rated is-
sues is relatively narrow, the Portfolio may invest in the latter since they
may provide attractive returns with somewhat less risk. The Portfolio expects
to invest in investment grade securities (i.e. securities rated Baa or better
by Moody's or BBB or better by S&P) and in high yield, high risk lower rated
securities (i.e., securities rated lower than Baa by Moody's or BBB by S&P)
and in unrated securities of comparable credit quality. Unrated securities
will be considered for investment by the Portfolio when the Adviser believes
that the financial condition of the issuers of such obligations and the pro-
tection afforded by the terms of the obligations themselves limit the risk to
the Portfolio to a degree comparable to that of rated securities which are
consistent with the Portfolio's investment objectives and policies. See "Cer-
tain Risk Considerations" for a discussion of the risks associated with the
Portfolio's investments in U.S. and non-U.S. corporate fixed income securi-
ties.

Investment in Other Investment Companies. The Portfolio may invest in other
investment companies whose investment objectives and policies are consistent
with those of the Portfolio. In accordance with the 1940 Act, the Portfolio
may invest up to 10% of its total assets in securities of other investment
companies. In addition, under the 1940 Act the Portfolio may not own more than
3% of the total outstanding voting stock of any investment company and not
more than 5% of the value of the Portfolio's total assets may be invested in
the securities of any investment company. If the Portfolio acquired shares in
investment companies, shareholders would bear both their proportionate share
of expenses in the Portfolio (including management and advisory fees) and, in-
directly, the expenses

43
<PAGE>

of such investment companies (including management and advisory fees).

Warrants. The Portfolio may invest in warrants, which are securities permit-
ting, but not obligating, their holder to subscribe for other securities. The
Portfolio may invest in warrants for debt securities or warrants for equity
securities that are acquired as units with debt instruments. Warrants do not
carry with them the right to dividends or voting rights with respect to the
securities that they entitle their holder to purchase, and they do not repre-
sent any rights in the assets of the issuer. As a result, an investment in
warrants may be considered more speculative than certain other types of in-
vestments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities, and a warrant ceases to have
value if it is not exercised prior to its expiration date. The Portfolio does
not intend to retain in its portfolio any common stock received upon the exer-
cise of a warrant and will sell the common stock as promptly as practicable
and in a manner that it believes will reduce its risk of a loss in connection
with the sale. The Portfolio does not intend to retain in its portfolio any
warrant for equity securities acquired as a unit with a debt instrument, if
the warrant begins to trade separately from the related debt instrument.

Reverse Repurchase Agreements and Dollar Rolls. The Portfolio may also use re-
verse repurchase agreements and dollar rolls as part of its investment strate-
gy. Reverse repurchase agreements involve sales by the Portfolio of portfolio
assets concurrently with an agreement by the Portfolio to repurchase the same
assets at a later date at a fixed price. Generally, the effect of such a
transaction is that the Portfolio can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the in-
terest cost to the Portfolio of the reverse repurchase transaction is less
than the cost of otherwise obtaining the cash.

The Portfolio may enter into dollar rolls in which the Portfolio sells securi-
ties for delivery in the current month and simultaneously contracts to repur-
chase substantially similar (same type and coupon) securities on a specified
future date. During the roll period, the Portfolio forgoes principal and in-
terest paid on the securities. The Portfolio is compensated by the difference
between the current sales price and the lower forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned
on the cash proceeds of the initial sale.

The Portfolio will establish a segregated account with its custodian in which
it will maintain cash and/or liquid high grade debt securities equal in value
to its obligations in respect of reverse repurchase agreements and dollar
rolls. Reverse repurchase agreements and dollar rolls involve the risk that
the market value of the securities the Portfolio is obligated to repurchase
under the agreement may decline below the repurchase price. In the event the
buyer of securities under a reverse repurchase agreement or dollar roll files
for bankruptcy or becomes insolvent, the Portfolio's use of the proceeds of
the agreement may be restricted pending a determi-

44
<PAGE>

nation by the other party, or its trustee or receiver, whether to enforce the
Portfolio's obligation to repurchase the securities.

Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Portfolio. Under the requirements of the 1940
Act, the Portfolio is required to maintain an asset coverage of at least 300%
of all borrowings. Reverse repurchase agreements and dollar rolls, together
with any borrowing will not exceed 33% of the Portfolio's total assets, less
liabilities other than any borrowing.

Short Sales. The Portfolio may make short sales of securities or maintain a
short position only for the purpose of deferring realization of gain or loss
for U.S. federal income tax purposes, provided that at all times when a short
position is open the Portfolio owns an equal amount of such securities of the
same issue as, and equal in amount to, the securities sold short. In addition,
the Portfolio may not make a short sale if more than 10% of the Portfolio's
net assets (taken at market value) is held as collateral for short sales at
any one time. If the price of the security sold short increases between the
time of the short sale and the time the Portfolio replaces the borrowed secu-
rity, the Portfolio will incur a loss; conversely, if the price declines, the
Portfolio will realize a capital gain. See "Investment Restrictions" in the
Statement of Additional Information. See "Dividends, Distributions and Tax-
es -- Tax Straddles" in the Statement of Additional Information for a discus-
sion of certain special Federal income tax considerations that may apply to
short sales which are entered into by the Fund.

In furtherance of its investment policies, the Portfolio may, without limit,
enter into interest rate swaps and may purchase or sell interest rate caps and
floors and may purchase and sell options on fixed income securities and indi-
ces thereof. The Portfolio may also enter into forward commitments for the
purchase or sale of securities, enter into repurchase agreements, standby com-
mitments and make secured loans of its portfolio securities. See "Other In-
vestment Policies and Techniques."

Future Developments. The Portfolio may, following written notice to its share-
holders, take advantage of other investment practices which are not at present
contemplated for use by the Portfolio or which currently are not available but
which may be developed, to the extent such investment practices are both con-
sistent with the Portfolio's investment objectives and legally permissible for
the Portfolio. Such investment practices, if they arise, may involve risks
which exceed those involved in the activities described above.

Sovereign Debt Obligations. No established secondary markets may exist for
many of the Sovereign Debt Obligations in which the Portfolio will invest. Re-
duced secondary market liquidity may have an adverse effect on the market
price and the Portfolio's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to specific eco-
nomic events such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain Sovereign Debt Obligations may
also make it more difficult for the Portfolio to obtain accurate market quota-
tions for purpose of valuing its portfolio. Market quotations are gener-

45
<PAGE>

ally available on many Sovereign Debt Obligations only from a limited number of
dealers and may not necessarily represent firm bids of those dealers or prices
for actual sales.

By investing in Sovereign Debt Obligations, the Portfolio will be exposed to
the direct or indirect consequences of political, social and economic changes
in various countries. Political changes in a country may affect the willingness
of a foreign government to make or provide for timely payments of its obliga-
tions. The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.

The Sovereign Debt Obligations in which the Portfolio will invest in most cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other fi-
nancial institutions. In recent years, the governments of some of these coun-
tries have encountered difficulties in servicing their external debt obliga-
tions, which led to defaults on certain obligations and the restructuring of
certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiat-
ing new or amended credit agreements or converting outstanding principal and
unpaid interest to Brady Bonds, and obtaining new credit to finance interest
payments. Certain governments have not been able to make payments of interest
on or principal of Sovereign Debt Obligations as those payments have come due.
Obligations arising from past restructuring agreements may affect the economic
performance and political and social stability of those issuers.

The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multilateral
organizations or private commercial banks, aid payments from foreign govern-
ments and on inflows of foreign investment. The access of a country to these
forms of external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of a government to make payments on
its obligations. In addition, the cost of servicing debt obligations can be af-
fected by a change in international interest rates since the majority of these
obligations carry interest rates that are adjusted periodically based upon in-
ternational rates.

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<PAGE>

Sovereign Debt Obligations, unlike those on private debt, must, in some cases,
be pursued in the courts of the defaulting party itself. Legal recourse there-
fore may be significantly diminished. Bankruptcy, moratorium and other similar
laws applicable to issuers of Sovereign Debt Obligations may be substantially
different from those applicable to issuers of private debt obligations. The
political context, expressed as the willingness of an issuer of Sovereign Debt
Obligations to meet the terms of the debt obligation, for example, is of con-
siderable importance. In addition, no assurance can be given that the holders
of commercial bank debt will not contest payments to the holders of securities
issued by foreign governments in the event of default under commercial bank
loan agreements.

U.S. Corporate Fixed Income Securities. The U.S. corporate fixed income secu-
rities in which the Portfolio will invest may include securities issued in
connection with corporate restructurings such as takeovers or leveraged
buyouts, which may pose particular risks. Securities issued to finance corpo-
rate restructurings may have special credit risks due to the highly leveraged
conditions of the issuer. In addition, such issuers may lose experienced man-
agement as a result of the restructuring. Finally, the market price of such
securities may be more volatile to the extent that expected benefits from the
restructuring do not materialize. The Portfolio may also invest in U.S. corpo-
rate fixed income securities that are not current in the payment of interest
or principal or are in default, so long as the Adviser believes such invest-
ment is consistent with the Portfolio's investment objectives. The Portfolio's
rights with respect to defaults on such securities will be subject to applica-
ble U.S. bankruptcy, moratorium and other similar laws.

UTILITY INCOME PORTFOLIO

The Utility Income Portfolio's investment objective is to seek current income
and capital appreciation by investing primarily in equity and fixed-income se-
curities of companies in the utilities industry. The Portfolio may invest in
securities of both United States and foreign issuers, although no more than
15% of the Portfolio's total assets will be invested in issuers in any one
foreign country. The utilities industry consists of companies engaged in (i)
the manufacture, production, generation, provision, transmission, sale and
distribution of gas and electric energy, and communications equipment and
services, including telephone, telegraph, satellite, microwave and other com-
panies providing communication facilities for the public, or (ii) the provi-
sion of other utility or utility-related goods and services, including, but
not limited to, entities engaged in water provision, cogeneration, waste dis-
posal system provision, solid waste electric generation, independent power
producers and non-utility generators. As a matter of fundamental policy, the
Portfolio will, under normal circumstances, invest at least 65% of the value
of its total assets in securities of companies in the utilities industry. The
Portfolio considers a company to be in the utilities industry if, during the
most recent twelve month period, at least 50% of the company's gross revenues,
on a consolidated basis, is derived from its utilities activities. At least
65% of the Portfolio's total assets are to be invested in income-producing se-
curities.

47
<PAGE>

The Portfolio's investment objective and policies are designed to take advan-
tage of the characteristics and historical performance of securities of compa-
nies in the utilities industry. Many of these companies have established a
reputation for paying regular dividends and for increasing their common stock
dividends over time. In evaluating particular issuers, the Adviser will con-
sider a number of factors, including historical growth rates and rates of re-
turn on capital, financial condition and resources, management skills and such
industry factors as regulatory environment and energy sources. With respect to
investments in equity securities, the Adviser will consider the prospective
growth in earnings and dividends in relation to price/earnings ratios, yield
and risk. The Adviser believes that above-average dividend returns and below-
average price/earnings ratios are factors that not only provide current income
but also generally tend to moderate risk and to afford opportunity for appre-
ciation of securities owned by the Portfolio.

The Portfolio will invest in equity securities, such as common stocks, securi-
ties convertible into common stocks and rights and warrants to subscribe for
purchase of common stocks, and in fixed-income securities, such as bonds and
preferred stocks. There are no fixed percentage limits on the allocation of
the Portfolio's investments between equity securities and fixed income securi-
ties. Rather, the Portfolio will vary the percentage of assets invested in any
one type of security based upon the Adviser's evaluation as to the appropriate
portfolio structure for achieving the Portfolio's investment objective under
prevailing market, economic and financial conditions. Certain securities (such
as fixed-income securities) will be selected on the basis of their current
yield, while other securities may be purchased for their growth potential. The
values of fixed-income securities change as the general levels of interest
rates fluctuate. When interest rates decline, the values of fixed income secu-
rities can be expected to increase, and when interest rates rise, the values
of fixed income securities can be expected to decrease. The Adviser expects
that the average weighted maturity of the Portfolio's portfolio of fixed-in-
come securities may, depending upon market conditions, vary between 5 and 25
years.

The Portfolio may maintain up to 35% of its net assets in fixed-income securi-
ties rated below Baa by Moody's or below BBB by S&P or Fitch Investors Serv-
ice, Inc. ("Fitch") or, if not rated, of comparable investment quality as de-
termined by the Adviser. Such high-risk, high-yield securities (commonly re-
ferred to as "junk bonds") are considered to have speculative or, in the case
of relatively low ratings, predominantly speculative characteristics. See
"Other Investment Policies and Techniques--Securities Ratings," "--Investment
in Lower-Rated Fixed-Income Securities" and Appendix A. The Portfolio will not
retain a security which is down-graded below B, or if unrated, determined by
the Adviser to have undergone similar credit quality deterioration subsequent
to purchase.

Convertible Securities. Utilities frequently issue convertible securities.
Convertible securities include bonds, debentures, corporate notes and pre-
ferred stocks that are convertible at a stated exchange rate into common
stock. Prior to their conversion, convertible

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securities have the same general characteristics as non-convertible debt secu-
rities, which provide a stable stream of income with generally higher yields
than those of equity securities of the same or similar issuers. As with all
debt securities, the market value of convertible securities tends to decline
as interest rates increase and, conversely, to increase as interest rates de-
cline. While convertible securities generally offer lower interest or dividend
yields than non-convertible debt securities of similar quality, they do enable
the investor to benefit from increases in the market price of the underlying
common stock. The Portfolio may invest up to 30% of its net assets in the con-
vertible securities of companies whose common stocks are eligible for purchase
by the Portfolio under the investment policies described above.

Rights and Warrants. The Portfolio may invest up to 5% of its net assets in
rights or warrants which entitle the holder to buy equity securities at a spe-
cific price for a specific period of time, but will do so only if the equity
securities themselves are deemed appropriate by the Adviser for inclusion in
the Portfolio's portfolio.

UTILITIES INDUSTRY

United States Utilities. The United States utilities industry has experienced
significant changes in recent years. Electric utility companies in general
have been favorably affected by lower fuel costs, the full or near completion
of major construction programs and lower financing costs. In addition, many
utility companies have generated cash flows in excess of current operating ex-
penses and construction expenditures, permitting some degree of diversifica-
tion into unregulated businesses. Some electric utilities have also taken ad-
vantage of the right to sell power outside of their historical territories. At
this time, there are certain institutional impediments to the wide-scale de-
regulation of electric utilities, including among other things, limitations on
the redistribution of power. The Adviser believes, however, that recent devel-
opments, including the enactment of the Energy Policy Act of 1992, may allevi-
ate certain existing restrictions.

Electric utilities that use coal in connection with the production of electric
power are particularly susceptible to environmental regulation, including the
requirements of the federal Clean Air Act and of similar state laws. Such reg-
ulation may necessitate large capital expenditures in order for the utility to
achieve compliance. Due to the public, regulatory and governmental concern
with the cost and safety of nuclear power facilities in general, certain elec-
tric utilities with uncompleted nuclear power facilities may have problems
completing and licensing such facilities. Regulatory changes with respect to
nuclear and conventionally fueled generating facilities could increase costs
or impair the ability of such electric utilities to operate such facilities,
thus reducing their ability to service dividend payments with respect to the
securities they issue. Electric utilities that utilize nuclear power facili-
ties must apply for recommissioning from the Nuclear Regulatory Commission af-
ter 40 years. Failure to obtain recommissioning could result in an interrup-
tion of service or the need to purchase more expensive power from other
entities, and could subject the utility to significant capital construction
costs in

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<PAGE>

connection with building new nuclear or alternative-fuel power facilities, up-
grading existing facilities or converting such facilities to alternative fu-
els.

Rates of return of utility companies generally are subject to review and limi-
tation by state public utilities commissions and tend to fluctuate with mar-
ginal financing costs. Rate changes, however, ordinarily lag behind the
changes in financing costs, and thus can favorably or unfavorably affect the
earnings or dividend pay-outs on utilities stocks depending upon whether such
rates and costs are declining or rising.

Gas transmission companies, gas distribution companies and telecommunications
companies are also undergoing significant changes. Gas utilities have been ad-
versely affected by declines in the prices of alternative fuels, and have also
been affected by oversupply conditions and competition. Telephone utilities
are still experiencing the affects of the break-up of American Telephone &
Telegraph Company, including increased competition and rapidly developing
technologies with which traditional telephone companies now compete. Potential
sources of competition and new products are cable television systems, shared
tenant services and other noncarrier systems, which are capable of bypassing
traditional telephone services providers' local plants, either completely or
partially, through substitutions of special access for switched access or
through concentration of telecommunications traffic on fewer of the tradi-
tional telephone services providers' lines. Although there can be no assurance
that increased competition and other structural changes will not adversely af-
fect the profitability of such utilities, or that other negative factors will
not develop in the future, in the Adviser's opinion, increased competition and
change may provide better positioned utility companies with opportunities for
enhanced profitability.

Less traditional utility companies are emerging as new technologies develop
and as old technologies are refined. Such issuers include entities engaged in
cogeneration, waste disposal system provision, solid waste electric genera-
tion, independent power producers and non-utility generators.

Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs on borrowings needed for
capital construction programs, costs associated with compliance with environ-
mental and nuclear safety regulations, service interruption due to environmen-
tal, operational or other mishaps, the effects of economic slowdowns, surplus
capacity, competition and changes in the regulatory climate. In particular,
regulatory changes with respect to nuclear and conventionally fueled generat-
ing facilities could increase costs or impair the ability of utility companies
to operate such facilities, thus reducing utility companies' earnings or re-
sulting in losses. There can also be no assurance that regulatory policies or
accounting standard changes will not negatively affect utility companies'
earnings or dividends. Utility companies are subject to regulation by various
authorities and may be affected by the imposition of special tariffs and
changes in tax laws. To the extent that rates are established or reviewed by
governmental authorities, utility companies are subject to the risk that such
authorities will not authorize increased

50
<PAGE>

rates. In addition, because of the Portfolio's policy of concentrating its in-
vestments in securities of utility companies, the Portfolio may be more sus-
ceptible than an investment company without such a policy to any single eco-
nomic, political or regulatory occurrence affecting the utilities industry.
Under market conditions that are unfavorable to the utilities industry, the
Adviser may significantly reduce the Portfolio's investment in that industry.

The average common stock yield of utilities historically has exceeded that of
industrial stocks by a wide margin. For example, the stocks in the Standard &
Poor's Utilities index had an average yield of 5.9% for 1994, more than twice
the 2.5% average yield for the stocks in the Standard & Poor's Industrials in-
dex. As the dividends on utility common stocks have increased, average total
returns experienced by investors in utility stocks over the last ten years
have been superior to those provided by industrial stocks when measured by
such widely accepted indexes as Standard & Poor's. There can be no assurance
that the historical investment performance for any industry, including the
utilities industry, is indicative of future performance.

Foreign Utilities. Foreign utility companies, like utility companies located
in the United States, are generally subject to regulation, although such regu-
lations may or may not be comparable to those in the United States. Foreign
utility companies in certain countries may be more heavily regulated by their
respective governments than utility companies located in the United States
and, as in the United States, generally are required to seek government ap-
proval for rate increases. In addition, because many foreign utility companies
use fuels that cause more pollution that those used in the United States such
utilities may, in the future, be required to invest in pollution control
equipment if the countries in which the utilities are located adopt pollution
restrictions that more closely resemble United States pollution restrictions.
Foreign utility regulatory systems vary from country to country and may evolve
in ways different from regulation in the United States.

The Portfolio's investment policies are designed to enable it to capitalize on
evolving investment opportunities throughout the world. For example, the rapid
growth of certain foreign economies will necessitate expansion of capacity in
the utility industries in those countries. Although many foreign utility com-
panies currently are government-owned, thereby limiting current investment op-
portunities for the Portfolio, the Adviser believes that, in order to attract
significant capital for growth, some foreign governments may engage in a pro-
gram of privatization of their utilities industry, and that the securities is-
sued by privatized utility companies may offer attractive investment opportu-
nities with the potential for long-term growth. Privatization, which refers to
the trend toward investor ownership, rather than government ownership, of as-
sets is expected to occur both in newer, faster-growing economies and in ma-
ture economies. In addition, efforts toward modernization in Eastern Europe,
as well as the potential of economic unification of European markets, in the
view of the Adviser, may improve economic growth, reduce costs and increase
competition in Europe, which could result

51
<PAGE>

in opportunities for investment by the Portfolio in utilities industries in
Europe. There can be no assurance that securities of privatized companies will
be offered to the public or to foreign companies such as the Portfolio, or
that investment opportunities in foreign markets for the Portfolio will in-
crease for this or other reasons.

The percentage of the Portfolio's assets invested in issuers of particular
countries will vary depending on the relative yields and growth and income po-
tential of such securities, the economies of the countries in which the in-
vestments are made, interest rate conditions in such countries and the rela-
tionship of such countries' currencies to the U.S. dollar. Currency is judged
on the basis of fundamental economic criteria (e.g., relative inflation levels
and trends, growth rate forecasts, balance of payments status, and economic
policies) as well as technical and political data. As mentioned above, the
Portfolio will not invest more than 15% of its total assets in issuers in any
one foreign country. See "Other Investment Policies and Techniques -- Foreign
Securities."

OTHER SECURITIES

While the Portfolio's investment strategy normally emphasizes securities of
companies in the utilities industry, the Portfolio may, where consistent with
its investment objective, invest up to 35% of its total assets in equity and
fixed-income securities of domestic and foreign issuers other than companies
in the utilities industry, including (i) U.S. Government Securities and repur-
chase agreements pertaining thereto, as discussed below, (ii) foreign securi-
ties, as discussed below, (iii) corporate fixed-income securities of domestic
issuers of quality comparable to the fixed-income securities described above,
(iv) certificates of deposit, bankers' acceptances and interest-bearing sav-
ings deposits of banks having total assets of more than $1 billion and which
are members of the Federal Deposit Insurance Corporation, (v) commercial paper
of prime quality rated Prime 1 or higher by Moody's or A-1 or higher by S&P
or, if not rated, issued by companies which have an outstanding debt issue
rated Aa or higher by Moody's or AA or higher by S&P, (vi) equity securities
of domestic corporate issuers, and (vii) the additional derivative vehicles
discussed below under the caption "Investment Practices."

U.S. Government Securities. U.S. Government Securities include: (i) U.S. Trea-
sury obligations, which differ only in their interest rates, maturities and
times of issuance: U.S. Treasury bills (maturity of one year or less), U.S.
Treasury notes (maturities of one to 10 years), and U.S. Treasury bonds (gen-
erally maturities of greater than 10 years), all of which are backed by the
full faith and credit of the United States; and (ii) obligations issued or
guaranteed by U.S. Government agencies or instrumentalities, including govern-
ment guaranteed mortgage-related securities. Some such obligations are backed
by the full faith and credit of the U.S. Treasury, e.g., direct pass-through
certificates of the Government National Mortgage Association, some are sup-
ported by the right of the issuer to borrow from the U.S. Government, e.g.,
obligations of Federal Home Loan Banks, and some are backed only by the credit
of the issuer itself, e.g., obligations of the Student Loan Marketing Associa-
tion. See Appendix A to the Statement of Additional Information for a further
description of

52
<PAGE>

obligations issued or guaranteed by U.S. Government agencies or instrumentali-
ties.

U.S. Government Securities do not generally involve the credit risks associ-
ated with other types of interest bearing securities, although, as a result,
the yields available from U.S. Government Securities are generally lower than
the yields available from other interest bearing securities. Like other fixed-
income securities, however, the values of U.S. Government Securities change as
interest rates fluctuate. When interest rates decline, the values of U.S. Gov-
ernment Securities can be expected to increase and when interest rates rise,
the values of U.S. Government Securities can be expected to decrease.

Foreign Securities. Foreign fixed-income securities in which the Portfolio in-
vests may include fixed-income securities of quality comparable to the fixed-
income securities described above as determined by the Adviser (i) issued or
guaranteed, as to payment of principal and interest, by governments, quasi-
governmental entities, governmental agencies or other governmental entities
(collectively, "Government Entities") and (ii) of foreign corporate issuers,
denominated in foreign currencies or in U.S. Dollars (including fixed-income
securities of a Government Entity or foreign corporate issuer in a country de-
nominated in the currency of another country). The Portfolio may also invest
in equity securities of foreign corporate issuers. See "Investment Objective
and Policies -- Utilities Industry -- Foreign Utilities." For a description of
certain risks associated with investment in foreign securities, see "Other In-
vestment Policies and Techniques -- Foreign Securities," below.

In addition to purchasing corporate securities of foreign issuers in foreign
securities markets, the Portfolio may invest in American Depositary Receipts
(ADRs), Global Depositary Receipts (GDRs) and other types of Depository Re-
ceipts (which, together with ADRs and GDRs, are hereinafter referred to as
"Depositary Receipts"). Depositary Receipts may not necessarily be denominated
in the same currency as the underlying securities into which they may be con-
verted. In addition, the issuers of the stock of unsponsored Depositary Re-
ceipts are not obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such information and
the market value of the Depositary Receipts. ADRs are Depositary Receipts typ-
ically issued by a United States bank or trust company which evidence owner-
ship of underlying securities issued by a foreign corporation. GDRs and other
types of Depositary Receipts are typically issued by foreign banks or trust
companies, although they also may be issued by United States banks or trust
companies, and evidence ownership of underlying securities issued by either a
foreign or a United States corporation. Generally, Depositary Receipts in reg-
istered form are designed for use in the U.S. securities markets and Deposi-
tary Receipts in bearer form are designed for use in foreign securities mar-
kets. For purposes of the Portfolio's investment policies, the Portfolio's in-
vestments in ADRs will be deemed to be investments in securities issued by
United States issuers and the Portfolio's investments in GDRs and other types
of Depositary Receipts will be deemed to be investments in the underlying se-
curities.

53
<PAGE>

The Portfolio will also be authorized to invest in securities of supranational
entities denominated in the currency of any country. A supranational entity is
an entity designated or supported by the national government of one or more
countries to promote economic reconstruction or development. Examples of su-
pranational entities include, among others, the World Bank (International Bank
for Reconstruction and Development) and the European Investment Bank. The gov-
ernmental members, or "stockholders," usually make initial capital contribu-
tions to the supranational entity and in many cases are committed to make ad-
ditional contributions if the supranational entity is unable to repay its
borrowings. Each supranational entity's lending 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. The Portfolio may, in
addition, invest in securities denominated in European Currency Units. A Euro-
pean Currency Unit is a basket of specified amounts of the currencies of the
twelve member states of the European Economic Community. The Portfolio is fur-
ther authorized to invest in "semi-governmental securities," which are securi-
ties issued by entities owned by either a national state or equivalent govern-
ment or are obligations of one of such government jurisdictions which are not
backed by its full faith and credit and general taxing powers. An example of a
semi-governmental issuer is the City of Stockholm.

INVESTMENT PRACTICES

The Portfolio may utilize various investment strategies to hedge its invest-
ment portfolio against currency and other risks. The Portfolio may write cov-
ered put and call options and purchase put and call options on U.S. and for-
eign securities exchanges and over-the-counter, enter into contracts for the
purchase and sale for future delivery of fixed income securities or foreign
currencies or contracts based on financial indices or common stocks and pur-
chase and write put and call options on such futures contracts or on foreign
currencies and purchase or sell forward foreign currency exchange contracts.
In furtherance of its investment policies, the Portfolio may enter into inter-
est rate swaps and may purchase or sell interest rate caps and floors and may
purchase and sell options on fixed income securities. The Portfolio may also
enter into forward commitments for the purchase or sale of securities, enter
into repurchase agreements, standby commitments and make secured loans of its
portfolio securities. See "Other Investment Policies and Techniques."

54
<PAGE>

Future Developments. The Portfolio may, following written notice to its share-
holders, take advantage of other investment practices which are not at present
contemplated for use by the Portfolio or which currently are not available but
which may be developed, to the extent such investment practices are both con-
sistent with the Portfolio's investment objective and legally permissible for
the Portfolio. Such investment practices, if they arise, may involve risks
which exceed those involved in the activities described above.

GROWTH INVESTORS PORTFOLIO AND
CONSERVATIVE INVESTORS PORTFOLIO

The Conservative Investors Portfolio and Growth Investors Portfolio invest in
a variety of fixed-income securities, money market instruments and equity se-
curities, each pursuant to a different asset allocation strategy, as described
below. The term "asset allocation" is used to describe the process of shifting
assets among discrete categories of investments in an effort to adjust risk
while producing desired return objectives. Portfolio management, therefore,
will consist not only of specific securities selection but also of setting,
monitoring and changing, when necessary, the asset mix.

Each Portfolio has been designed with a view toward a particular "investor
profile." The "conservative investor" has a relatively short-term investment
bias, either because of a limited tolerance for market volatility or a short
investment horizon. This investor is adverse to taking risks that may result
in principal loss, even though such aversion may reduce the potential for
higher long-term gains and result in lower performance during periods of eq-
uity market strength. Consequently, the asset mix for the Conservative Invest-
ors Portfolio attempts to reduce volatility while providing modest upside po-
tential. The "growth investor" has a longer-term investment horizon and is
therefore willing to take more risks in an attempt to achieve long-term growth
of principal. This investor wishes, in effect, to be risk conscious without
being risk averse. The asset mix for the Growth Investors Portfolio should
therefore provide for upside potential without excessive volatility.

The Adviser has established an asset allocation committee (the "Committee"),
all the members of which are employees of the Adviser, which is responsible
for setting and continually reviewing the asset mix ranges of each Portfolio.
The Committee generally meets at least twice each month. Under normal market
conditions, the Committee is expected to change allocation ranges approxi-
mately three to five times per year. However, the Committee has broad latitude
to establish the frequency, as well as the magnitude, of allocation changes
within the guidelines established for each Portfolio. During periods of severe
market disruption, allocation ranges may change frequently. It is also possi-
ble that in periods of stable and consistent outlook no change will be made.
The Committee's decisions are based on and may be limited by a variety of fac-
tors, including liquidity, portfolio size, tax consequences and general market
conditions, always within the context of the appropriate investor profile for
each Portfolio. Consequently, asset mix decisions for the Conservative Invest-
ors Portfolio particularly emphasize risk assessment of each asset class
viewed over the

55
<PAGE>

shorter term, while decisions for the Growth Investors Portfolio are princi-
pally based on the longer term total return potential for each asset class.

The Portfolios are permitted to use a variety of hedging techniques to attempt
to reduce market interest rate and currency risks.

INVESTMENT POLICIES

Conservative Investors Portfolio. The investment objective of the Conservative
Investors Portfolio is to achieve a high total return without, in the view of
the Adviser, undue risk of principal. The Conservative Investors Portfolio at-
tempts to achieve its investment objective by allocating varying portions of
its assets among investment grade, publicly traded fixed-income securities,
money market instruments and publicly traded common stocks and other equity
securities of United States and non-United States issuers. The average
weighted maturity of the Portfolio's portfolio of fixed-income securities is
expected to vary between less than one year to 30 years. See "Other Investment
Policies and Techniques--Fixed Income Securities."

All fixed-income securities owned by the Portfolio will be of investment
grade. This means that they will be in one of the top four rating categories
assigned by S&P or Moody's or will be unrated securities of comparable quality
as determined by the Adviser. Securities in the fourth such rating category
(rated Baa by Moody's or BBB by S&P) have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity to make principal and interest payments on such obliga-

tions than in the case of higher-rated securities. See "Other Investment Poli-
cies and Techniques--Securities Ratings," "--Investment in Fixed-Income Secu-
rities Rated Baa and BBB" and Appendix A. In the event that the rating of any
security held by the Conservative Investors Portfolio falls below investment
grade (or, in the case of an unrated security, the Adviser determines that it
is no longer of investment grade), the Portfolio will not be obligated to dis-
pose of such security and may continue to hold the obligation if, in the opin-
ion of the Adviser, such investment is considered appropriate in the circum-
stances.

Equity securities invested in by the Conservative Investors Portfolio will
consist of common stocks and securities convertible into common stocks, such
as convertible bonds, convertible preferred stocks and warrants, issued by
companies with a favorable outlook for earnings and whose rate of growth is
expected to exceed that of the United States' economy over time.

The Conservative Investors Portfolio will at all times hold at least 40% of
its total assets in investment grade fixed-income securities, each having a
duration less than that of a 10-year Treasury bond (the "Fixed Income Core").
The duration of a fixed-income security is the weighted average maturity, ex-
pressed in years, of the present value of all future cash flows, including
coupon payments and principal repayments.

The Conservative Investors Portfolio is generally expected to hold approxi-
mately 70% of its total assets in fixed-income securities (including the Fixed
Income Core) and 30% in equity securities. Actual asset

56
<PAGE>

mixes will be adjusted in response to economic and credit market cycles. The
fixed-income asset class will always comprise at least 50%, but never more
than 90%, of the Portfolio's total assets. The equity class will always com-
prise at least 10%, but never more than 50%, of the Portfolio's total assets.
The fixed-income class includes money market instruments. For temporary defen-
sive purposes, the Portfolio may invest in money market instruments.

Growth Investors Portfolio. The investment objective of the Growth Investors
Portfolio is to achieve the highest total return consistent with the Adviser's
determination of reasonable risk. The Portfolio attempts to achieve its in-
vestment objective by allocating varying portions of its assets among a number
of asset classes. Equity investments will include publicly traded common
stocks and other equity securities of the type in which the Conservative In-
vestors Portfolio may invest but may also include equity securities issued by
intermediate and small-sized companies with favorable growth prospects, compa-
nies in cyclical industries, companies whose securities are temporarily under-
valued, companies in special situations and less widely known companies.
Fixed-income investments will include investment grade fixed-income securities
(including cash and money market instruments) and may include securities that
are rated in the lower rating categories by recognized ratings agencies (i.e.,
Ba or lower by Moody's or BB or lower by S&P) or that are unrated but deter-
mined by the Adviser to be of comparable quality. Lower-rated fixed-income se-
curities generally provide greater current income than higher rated fixed-in-
come securities, but are subject to greater credit and market risk. The Port-
folio will not invest more than 25% of its total assets in securities rated
below investment grade, that is, securities rated Ba or lower by Moody's or BB
or lower by S&P, or unrated securities deemed to be of comparable quality by
the Adviser. See "Other Investment Policies and Techniques--Securities Rat-
ings," "--Investment in Lower-Rated Fixed-Income Securities" and Appendix A.

The Growth Investors Portfolio will at all times hold at least 40% of its to-
tal assets in publicly traded common stocks and other equity securities of the
type purchased by the Conservative Investors Portfolio (the "Equity Core").
The Growth Investors Portfolio is generally expected to hold approximately 70%
of its total assets in equity securities (including the Equity Core) and 30%
in fixed-income securities. Actual asset mixes will be adjusted in response to
economic and credit market cycles. The fixed-income asset class will always
comprise at least 10%, but never more than 60%, of the Portfolio's total as-
sets. The equity class will always comprise at least 40%, but never more than
90%, of the Portfolio's total assets. The fixed-income class includes money
market instruments. The average weighted maturity of the Portfolio's portfolio
of fixed-income securities is expected to vary between less than one year to
30 years. See "Other Investment Policies and Techniques--Fixed
IncomeSecurities." For temporary defensive purposes, the Portfolio may invest
in money market instruments.

ADDITIONAL INVESTMENT POLICIES AND TECHNIQUES

Foreign Securities. Each of the Conservative Investors Portfolio and Growth
Investors

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<PAGE>

Portfolio may invest without limit in securities which are not publicly traded
in the United States, although the Conservative Investors Portfolio generally
will not invest more than 15% of its total assets, and the Growth Investors
Portfolio generally will not invest more than 30% of its total assets, in such
securities.

The Growth Investors Portfolio may invest a portion of its assets in develop-
ing countries or in countries with new or developing capital markets. The
risks associated with investment in foreign securities are generally intensi-
fied for these investments. These countries may have relatively unstable gov-
ernments, economies based on only a few industries or securities markets that
trade a small number of securities. Securities of issuers located in these
countries tend to have volatile prices and may offer significant potential for
loss as well as gain.

The value of foreign investments measured in U.S. dollars will rise or fall
because of decreases, respectively, in the value of the U.S. dollar in compar-
ison to the value of the currency in which the foreign investment is denomi-
nated. The Portfolios may buy or sell foreign currencies, options on foreign
currencies, foreign currency futures contracts (and related options) and deal
in forward foreign currency exchange contracts in connection with the purchase
and sale of foreign investments.

For a description of certain risks associated with investing in foreign secu-
rities, see "Other Investment Policies and Techniques--Foreign Securities,"
below.

Non-Publicly Traded Securities. Each Portfolio may invest in securities which
are not publicly traded, including securities sold pursuant to Rule 144A under
the Securities Act of 1933 ("Rule 144A Securities"). The sale of these securi-
ties is usually restricted under Federal securities laws, and market quo-
tations may not be readily available. As a result, a Portfolio may not be able
to sell these securities (other than Rule 144A Securities) unless they are
registered under applicable Federal and state securities laws, or may have to
sell them at less than fair market value. Investment in these securities is
restricted to 5% of a Portfolio's total assets (not including for these pur-
poses 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
total 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 Board of Directors. See "Other Investment Policies and
Techniques--Illiquid Securities," below.

Mortgage-Backed Securities. Each Portfolio may invest in mortgage-backed secu-
rities, including collateralized mortgage obligations or "CMOs." Interest and
principal payments (including prepayments) on the mortgages underlying mort-
gage-backed securities are passed through to the holders of the mortgage-
backed security. Prepayments occur when the mortgagor on an individual mort-
gage prepays the remaining principal before the mortgage's scheduled maturity
date. As a result of the pass-through of prepayments of principal on the un-
derlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated

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<PAGE>

maturity would indicate. Because the prepayment characteristics of the under-
lying mortgages vary, it is not possible to predict accurately the realized
yield or average life of a particular issue of pass-through certificates. Pre-
payments are important because of their effect on the yield and price of the
mortgage-backed securities. During periods of declining interest rates, such
prepayments can be expected to accelerate and the Portfolios would be required
to reinvest the proceeds at the lower interest rates then available. In addi-
tion, prepayments of mortgages which underlie securities purchased at a premium
could result in capital losses.

The Portfolios may also invest in certificates representing rights to receive
payments of the interest only or principal only of mortgage-backed securities
("IO/PO Strips"). These securities may be more volatile than other types of se-
curities. IO Strips involve the additional risk of loss of the entire remaining
value of the investment if the underlying mortgages wereprepaid.

Adjustable Rate Securities. Each Portfolio may invest in adjustable rate secu-
rities. Adjustable rate securities are securities that have interest rates that
are reset at periodic intervals, usually by reference to some interest rate in-
dex or market interest rate. Some adjustable rate securities are backed by
pools of mortgage loans. Although the rate adjustment feature may act as a
buffer to reduce sharp changes in the value of adjustable rate securities,
these securities are still subject to changes in value based on changes in mar-
ket interest rates or changes in the issuer's creditworthiness. Because the in-
terest rate is reset only periodically, changes in the interest rate on adjust-
able rate securities may lag behind changes in prevailing market interest
rates. Also, some adjustable rate securities (or the underlying mortgages) are
subject to caps or floors that limit the maximum change in interest rate during
a specified period or over the life of the security.

Asset-Backed Securities. Each Portfolio may invest in asset-backed securities
which represent fractional interests in pools of leases, retail installment
loans or revolving credit receivables, both secured and unsecured. These assets
are generally held by a trust and payments of principal and interest or inter-
est only are passed through monthly or quarterly to certificate holders and may
be guaranteed up to certain amounts by letters of credit issued by a financial
institution affiliated or unaffiliated with the trustee or originator of the
trust.

Underlying automobile sales contracts or credit card receivables are subject to
prepayment, which may reduce the overall return to certificate holders. Never-
theless, principal repayment rates tend not to vary much with interest rates
and the short-term nature of the underlying car loans or other receivables
tends to dampen the impact of any change in the prepayment level. Certificate
holders may also experience delays in payment on the certificates if the full
amounts due on underlying sales contracts or receivables are not realized by
the trust because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If consistent with
its investment objective and policies, the Portfolio may invest in

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other asset-backed securities that may be developed in the future.

Investments in High-Yield Securities. The Growth Investors Portfolio may in-
vest 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 Adviser to be of comparable quality ("high-yield secu-
rities"). The Growth Investors 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 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 Adviser to be of compa-
rable quality, if the Portfolio's management determines that there are pros-
pects for an upgrade or a favorable conversion into equity securities (in the
case of convertible securities). Securities rated Ba or BB or lower (and com-
parable unrated securities) are commonly referred to as "junk bonds." Securi-
ties rated D by S&P are in default. See "Other Investment Policies and Tech-
niques--Securities Ratings," "--Investment in Lower-Rated Fixed-Income Securi-
ties" and Appendix A.

In the event that the credit rating of a high-yield security held by the Port-
folio falls below its rating at the time of purchase (or, in the case of
unrated securities, the Adviser determines that the quality of such security
has deteriorated since purchased by the Portfolio), the Portfolio will not be
obligated to dispose of such security and may continue to hold the obligation
if, in the opinion of the Adviser, such investment is considered appropriate
in the circumstances.

Convertible Securities. Each Portfolio may invest in convertible securities.
These securities normally provide a higher yield than the underlying stock but
lower than a fixed-income security without the convertible feature. Also, the
price of the convertible security will normally vary to somedegree with
changes in the price of the underlying stock although in some market condi-
tions the higher yield tends to make the convertible security less volatile
than the underlying common stock. In addition, the price of the convertible
security will also vary to some degree inversely with interest rates. Convert-
ible debt securities that are rated below BBB (S&P) or Baa (Moody's) or compa-
rable unrated securities as determined by the Adviser may share some or all of
the risks of high-yield securities. For a description of these risks, see "In-
vestments in High-Yield Securities" above.

Zero-Coupon and Payment-in-Kind Bonds. The Portfolios may at times invest in
so-called "zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon bonds
are issued at a significant discount from their principal amount in lieu of
paying interest periodically. 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. Because zero-coupon bonds do not pay current interest, their
value is generally subject to greater fluctuation in response to changes in
market interest rates than bonds which pay interest currently. Both zero-cou-
pon and payment-in-kind bonds allow an issuer to avoid the need to

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<PAGE>

generate cash to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds paying interest currently. Even though
such bonds do not pay current interest in cash, a Portfolio is nonetheless re-
quired to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, a Portfolio could be required
at times to liquidate other investments in order to satisfy its dividend re-
quirements.

Futures and Options. Each Portfolio may buy and sell stock index futures con-
tracts ("index futures") and may buy options on index futures and on stock in-
dices for hedging purposes. A 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 Portfolios 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.
Each 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 use of futures and options involves certain special risks. Futures and op-
tions transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of futures and options and movements in the prices of the underlying
stock index or security or of the securities in a Portfolio's portfolio that
are the subject of a hedge. The successful use of the strategies described
above further depends on the Portfolio's Adviser's ability to forecast market
movements correctly. Other risks arise from a Portfolio's potential inability
to close out its futures or options positions. In addition there can be no as-
surance that a liquid secondary market will exist for any future or option at
any particular time. Certain provisions of the Internal Revenue Code and cer-
tain regulatory requirements may limit the Portfolios' ability to engage in
futures and options transactions.

Securities Loans, Repurchase Agreements and Forward Commitments. Each Portfo-
lio 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 as-
sets. These transactions must be fully collateralized at all times, but in-
volve some risk to a Fund if the other party should default on its obligation
and the Portfolio is delayed or prevented from recovering the collateral. Each
Portfolio 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.

GROWTH PORTFOLIO

General. The Growth Portfolio's investment objective 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 United States economy over time.

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<PAGE>

The 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 gen-
erally, when the 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 or BB or lower by S&P, or in unrated fixed income
securities determined by the Adviser to be of comparable quality. For a de-
scription of the ratings referred to above, see Appendix A. For temporary de-
fensive purposes, the Portfolio may invest in money market instruments and re-
purchase agreements.

Foreign Securities. The Portfolio may invest without limit in securities which
are not publicly traded in the United States, although the Portfolio generally
will not invest more than 15% of its total assets in such securities.

The value of foreign investments measured in U.S. dollars will rise or fall
because of decreases or increases, respectively, in the value of the U.S. dol-
lar in comparison to the value of the currency in which the foreign investment
is denominated. The Fund may buy or sell foreign currencies, options on for-
eign currencies, foreign currency futures contracts (and related options) and
deal in forward foreign currency exchange contracts in connection with the
purchase and sale of foreign investments. For a description of certain risks
associated with investing in foreign securities, see "Other Investment Poli-
cies and Techniques--Foreign Securities," below.

Non-Publicly Traded Securities. The Portfolio may invest in securities which
are not publicly traded, including securities sold pursuant to Rule 144A under
the Securities Act of 1933 ("Rule 144A Securities"). The sale of these securi-
ties is usually restricted under Federal securities laws, and market quota-
tions may not be readily available. As a result, the Portfolio may not be able
to sell these securities (other than Rule 144A Securities) unless they are
registered under applicable Federal and state securities laws, or may have to
sell them at less than fair market value. Investment in these securities is
restricted to 5% of the Portfolio's total assets (not including for these pur-
poses 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
total 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 Board of Directors. See "Other Investment Policies and
Techniques--Illiquid Securities," below.

Investments in High-Yield Securities. The Growth 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 BB or lower by S&P, or, it unrated, judged by
the Adviser to be of comparable quality ("high-yield securities"). The Portfo-
lio will generally invest in securities with a minimum rating of Caa by

62
<PAGE>

Moody's or CCC by S&P or in unrated securities judged by the 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 Adviser to be of comparable quality, if the Portfo-
lio's management determines that there are prospects for an upgrade or a fa-
vorable conversion into equity securities (in the case of convertible securi-
ties). Securities rated Ba or BB or lower (and comparable unrated securities)
are commonly referred to as "junk bonds." Securities rated D by S&P are in de-
fault. See "Other Investment Policies and Techniques--Securities Ratings,"
"Investment in Lower-Rated Fixed-Income Securities" and Appendix A.

Convertible Securities. The Growth Portfolio may invest in convertible securi-
ties. These securities normally provide a higher yield than the underlying
stock but lower than a fixed-income security without the convertible feature.
Also, the price of the convertible security will normally vary to some degree
with changes in the price of the underlying stock although in some market con-
ditions the higher yield tends to make the convertible security less volatile
than the underlying common stock. In addition, the price of the convertible
security will also vary to some degree inversely with interest rates. Convert-
ible debt securities that are rated below BBB (S&P) or Baa (Moody's) or compa-
rable unrated securities as determined by the Adviser may share some or all of
the risks of high-yield securities. For a description of these risks, see "In-
vestments in High-Yield Securities" above.

Zero-Coupon and Payment-in-Kind Bonds. The Portfolio may at times invest in
so-called "zero-coupon" bonds and "payment-in-kind" bonds. Zero-coupon bonds
are issued at a significant discount from their principal amount in lieu of
paying interest periodically. 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. Because zero-coupon bonds do not pay current interest, their
value is generally subject to greater fluctuation in response to changes in
market interest rates than bonds which pay interest currently. Both zero-cou-
pon 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 paying interest currently. Even though such
bonds do not pay current interest in cash, the Fund is nonetheless required to
accrue interest income on such investments and to distribute such amounts at
least annually to shareholders. Thus, the Fund could be required at times to
liquidate other investments in order to satisfy its dividend requirements.

Futures and Options. The Portfolio may buy and sell stock index futures con-
tracts ("in-

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<PAGE>

dex 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, purchas-
ing 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 the
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 its owns or in which it may invest.

The use of futures and options involves certain special risks. Futures and op-
tions transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of futures and options and movements in the prices of the underlying
stock index or security or of the securities in the Portfolio's portfolio that
are the subject of the hedge. The successful use of the strategies described
above further depends on the Adviser's ability to forecast market movements
correctly. Other risks arise from the Portfolio's potential inability to close
out its futures or options positions. In addition there can be no assurance
that a liquid secondary market will exist for any future option at any partic-
ular time. Certain provisions of the Internal Revenue Code and certain regula-
tory requirements may limit the Portfolio's ability to engage in futures and
options transactions.

Securities Loans, Repurchase Agreements and Forward Commitments. The Portfolio
may lend portfolio securities amounting to not more than 25% of its total as-
sets and may enter into repurchase agreements on up to 25% of its total as-
sets. These transactions must be fully collateralized at all times but involve
some risk to the Portfolio if the other party should default on its obligation
and the Portfolio is delayed or prevented from recovering the collateral. The
Portfolio may also purchase securities for future delivery, which may increase
its overall investment exposure and involve a risk of loss if the value of the
securities declines prior to the settlement date.

WORLDWIDE PRIVATIZATION PORTFOLIO

The Worldwide Privatization Portfolio's investment objective is to seek long
term capital appreciation. In seeking to achieve its investment objective, as
a fundamental policy, the Portfolio will invest at least 65% of its total as-
sets in equity securities that are issued by enterprises that are undergoing,
or that have undergone, privatization as described below, although normally,
significantly more of the Portfolio's total assets will be invested in such
securities. The balance of the Portfolio's investment portfolio will include
securities of companies that are believed by the Adviser to be beneficiaries
of the privatization process. Equity securities include common stock, pre-
ferred stock, rights or warrants to subscribe for or purchase common or pre-
ferred stock, securities (including debt securities) convertible into common
or preferred stock and securities that give the holder the right to acquire
common or preferred stock.

Investment in Privatizations. The Portfolio is designed for investors desiring
to take advantage of investment opportunities, histori-

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<PAGE>

cally inaccessible to U.S. individual investors, that are created by
privatizations of state enterprises in both established and developing econo-
mies, including those in Western Europe and Scandinavia, Australia, New Zea-
land, Latin America, Asia and Eastern and Central Europe and, to a lesser de-
gree, Canada and the United States.

The Portfolio's investments in the securities of enterprises undergoing
privatization may comprise three distinct situations. First, the Portfolio may
invest in the initial offering of equity securities of a government- or state-
owned or controlled company or enterprise (a "state enterprise") that are
traded in a recognized national or international securities market (an "ini-
tial equity offering"). Secondly, the Portfolio may invest in the securities
of a current or former state enterprise following its initial equity offering,
including the purchase of securities in any secondary offerings. Finally, the
Portfolio may make privately negotiated investments in a state enterprise that
has not yet conducted an initial equity offering. Investments of this type may
be structured, for example, as privately negotiated sales of stock or other
equity interests in joint ventures, cooperatives or partnerships. In the opin-
ion of the Adviser, substantial potential for appreciation in the value of eq-
uity securities of an enterprise undergoing or following privatization exists
as the enterprise rationalizes its management structure, operations and busi-
ness strategy to position itself to compete efficiently in a market economy,
and the Portfolio will seek to emphasize investments in the equity securities
of such enterprises.

The Portfolio intends to spread its portfolio investments among the capital
markets of a number of countries and, under normal market conditions, will in-
vest in the equity securities of issuers based in at least four, and normally
considerably more, countries. The percentage of the Portfolio's assets in-
vested in equity securities of companies based in a particular country will
vary in accordance with the Adviser's assessment of the appreciation potential
of such securities. There is no restriction, however, on the percentage of the
Portfolio's assets that may be invested in countries within any one region of
the world. To the extent that the Portfolio's assets are invested within any
one region, the Portfolio may be subject to any special risks that may be as-
sociated with that region. Notwithstanding the foregoing, no more than 15% of
the Portfolio's total assets will be invested in securities of issuers in any
one foreign country, except that the Portfolio may invest up to 30% of its to-
tal assets in securities of issuers in any one of France, Germany, Great Brit-
ain, Italy and Japan.

Privatization is a process through which the ownership and control of compa-
nies or assets changes in whole or in part from the public sector to the pri-
vate sector. Through privatization a government or state divests or transfers
all or a portion of its interest in a state enterprise to some form of private
ownership. In contrast, nationalization is the process through which a govern-
ment or state assumes control of a privately owned enterprise. Privatizations
may take the form of individually negotiated transactions, including trade
sales or management buy-outs, or an offering of equity securities. Governments
and states with established economies, including, among others, France, Great
Britain, Germany and Italy, and those with developing
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<PAGE>

economies, including, among others, Argentina, Mexico, Chile, Indonesia, Ma-
laysia, Poland and Hungary, are currently engaged in privatizations. The Port-
folio will invest in the securities of enterprises, in any country, that in
the Adviser's opinion present attractive investment opportunities, and the
countries in which the Portfolio will invest may change from time to time. It
is the Adviser's intention to invest approximately 70% of the Portfolio's to-
tal assets in securities of enterprises located in countries with established
economies and the remainder of the Portfolio's assets in securities of enter-
prises located in countries with developing economies.

The trend toward privatization of state enterprises is a global phenomenon
that the Adviser expects will continue into the next century. In addition, the
Adviser believes that a global portfolio of equity securities of state enter-
prises that are undergoing privatization offers investors the opportunity for
significant capital appreciation relative to local and regional stock market
indices.

A major premise of the Portfolio's investment approach is that, because of the
particular characteristics of privatized companies, their equity securities
offer investors opportunities for significant capital appreciation. In partic-
ular, because privatization programs are an important part of a country's eco-
nomic restructuring, equity securities that are brought to the market by means
of initial equity offerings frequently are priced to attract investment in or-
der to secure the issuer's successful transition to private sector ownership.
In addition, these enterprises generally tend to enjoy dominant market posi-
tions in their local markets. Because of the relaxation of government controls
upon privatization, these enterprises typically have the potential for signif-
icant managerial and operational efficiency gains, which, among other factors,
can increase their earnings due to the restructuring that accompanies
privatization and the incentives management frequently receives.

Individual regions and countries have different histories of involvement in
the privatization process. For example, the countries that formerly consti-
tuted the Soviet Union and the Eastern Bloc are currently exploring
privatization partly as a means of integrating into the international communi-
ty, while certain Western European and Latin American countries have had
privatization programs in place for more than ten years. The cumulative gross
proceeds from major privatizations worldwide increased from $39.5 billion in
1988 to $240 billion in 1993.

Privatization programs are established to address a range of economic, politi-
cal or social needs. Privatization is generally viewed as a means to achieve
increased efficiency and improve the competitiveness of state enterprises.
Western European countries are currently engaged in privatization programs
partly as a means of increasing government revenues, thereby reducing budget
deficits. The reduction of budget deficits recently has become an important
objective as Western European countries attempt to meet the directives of the
European Commission regarding debt and achieve the target budget deficit lev-
els established by the Maastricht Treaty. In developing market countries, in-
cluding many of those in Latin America and Asia,

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<PAGE>

privatization is viewed as an integral part of broad economic measures that
are designed to reduce external debt and control inflation as these countries
attempt to meet the directives of the International Bank for Reconstruction
and Development (the World Bank) and the International Monetary Fund regarding
desirable debt levels. Within Eastern and Central Europe, privatization is
also being used as a means of achieving structural economic changes that will
enable Eastern and Central European countries to develop market economies and
compete in the world markets.

The privatization of state enterprises is achieved through various methods. A
gradual approach is commonly taken at the early stages of privatization within
a country. Oftentimes, the government will transfer partial ownership of the
enterprise to a corporation or similar entity and occasionally also broaden
ownership to employees and citizens while retaining an interest. Occasionally,
a few selected foreign minority shareholders are permitted to make private in-
vestments at this stage. After the new corporation has operated under this
form of ownership for a few years, the government may divest itself completely
by means of an equity offering in national and international securities mar-
kets. Another approach is the formation of an investment fund owned by employ-
ees and citizens that, with the assistance of international managers, operates
one or many state enterprises for a set term, after which the government may
divest itself of its remaining interest. Foreign investors are often permitted
to become minority shareholders of these investment funds. In less gradual
privatizations, state enterprises are auctioned to qualified investors through
competitive bidding processes in private transactions. Alternatively, equity
offerings may be made directly through the local and international securities
markets.

Although the Portfolio anticipates that it generally will not concentrate its
investments in any industry, it is permitted, under certain conditions, to in-
vest more than 25% of its total assets in the securities of issuers whose pri-
mary business activity is that of national commercial banking. Prior to con-
centrating in the securities of national commercial banks, the Fund's Board of
Directors would have to determine, based on factors in existence at the time
of the determination, such as liquidity, availability of investments and an-
ticipated returns, that the Portfolio's ability to achieve its investment ob-
jective would be adversely affected if the Portfolio were not permitted to in-
vest more than 25% of its total assets in those securities. The Adviser antic-
ipates that such circumstances could include periods during which returns on
or market liquidity of investments in national commercial banks substantially
exceed those available on investments in other industries. The staff of the
Securities and Exchange Commission has indicated that, in its view, registered
investment companies may not, absent shareholder approval, change between con-
centration and non- concentration in the securities of issuers in a single in-
dustry. The Portfolio disagrees with the staff's position but has undertaken
that it will not concentrate in the securities of national commercial banks
until final resolution of the issue. There can be no assurance that the issue
will be resolved so as to permit the Portfolio to change between con-

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<PAGE>

centration and non-concentration in the manner described above in this para-
graph. To the extent that the Portfolio invests more than 25% of its total as-
sets in the national commercial banks, the Portfolio's performance could be
significantly influenced by events or conditions affecting this industry and
the Portfolio's investments may be subject to greater risk and market fluctua-
tion than those of a fund that has in its portfolio securities representing a
broader range of investment alternatives. The national commercial banking in-
dustry is subject to, among other things, increases in interest rates and dete-
riorations in general economic conditions.

Warrants. The Portfolio may invest up to 20% of its total assets in rights or
warrants which entitle the holder to buy equity securities at a specific price
for a specific period of time, but will do so only if the equity securities
themselves are deemed appropriate by the Adviser for inclusion in the Portfo-
lio's portfolio. Rights and warrants may be considered more speculative than
certain other types of investments in that they do not entitle a holder to div-
idends or voting rights with respect to the securities which may be purchased
nor do they represent any rights in the assets of the issuing company. Also,
the value of a right or warrant does not necessarily change with the value of
the underlying securities and a right or warrant ceases to have value if it is
not exercised prior to the expiration date.

Debt Securities and Convertible Debt Securities. The Portfolio may invest up to
35% of its total assets in debt securities and convertible debt securities of
issuers whose common stocks are eligible for purchase by the Portfolio under
the investment policies described above. Debt securities include bonds, deben-
tures, corporate notes and preferred stocks. Convertible debt securities are
such instruments that are convertible at a stated exchange rate into common
stock. Prior to their conversion, convertible securities have the same general
characteristics as non-convertible debt securities which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The market value of debt securities and con-
vertible debt securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. While convertible securities
generally offer lower interest yields than non- convertible debt securities of
similar quality, they do enable the investor to benefit from increases in the
market price of the underlying common stock.

The Portfolio may maintain not more than 5% of its net assets in debt securi-
ties rated below Baa by Moody's and BBB by S&P, or, if not rated, determined by
the Adviser to be of equivalent quality. See "Other Investment Policies and
Techniques -- Securities Ratings," "-- Investment in Securities Rated Baa and
BBB," "-- Investment in Lower-Rated Fixed-Income Securities" and Appendix A.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

The Portfolio may, but is not required to, utilize various investment strate-
gies to hedge its portfolio against currency and other risks. These investment
strategies entail risks. Although the Adviser believes that these investment
strategies may further the Portfolio's investment objective,

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<PAGE>

no assurance can be given that they will achieve this result. The Portfolio
may write covered put and call options and purchase put and call options on
U.S. and foreign securities exchanges and over-the-counter, enter into con-
tracts for the purchase and sale for future delivery of fixed-income securi-
ties or foreign currencies or contracts based on financial indices, including
any index of U.S. Government Securities or securities issued by foreign gov-
ernment entities or common stocks and purchase and write put and call options
on such futures contracts or on foreign currencies, purchase or sell forward
foreign currency exchange contracts, enter into forward commitments for the
purchase or sale of securities, enter into repurchase agreements, standby com-
mitment agreements and currency swaps, make short sales of securities and make
secured loans of its portfolio securities. Certain of these investment strate-
gies may not currently be available in many of the countries in which the
Portfolio may invest or may not be permissible under current law. The Portfo-
lio may engage in these investment strategies in those countries when and to
the extent such strategies become available or permissible in the future. Ex-
cept with regard to those investment strategies discussed immediately below,
each of these investment strategies is discussed under the caption "Other In-
vestment Policies and Techniques," below.

Currency Swaps. The Portfolio may enter into currency swaps for hedging pur-
poses. Currency swaps involve the exchange by the Portfolio with another party
of a series of payments in specified currencies. Since currency swaps are in-
dividually negotiated, the Portfolio expects to achieve an acceptable degree
of correlation between its portfolio investments and its currency swaps posi-
tions. A currency swap may involve the delivery at the end of the exchange pe-
riod of a substantial amount of one designated currency in exchange for the
other designated currency. Therefore the entire principal value of a currency
swap is subject to the risk that the other party to the swap will default on
its contractual delivery obligations. The net amount of the excess, if any, of
the Portfolio's obligations over its entitlements with respect to each cur-
rency swap will be accrued on a daily basis and an amount of cash or high-
grade liquid debt securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by the
Portfolio's custodian. The Portfolio will not enter into any currency swap un-
less the credit quality of the unsecured senior debt or the claims-paying
ability of the other party thereto is rated in the highest rating category of
at least one nationally recognized rating organization at the time of entering
into the transaction. If there is a default by the other party to such a
transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transactions.

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<PAGE>

net assets (taken at market value) is held as collateral for short sales at
any one time. If the price of the security sold short increases between the
time of the short sale and the time the Portfolio replaces the borrowed secu-
rity, the Portfolio will incur a loss; conversely, if the price declines, the
Portfolio will realize a capital gain.

Future Developments. The Portfolio may, following written notice to its share-
holders, take advantage of other investment practices which are not at present
contemplated for use by the Portfolio or which currently are not available but
which may be developed, to the extent such investment practices are both con-
sistent with the Portfolio's investment objective and legally permissible for
the Portfolio. Such investment practices, if they arise, may involve risks
which exceed those involved in the activities described above.

CERTAIN RISK CONSIDERATIONS

Investment in the Portfolio involves the special risk considerations described
below.

Investment in Privatized Enterprises. The governments of certain foreign coun-
tries have, to varying degrees, embarked on privatization programs contemplat-
ing the sale of all or part of their interests in state enterprises. In cer-
tain jurisdictions, the ability of foreign entities, such as the Portfolio, to
participate in privatizations may be limited by local law, or the price or
terms on which the Portfolio may be able to participate may be less advanta-
geous than for local investors. Moreover, there can be no assurance that gov-
ernments that have embarked on privatization programs will continue to divest
their ownership of state enterprises, that proposed privatizations will be
successful or that governments will not re-nationalize enterprises that have
been privatized. Furthermore, in the case of certain of the enterprises in
which the Portfolio may invest, large blocks of the stock of those enterprises
may be held by a small group of stockholders, even after the initial equity
offerings by those enterprises. The sale of some portion or all of those
blocks could have an adverse effect on the price of the stock of any such en-
terprise.

Most state enterprises or former state enterprises go through an internal re-
organization of management prior to mailing an initial equity offering in an
attempt to better enable these enterprises to compete in the private sector.
However, certain reorganizations could result in a management team that does
not function as well as the enterprise's prior management and may have a nega-
tive effect on such enterprise. After making an initial equity offering enter-
prises which may have enjoyed preferential treatment from the respective state
or government that owned or controlled them may no longer receive such prefer-
ential treatment and may become subject to market competition from which they
were previously protected. Some of these enterprises may not be able to effec-
tively operate in a competitive market and may suffer losses or experience
bankruptcy due to such competition. In addition, the privatization of an en-
terprise by its government may occur over a number of years, with the govern-
ment continuing to hold a controlling position in the enterprise even after
the initial equity offering for the enterprise.

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Currency Considerations. Because substantially all of the Portfolio's assets
will be invested in securities denominated in foreign currencies and a
corresponding portion of the Portfolio's revenues will be received in such
currencies, the dollar equivalent of the Portfolio's net assets and
distributions will be ad-versely affected by reductions in the value of certain
foreign currencies rel-ative to the U.S. dollar. Such changes will also affect
the Portfolio's in-come. The Portfolio will, however, have the ability to
protect itself against adverse changes in the values of foreign currencies by
engaging in certain of the investment practices listed above. If the value of
the foreign currencies in which the Portfolio receives its income falls
relative to the U.S. dollar between receipt of the income and the making of
Portfolio distributions, the Portfolio may be required to liquidate securities
in order to make distribu-tions if the Portfolio has insufficient cash in U.S.
dollars to meet distribu-tion requirements. Similarly, if an exchange rate
declines between the time the Portfolio incurs expenses in U.S. dollars and the
time cash expenses are paid, the amount of the currency required to be
converted into U.S. dollars in order to pay expenses in U.S. dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, the Portfolio may engage in
certain currency hedging transactions, which themselves involve certain special
risks. See "Other Investment Policy and Techniques -- Hedging Techniques."

Risk of Foreign Investment. For a description of certain risks associated with
investing in foreign securities, see "Other Investing Policies and Tech-
niques -- Foreign Securities," below.

OTHER INVESTMENT POLICIES AND TECHNIQUES

Except as otherwise noted below, the following description of other investment
policies is applicable to all sixteen of the Fund's Portfolios:

REPURCHASE AGREEMENTS

Any Portfolio, except the Total Return Portfolio, may enter into agreements
pertaining to U.S. Government Securities or, in the case of the North American
Government Income Portfolio, the Global Dollar Government Portfolio, the Util-
ity Income Portfolio, the Conservative Investors Portfolio, the Growth Invest-
ors Portfolio and the Growth Portfolio, pertaining to the types of securities
in which it invests, with member banks of the Federal Reserve System or "pri-
mary dealers" (as designated by the Federal Reserve Bank of New York) and, in
the case of the Money Market Portfolio, with State Street Bank and Trust Com-
pany, the Fund's Custodian, in such securities. There is no percentage re-
striction on the ability of the Global Dollar Government Portfolio, the North
American Government Income Portfolio, the Utility Income Portfolio and the
Worldwide Privatization Portfolio to enter into repurchase agreements. The
North American Government Income Portfolio and the Utility Income Portfolio
currently intend to enter into repurchase agreements only with the Fund's Cus-
todian and such primary dealers.

A repurchase agreement arises when a buyer purchases a security and simultane-
ously agrees to resell it to the vendor at an agreed-upon future date, nor-
mally one day or a few days later. The resale price is greater than the pur-
chase price, reflecting an

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agreed-upon interest rate. Such agreements permit the Portfolio to keep all of
its assets at work while retaining "overnight" flexibility in pursuit of in-
vestment of a longer-term nature. Each Portfolio requires continual mainte-
nance for its account in the Federal Reserve/Treasury Book Entry System of
collateral in an amount equal to, or in excess of, the resale price. In the
event a vendor defaulted on its repurchase obligation, the Portfolio might
suffer a loss to the extent that the proceeds from the sale of the collateral
were less than the repurchase price. In the event of a vendor's bankruptcy,
the Portfolio might be delayed in, or prevented from, selling the collateral
for its benefit. The Fund's Board of Directors has established procedures,
which are periodically reviewed by the Board, pursuant to which the Adviser
monitors the creditworthiness of the dealers with which the Portfolios enter
into repurchase agreement transactions.

WRITING COVERED CALL OPTIONS

The Premier Growth Portfolio, the Growth and Income Portfolio, the U.S. Gov-
ernment/ High Grade Securities Portfolio, the High-Yield Portfolio and the To-
tal Return Portfolio may each write covered call options listed on one or more
national securities exchanges. A call option gives the purchaser of the op-
tion, upon payment of a premium to the writer of the option, the right to pur-
chase from the writer of the option a specified number of shares of a speci-
fied security on or before a fixed date, at a predetermined price. A Portfolio
permitted to write call options may not do so unless the Portfolio at all
times during the option period owns the optioned securities, or securities
convertible or carrying rights to acquire the optioned securities at no addi-
tional cost. None of the above listed Portfolios may write covered call op-
tions in excess of 25% of such Portfolio's assets.

A Portfolio may terminate its obligation to the holder of an option written by
the Portfolio through a "closing purchase transaction." The Portfolio may not,
however, effect a closing purchase transaction with respect to such an option
after it has been notified of the exercise of such option. The Portfolio real-
izes a profit or loss from a closing purchase transaction if the cost of the
transaction is more or less than the premium received by the Portfolio from
writing the option. Although the writing of covered call options only on na-
tional securities exchanges increases the likelihood of a Portfolio being able
to make closing purchase transactions, there is no assurance that a Portfolio
will be able to effect closing purchase transactions at any particular time or
at an acceptable price. The writing of covered call options could result in
increases in the portfolio turnover of a Portfolio, especially during periods
when market prices of the underlying securities appreciate.

OPTIONS

In an effort to increase current income and to reduce fluctuations in net as-
set value, the North American Government Income Portfolio, the Global Dollar
Government Portfolio, the Utility Income Portfolio, and the Worldwide
Privatization Portfolios each intend to write covered put and call options and
purchase put and call options on securities of the types in which it is per-
mitted to invest that are traded on U.S. and foreign securities exchanges.
Each Portfolio also intends to write call options for cross-hedging purposes.
There are no

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specific limitations on a Portfolio's writing and purchasing of options.

The purchaser of an option, upon payment of a premium, obtains, in the case
of a put option the right to deliver to the writer of the option, and in the
case of a call option, the right to call upon the writer to deliver, a speci-
fied amount of a security on or before a fixed date at a predetermined price.
A call option written by a Portfolio is "covered" if the Portfolio (i) owns
the underlying security covered by the call (ii) has an absolute and immediate
right to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by the Fund's Cus-
todian) upon conversion or exchange of other portfolio securities, or (iii)
holds a call on the same security in the same principal amount as the call
written where the exercise price of the call held (i) is equal to or less than
the exercise price of the call written or (ii) is greater than the exercise
price of the call written if the difference is maintained by the Portfolio in
cash and liquid high-grade debt securities in a segregated account with the
Fund's Custodian. A put option written by a Portfolio is "covered" if the
Portfolio maintains cash or liquid high-grade debt securities with a value
equal to the exercise price in a segregated account with the Fund's Custodian,
or else holds a put on the same security in the same principal amount as the
put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The premium paid by the purchaser
of an option will reflect, among other things, the relationship of the exer-
cise price to the market price and volatility of the underlying security, the
remaining term of the option, supply and demand and interest rates.

A call option is written for cross-hedging purposes if a Portfolio does not
own the underlying security, but seeks to provide a hedge against a decline in
value in another security which the Portfolio owns or has the right to ac-
quire. In such circumstances, the Portfolio collateralizes its obligation un-
der the option (which is not covered) by maintaining in a segregated account
with the Fund's Custodian cash or liquid high-grade debt securities in an
amount not less than the market value of the underlying security, marked to
market daily.

In purchasing a call option, a Portfolio would be in a position to realize a
gain if, during the option period, the price of the underlying security in-
creased by an amount in excess of the premium paid. It would realize a loss if
the price of the underlying security declined or remained the same or did not
increase during the period by more than the amount of the premium. In purchas-
ing a put option, a Portfolio would be in a position to realize a gain if,
during the option period, the price of the underlying security declined by an
amount in excess of the premium paid. It would realize a loss if the price of
the underlying security increased or remained the same or did not decrease
during that period by more than the amount of the premium. If a put or call
option purchased by a Portfolio were permitted to expire without being sold or
exercised, its premium would be lost by the Portfolio.

The risk involved in writing a put option is that there could be a decrease in
the mar-

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ket value of the underlying security. If this occurred, the option could be ex-
ercised and the underlying security would then be sold by the option holder to
the Portfolio at a higher price than its current market value. The risk in-
volved in writing a call option is that there could be an increase in the mar-
ket value of the underlying security. If this occurred, the option could be ex-
ercised and the underlying security would then be sold by the Portfolio at a
lower price than its current market value. These risks could be reduced by en-
tering into a closing transaction. See Appendix D to the Statement of Addi-
tional Information. A Portfolio retains the premium received from writing a put
or call option whether or not the option is exercised.

A Portfolio may purchase or write options on securities of the types in which
it is permitted to invest in privately negotiated transactions. A Portfolio
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions) deemed
creditworthy by the Adviser, and the Adviser has adopted procedures for moni-
toring the creditworthiness of such entities. Options purchased or written by a
Portfolio in negotiated transactions are illiquid and it may not be possible
for the Portfolio to effect a closing transaction at a time when the Adviser
believes it would be advantageous to do so. See "Illiquid Securities." See Ap-
pendix D to the Statement of Additional Information for a further discussion of
the use, risks and costs of option trading.

Each of the Global Dollar Government Portfolio, the Utility Income Portfolio
and the Worldwide Privatization Portfolio may purchase and sell exchange-traded
options on any securities index composed of the types of securities in which it
may invest. An option on a securities index is similar to an option on a secu-
rity except that, rather than the right to take or make delivery of a security
at a specified price, an option on a securities index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the chosen index is greater than (in the case of a call) or less than
(in the case of a put) the exercise price of the option. There are no specific
limitations on either Portfolio's purchasing and selling of options on securi-
ties indices.

LOANS OF PORTFOLIO SECURITIES

Each Portfolio of the Fund, except the Money Market Portfolio, may make secured
loans of its portfolio securities to brokers, dealers and financial institu-
tions provided that cash, U.S. Government securities, other liquid high-quality
debt securities or bank letters of credit equal to at least 100% of the market
value of the securities loaned is deposited and maintained by the borrower with
the Portfolio.

The risks in lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the borrower fail
financially. In determining whether to lend securities to a particular borrow-
er, the Adviser (subject to review by the Directors) will consider all relevant
facts and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Portfolio any income earned
thereon and the Portfolio may invest any cash collateral in portfolio securi-
ties,

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<PAGE>

thereby earning additional income, or receive an agreed upon amount of income
from a borrower who has delivered equivalent collateral. Each Portfolio will
have the right to regain record ownership of loaned securities to exercise ben-
eficial rights such as voting rights, subscription rights and rights to divi-
dends, interest or other distributions. Each Portfolio may pay reasonable find-
ers', administrative and custodial fees in connection with a loan. The Direc-
tors will monitor the lending of securities by each Portfolio. No more than 30%
of the value of the assets (25% in the case of the Worldwide Privatization
Portfolio and 20% in the case of the Short-Term Multi-Market Portfolio, the
Global Bond Portfolio, the North American Government Income Portfolio and the
Utility Income Portfolio) of each Portfolio may be loaned at any time, nor will
a Portfolio lend its portfolio securities to any officer, director, employee or
affiliate of either the Fund or the Adviser.

FOREIGN SECURITIES

For a description of the investment policies of the Short-Term Multi-Market
Portfolio, the Global Bond Portfolio, the North American Government Income
Portfolio, the Global Dollar Government Portfolio, the Utility Income Portfolio
and the Worldwide Privatization Portfolio with respect to foreign securities,
see above. Each of the other Portfolios may invest in listed and unlisted for-
eign securities subject to the limitation that the International Portfolio may
invest only in the securities of foreign issuers or U.S. companies having their
principal activities and interests outside the United States. The other Portfo-
lios of the Fund may invest in foreign securities without limitation, although
the Total Return Portfolio has no intention of so investing in the future, the
Premier Growth Portfolio intends to invest at least 85% of the value of its to-
tal assets in the equity securities of American companies, the Growth and In-
come Portfolio intends to restrict its investment in foreign securities to is-
sues of high quality, the Money Market Portfolio is limited to investing in
those foreign securities described above in "Investment Objectives and Poli-
cies -- Money Market Portfolio," and the U.S. Government/High Grade Securities
Portfolio may invest up to 25% of the value of its total assets at the time of
investment in debt securities of foreign issuers meeting the rating criteria of
that Portfolio and up to 35% of its total assets in Foreign Government Securi-
ties (as described below) of issuers considered stable by the Adviser. The
Portfolios may convert U.S. Dollars into foreign currency, but only to effect
securities transactions on a foreign securities exchange and not to hold such
currency as an investment. Each Portfolio may enter into forward foreign cur-
rency exchange contracts in order to protect against uncertainty in the level
of future foreign exchange rates.

The Foreign Government Securities in which the U.S. Government/High Grade Secu-
rities Portfolio may invest are obligations issued or guaranteed by a foreign
government or any of its political subdivisions, authorities, agencies, or in-
strumentalities. The Adviser's determination that a particular country should
be considered stable de- pends on the Adviser's evaluation of political and
economic developments affecting the country as well as recent experience in the
markets for Foreign Government Securities of the country. Examples of foreign

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governments which the Adviser currently considers to be stable, among others,
are the governments of Canada, Germany, Japan, Sweden and the United Kingdom.
The Adviser does not believe that the credit risk inherent in the obligations
of such stable foreign governments is significantly greater than that of U.S.
Government Securities. The percentage of assets of the U.S. Government/High
Grade Securities Portfolio invested in Foreign Government Securities will vary
depending on the relative yields of such securities, the economies of the
countries in which the investments are made and such countries' financial mar-
kets, the interest rate climate of such countries and the relationship of such
countries' currencies to the U.S. Dollar. Currency is judged on the basis of
fundamental economic criteria (e.g., relative inflation levels and trends,
growth rate forecasts, balance of payments status, and economic policies) as
well as technical and political data. Investment of Foreign Government Securi-
ties may include those of a number of foreign countries or, depending upon
market conditions, those of a single country. The U.S. Government/High Grade
Securities Portfolio may also hold foreign currency for hedging purposes.

To the extent a Portfolio, including the Short-Term Multi-Market Portfolio,
the Global Bond Portfolio, the North American Government Income Portfolio, the
Global Dollar Government Portfolio, the Utility Income Portfolio and the
Worldwide Privatization Portfolio, invests in foreign securities, considera-
tion is given to certain factors comprising both risk and opportunity. The
values of foreign securities investments are affected by changes in currency
rates or exchange control regulations, application of foreign tax laws, in-
cluding withholding taxes, changes in governmental administration or economic,
taxation or monetary policy (in the United States and abroad) or changed cir-
cumstances in dealings between nations. Currency exchange rate movements will
increase or reduce the U.S. dollar value of the Portfolio's net assets and in-
come attributable to foreign securities. Costs are incurred in connection with
conversions between various currencies held by a Portfolio. In addition, there
may be substantially less publicly available information about foreign issuers
than about domestic issuers, and foreign issuers may not be subject to ac-
counting, auditing and financial reporting standards and requirements compara-
ble to those of domestic issuers. Foreign issuers are subject to accounting,
auditing and financial standards and requirements that differ, in some cases
significantly, from those applicable to U.S. issuers. In particular, the as-
sets and profits appearing on the financial statements of a foreign issuer may
not reflect its financial position or results of operations in the way they
would be reflected had the financial statements been prepared in accordance
with U.S. generally accepted accounting principles. In addition, for an issuer
that keeps accounting records in local currency, inflation accounting rules in
some of the countries in which a Portfolio will invest require, for both tax
and accounting purposes, that certain assets and liabilities be restated on
the issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially

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<PAGE>

affected by restatements for inflation and may not accurately reflect the real
condition of those issuers and securities markets. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable domes-
tic issuers, and foreign brokerage commissions are generally higher than in
the United States. Foreign securities markets may also be less liquid, more
volatile, and less subject to governmental supervision than in the United
States. Investments in foreign countries could be affected by other factors
not present in the United States, including expropriation, confiscatory taxa-
tion, lack of uniform accounting and auditing standards and potential diffi-
culties in enforcing contractual obligations and could be subject to extended
settlement periods.

Investment in Japanese Issuers. Investment in securities of Japanese issuers
involves certain considerations not present with investment in securities of
U.S. issuers. As with any investment not denominated in the U.S. Dollar, the
U.S. Dollar value of each Portfolio's investments denominated in the Japanese
Yen will fluctuate with Yen-Dollar exchange rate movements. The Japanese Yen
has generally been appreciating against the U.S. Dollar for the past decade
and is currently trading at or about a post-World War II high against the U.S.
Dollar.

Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section
of which is reserved for larger, established companies. As measured by the
TOPIX, a capitalization-weighted composite index of all common stocks listed
in the First Section, the performance of the First Section reached a peak in
1989. Thereafter, the TOPIX declined approximately 46% through the beginning
of 1993. In 1993, the TOPIX increased by approximately 9% from the end of
1992, and by the end of the third quarter of 1994 increased by approximately
8% from the end of 1993. Certain valuation measures, such as price-to-book
value and price-to-cash flow ratios, indicate that the Japanese stock market
is near its lowest level in the last twenty years relative to other world mar-
kets. The average price/earnings ratio of Japanese companies, however, are
high in comparison with other major stock markets.

In recent years, Japan has consistently recorded large current account trade
surpluses with the U.S. that have caused difficulties in the relations between
the two countries. On October 1, 1994, the U.S. and Japan reached an agreement
that may lead to more open Japanese markets with respect to trade in certain
goods and services. The two countries failed to agree, however, with respect
to Japanese imports of American automobiles and automotive parts. In response
to this failure, the U.S. has initiated the process of imposing limited trade
sanctions on Japan. It is unlikely that any such sanctions will be imposed be-
fore late 1995, and it is expected that the continuing friction between the
U.S. and Japan with respect to trade issues will thus continue for the fore-
seeable future.

Each Portfolio's investments in Japanese issuers also will be subject to un-
certainty resulting from the instability of recent Japanese ruling coalitions.
From 1955 to 1993, Japan's government was controlled by a single political
party. In August 1993, following a split in that party, a coalition government
was formed. That coalition government collapsed in April 1994, and was re

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<PAGE>

placed by a minority coalition that, in turn, collapsed in June 1994. The sta-
bility of the current ruling coalition, the third since 1993, and the first in
47 years led by a socialist, is not assured. For further information regarding
Japan, see the Fund's Statement of Additional Information.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

The Total Return Portfolio, the U.S. Government/High Grade Securities Portfo-
lio, the High-Yield Portfolio, the North American Government Income Portfolio,
the Global Dollar Government Portfolio, the Utility Income Portfolio, and the
Worldwide Privatization Portfolio may enter into forward commitments for the
purchase or sale of securities. Such transactions may include purchases on a
"when-issued" basis or purchases or sales on a "delayed delivery" basis. In
some cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a debt restructuring
(i.e., a "when, as and if issued" trade).

When forward commitment transactions are negotiated, the price, which gener-
ally is expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date, nor-
mally within two months after the transaction, delayed settlements beyond two
months may be negotiated. To the extent a Portfolio sells (i.e., writes) caps
and floors it will maintain in a segregated account with the Fund's Custodian
cash or liquid securities having an aggregate net asset value at least equal
to the full amount accrued daily of the portfolio's obligations with respect
to any caps and floors. Securities purchased or sold under a forward commit-
ment are subject to market fluctuation, and no interest accrues to the pur-
chaser prior to the settlement date. At the time a Portfolio enters into a
forward commitment, it will record the transaction and thereafter reflect the
value of the security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or depreciation
reflected in such valuation of a "when, as and if issued" security would be
cancelled in the event that the required condition did not occur and the trade
was cancelled.

The use of forward commitments enables a Portfolio to protect against antici-
pated changes in interest rates and prices. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements, the Portfolio
might be required to complete such when-issued or forward transactions at
prices less favorable than current market values. No forward commitments will
be made by a Portfolio if, as a result, the Portfolio's aggregate commitments
under such transactions would be more than 30% of the then current value of
the Portfolio's total assets, or, in the case of the Total Return Portfolio
and the High Yield Portfolio, more than 20% of the then current value of such
Portfolio's total assets.

A Portfolio's right to receive or deliver a security under a forward commit-
ment may be sold prior to the settlement date, but the Portfolio will enter
into forward commitments only with the intention of actually receiving or de-
livering the securities, as the case may be. If the Portfolio, however,
chooses to dispose of the right to re-

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<PAGE>

ceive or deliver a security subject to a forward commitment prior to the set-
tlement date of the transaction, it may incur a gain or loss. In the event the
other party to a forward commitment transaction were to default, the Portfolio
might lose the opportunity to invest money at favorable rates or to dispose of
securities at favorable prices.

STANDBY COMMITMENT AGREEMENTS

The Global Dollar Government Portfolio, the Utility Income Portfolio and the
Worldwide Privatization Portfolio may from time to time enter into standby com-
mitment agreements. Such agreements commit a Portfolio, for a stated period of
time, to purchase a stated amount of a security which may be issued and sold to
the Portfolio at the option of the issuer. The price and coupon of the security
are fixed at the time of the commitment. At the time of entering into the
agreement the Portfolio is paid a commitment fee, regardless of whether or not
the security ultimately is issued, which is typically approximately 0.5% of the
aggregate purchase price of the security which the Portfolio has committed to
purchase. Each Portfolio will enter into such agreements only for the purpose
of investing in the security underlying the commitment at a yield and price
which are considered advantageous to the Portfolio and which are unavailable on
a firm commitment basis. None of the Portfolios will enter into a standby com-
mitment with a remaining term in excess of 45 days and the Portfolios will
limit its investment in such commitments so that the aggregate purchase price
of the securities subject to the commitments will not exceed 50%, in the cases
of the Global Dollar Government Portfolio and the Worldwide Privatization Port-
folio, and 20%, in the case of the Utility Income Portfolio, of their respec-
tive assets taken at the time of acquisition of such commitment. The Portfolios
will at all times maintain a segregated account with the Fund's custodian of
cash and/or liquid high grade debt securities in an aggregate amount equal to
the purchase price of the securities underlying the commitment.

There can be no assurance that the securities subject to a standby commitment
will be issued and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, a Portfolio will bear
the risk of capital loss in the event the value of the security declines and
may not benefit from an appreciation in the value of the security during the
commitment period if the issuer decides not to issue and sell the security to
the Portfolio.

The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued and the value of the security will thereaf-
ter be reflected in the calculation of the Portfolio's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be re-
corded as income on the expiration date of the standby commitment.

HEDGING TECHNIQUES

The following hedging techniques are utilized by the Short-Term Multi-Market
Portfolio, the Global Bond Portfolio, the North

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<PAGE>

American Government Income Portfolio and the Utility Income Portfolio. In ad-
dition, (High-Yield Portfolio may utilize futures contracts and options on
futures contracts subject to the restrictions disclosed above with respect to
the Portfolio), the Worldwide Privatization Portfolio may utilize futures con-
tracts and options on futures contracts, options on foreign currencies and
forward foreign currency exchange contracts, and the Global Dollar Government
Portfolio may utilize interest rate transactions.

Cross Hedges. The attractive returns currently available from foreign currency
denominated debt instruments can be adversely affected by changes in exchange
rates. The Adviser believes that the use of foreign currency hedging tech-
niques, including "cross-hedges" (see "Forward Foreign Currency Exchange Con-
tracts," below), can help protect against declines in the U.S. Dollar value of
income available for distribution to shareholders and declines in the net as-
set value of a Portfolio's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a for-
ward exchange contract to sell a different foreign currency, where such con-
tract is available on terms more advantageous to a Portfolio than a contract
to sell the currency in which the position being hedged is denominated. It is
the Adviser's belief that cross-hedges can therefore provide significant pro-
tection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against ex-
change rate risks perfectly, and if the Adviser is incorrect in its judgment
of future exchange rate relationships, a Portfolio could be in a less advanta-
geous position than if such a hedge had not been established.

Indexed Debt Securities. The Portfolios may invest without limitation in debt
instruments that are indexed to certain specific foreign currency exchange
rates. The terms of such securities provide that their principal amount is ad-
justed upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
outstanding. The Portfolio will purchase such debt instruments with the cur-
rency in which they are denominated and, at maturity, will receive interest
and principal payments thereon in that currency, but the amount of principal
payable by the issuer at maturity will change in proportion to the change (if
any) in the exchange rate between the two specified currencies between the
date the instrument is issued and the date the instrument matures. While such
securities entail the risk of loss of principal, the potential for realizing
gains as a result of changes in foreign currency exchange rates enables the
Portfolio to hedge (or cross-hedge) against a decline in the U.S. Dollar value
of investments denominated in foreign currencies while providing an attractive
money market rate of return. The Portfolio will purchase such debt instruments
for hedging purposes only, not for speculation. The staff of the Securities
and Exchange Commission (the

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"Commission") is currently considering whether the Portfolio's purchase of this
type of security would result in the issuance of a "senior security" within the
meaning of the Act. The Portfolio believes that such investments do not involve
the creation of such a senior security, but nevertheless the Portfolio has un-
dertaken, pending the resolution of this issue by the staff, to establish a
segregated account with respect to its investments in this type of security and
to maintain in such account cash not available for investment or U.S. Govern-
ment Securities or other liquid high quality debt securities having a value
equal to the aggregate principal amount of outstanding commercial paper of this
type.

Futures Contracts and Options on Futures Contracts. A Portfolio may enter into
contracts for the purchase or sale for future delivery of fixed-income securi-
ties or foreign currencies, or contracts based on financial indices including
any index of U.S. Government Securities, foreign government securities or cor-
porate debt securities and may purchase and write put and call options to buy
or sell futures contracts ("options on futures contracts"). A "sale" of a
futures contract means the acquisition of a contractual obligation by the Port-
folio to deliver the securities or foreign currencies called for by the con-
tract at a specified price on a specified date. A "purchase" of a futures con-
tract means the incurring of a contractual obligation to acquire the securities
or foreign currencies called for by the contract at a specified price on a
specified date. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was effected.

Although the terms of futures contracts specify actual delivery or receipt of
securities, in most instances the contracts are closed out before the settle-
ment date without the making or taking of delivery of the securities. Closing
out of a futures contract is effected by entering into an offsetting purchase
or sale transaction.

The purchaser of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified dollar multi-
ple of the value of the index on the expiration date of the contract and the
price at which the contract was originally struck.

Unlike a futures contract, which requires the parties to buy and sell a secu-
rity on a set date, an option on a futures contract entitles its holder to de-
cide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is lost. Since the value of the option is fixed at the point of sale, there are
no daily payments of cash in the nature of "variation" or "maintenance" margin
payments to reflect the change in the value of the underlying contract as there
are by a purchaser or seller of a futures contract. The value of the option
does not change and is reflected in the net asset value of the Portfolio.

The ability to establish and close out positions in options on futures will be
subject to the development and maintenance of a liquid secondary market. It is
not certain

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<PAGE>

that this market will develop or be maintained.

Options on futures contracts to be written or purchased by the Portfolio will
be traded on U.S. or foreign exchanges or over-the-counter.

These investment techniques will be used only to hedge against anticipated fu-
ture changes in market conditions and interest or exchange rates which other-
wise might either adversely affect the value of the Portfolio's securities or
adversely affect the prices of securities which the Portfolio intends to pur-
chase at a later date. See Appendix C to the Fund's Statement of Additional
Information for further discussion of the use, risks and costs of futures con-
tracts and options on futures contracts.

The Portfolio will not (i) enter into any futures contracts or options on
futures contracts if immediately thereafter the aggregate of margin deposits
on all the outstanding futures contracts of the Portfolio and premiums paid on
outstanding options on futures contracts would exceed 5% of the market value
of the total assets of the Portfolio or (ii) enter into any futures contracts
or options on futures contracts if the aggregate of the market value of the
outstanding futures contracts of the Portfolio and the market value of the
currencies and futures contracts subject to outstanding options written by the
Portfolio would exceed 50% of the market value of the total assets of the
Portfolio.

Options on Foreign Currencies. The Portfolio may purchase and write put and
call options on foreign currencies for the purpose of protecting against de-
clines in the U.S. Dollar value of foreign currency-denominated portfolio se-
curities and against increases in the U.S. Dollar cost of such securities to
be acquired. As in the case of other kinds of options, however, the writing of
an option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and a Portfolio could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incur-
ring 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 position, it may forfeit the en-
tire amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Portfolio are traded on U.S. and
foreign exchanges or over-the-counter. There is no specific percentage limita-
tion on the Portfolio's investments in options or on foreign currencies. See
the Fund's Statement of Additional Information for further discussion of the
use, risks and costs of options on foreign currencies.

Forward Foreign Currency Exchange Contracts. The Portfolio may purchase or
sell forward foreign currency exchange contracts ("forward contracts") to at-
tempt to minimize the risk to the Portfolio from adverse changes in the rela-
tionship between the U.S. Dollar and foreign currencies. A forward contract is
an obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers. Forward contracts reduce the potential gain from
a positive change in the relationship between

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the U.S. Dollar and other currencies. Unanticipated changes in currency prices
may result in poorer overall performance for the Portfolio than if it had not
entered into such contracts. The Fund's Custodian will place cash not avail-
able for investment, U.S. Government securities or other liquid high-grade
debt securities in a segregated account having a value equal to the aggregate
amount of each Portfolio's commitments under forward contracts entered into
with respect to position hedges and cross-hedges.

Interest Rate Transactions. In order to attempt to protect the value of the
Portfolio's investments from interest rate or currency cross-rate fluctua-
tions, the Portfolio may enter into various hedging transactions, such as in-
terest rate swaps and may purchase or sell (i.e. write) interest rate caps and
floors. The Portfolio expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its port-
folio. The Portfolio may also enter into these transactions to protect against
any increase in the price of securities the Portfolio anticipates purchasing
at a later date. The Portfolio does not intend to use these transactions in a
speculative manner. Interest rate swaps involve the exchange by the Portfolio
with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments. Interest
rate swaps are entered into on a net basis, i.e., the two payment streams are
netted out, with the Portfolio receiving or paying, as the case may be, only
the net amount of the two payments. The purchase of an interest rate cap enti-
tles the purchaser, to the extent that a specified index exceeds a predeter-
mined interest rate, to receive payments on a contractually-based principal
amount from the party selling such interest rate cap. The purchase of an in-
terest rate floor entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate to receive payments on a contractu-
ally-based principal amount from the party selling such interest rate floor.

The Portfolio may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether the Portfolio is
hedging its assets or its liabilities. The net amount of the excess, if any,
of the Portfolio's obligations over its entitlements with respect to each in-
terest rate swap will be accrued on a daily basis and an amount of cash or
liquid high-grade debt securities having an aggregate net asset value at least
equal to the accrued excess will be maintained in a segregated account by the
Fund's Custodian. If the Portfolio enters into an interest rate swap on other
than a net basis, the Portfolio will maintain a segregated account with the
Fund's Custodian in the full amount accrued on a daily basis of the Portfo-
lio's obligations with respect to the swap. The Portfolio will not enter into
any interest rate swap, cap or floor transaction unless the unsecured senior
debt or the claims-paying ability of the other party thereto is rated in the
highest rating category of at least one nationally recognized statistical rat-
ing organization at the time of entering into the transaction. The Adviser
will monitor the creditworthiness of counter parties to its interest rate
swap, cap and floor transactions on an ongoing basis. If there is a default

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by the other party to such a transaction, the Portfolio will have contractual
remedies. The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and
agents utilizing standardized swap documentation. The Adviser has determined
that, as a result, the swap market has become relatively liquid. Caps and
floors are more recent innovations for which standardized documentation has
not yet been developed and, accordingly, they are less liquid than swaps. To
the extent that the Portfolio sells (i.e., writes) caps and floors, it will
maintain in a segregated account with the Fund's Custodian cash and/or liquid
high grade debt securities having an aggregate net asset value at least equal
to the full amount, accrued on a daily basis, of the Portfolio's obligations
with respect to the caps or floors.

General. The successful use of the foregoing investment practices draws upon
the Adviser's special skills and experience with respect to such instruments
and usually depends on the Adviser's ability to forecast interest rate and
currency exchange rate movements correctly. Should interest or exchange rates
move in an unexpected manner, the Portfolio may not achieve the anticipated
benefits of futures contracts, options, interest rate transactions or forward
contracts 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 and forward contracts, and adverse mar-
ket movements could therefore continue to an unlimited extent over a period of
time. In addition, the correlation between movements in the price of the secu-
rities and currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.

The Portfolio's ability to dispose of its positions in futures contracts, op-
tions, interest rate transactions and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in options and
futures with respect to a number of fixed-income securities and currencies are
relatively new and still developing. It is impossible to predict the amount of
trading interest that may exist in various types of futures contracts, options
and forward contracts. If a secondary market does not exist with respect to an
option purchased or written by the Portfolio over-the-counter, it might not be
possible to effect a closing transaction in the option (i.e., dispose of the
option) with the result that (i) an option purchased by the Portfolio would
have to be exercised in order for the Portfolio to realize any profit and (ii)
the Portfolio may not be able to sell currencies or portfolio securities cov-
ering an option written by the Portfolio until the option expires or it deliv-
ers the underlying futures contract or currency upon exercise. Therefore, no
assurance can be given that the Portfolio will be able to utilize these in-
struments effectively for the purposes set forth above. Furthermore, the Port-
folio's ability to engage in options and futures transactions may be limited
by tax considerations.

ILLIQUID SECURITIES

Subject to any more restrictive applicable investment policies, none of the
Portfolios

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will maintain more than 15% of its net assets in illiquid securities. For pur-
poses of each Portfolio's investment objectives and policies and investment
restrictions, illiquid securities include, among others, (a) direct placements
or other securities which are subject to legal or contractual restrictions on
resale or for which there is no readily available market (e.g., trading in the
security is suspended or, in the case of unlisted securities, market makers do
not exist or will not entertain bids or offers), (b) options purchased by the
Portfolio over-the-counter and the cover for options written by the Portfolio
over-the-counter, and (c) repurchase agreements not terminable within seven
days. Securities eligible for resale under Rule 144A under the Securities Act
of 1933, as amended, that have legal or contractual restrictions on resale but
have a readily available market are not deemed illiquid for purposes of this
limitation. The Adviser will monitor the liquidity of such securities under
the supervision of the Board of Directors. See the Statement of Additional
Information for further discussion of illiquid securities.

FIXED-INCOME SECURITIES

The value of the shares of each Portfolio that invests in fixed-income securi-
ties will fluctuate with the value of such investments. The value of each
Portfolio's investments will change as the general level of interest rates
fluctuates. During periods of falling interest rates, the values of a Portfo-
lio's securities generally rise. Conversely, during periods of rising interest
rates, the values of a Portfolio's securities generally decline.

In seeking to achieve a Portfolio's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and reali-
zation of capital losses on securities in a Portfolio's portfolio will be un-
avoidable. Moreover, medium- and lower-rated securities and non-rated securi-
ties of comparable quality may be subject to wider fluctuations in yield and
market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the net asset value of a
Portfolio.

Certain debt securities in which the Global Dollar Government Portfolio may
invest are floating-rate debt securities. To the extent that the Portfolio
does not enter into interest rate swaps with respect to such floating-rate
debt securities, the Portfolio may be subject to greater risk during periods
of declining interest rates.

SECURITIES RATINGS

The ratings of fixed-income securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not necessarily re-
flect probable future conditions. There is frequently a lag between the time a
rating is assigned and the time it is updated. In addition, there may be vary-
ing degrees of difference in credit risk of securities within each rating cat-
egory.

INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB

Securities rated Baa or BBB are considered to have speculative characteristics
and

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share some of the same characteristics as lower-rated securities, as described
below. Sustained periods of deteriorating economic conditions or of rising in-
terest rates are more likely to lead to a weakening in the issuer's capacity
to pay interest and repay principal than in the case of higher-rated securi-
ties.

INVESTMENT IN LOWER-RATED FIXED- INCOME SECURITIES

Lower-rated securities are subject to greater risk of loss of principal and
interest than higher-rated securities. They are also generally considered to
be subject to greater market risk than higher-rated securities, and the capac-
ity of issuers of lower-rated securities to pay interest and repay principal
is more likely to weaken that is that of issuers of higher-rated securities in
times of deteriorating economic conditions or rising interest rates. In addi-
tion, lower-rated securities may be more susceptible to real or perceived ad-
verse economic conditions than investment grade securities, although the mar-
ket values of securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate levels than do
those of higher-rated securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative character-
istics.

The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established sec-
ondary market for lower-rated securities, a Portfolio's may experience diffi-
culty in valuing such securities and, in turn, the Portfolio's assets. Under
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, fed-
erally-insured savings and loan associations were required to have divested
their investments in non-investment grade corporate debt securities by July 1,
1994. Such divestiture and continuing restrictions on the ability of such as-
sociations to acquire lower-rated securities could have a material adverse ef-
fect on the market and prices of such securities.

The Adviser will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political condi-
tions. However, there can be no assurance that losses will not occur. Since
the risk of default is higher for lower-rated securities, the Adviser's re-
search and credit analysis are a correspondingly more important aspect of its
program for managing a Portfolio's securities than would be the case if a
Portfolio did not invest in lower-rated securities. In considering investments
for the Portfolio, the Adviser will attempt to identify those high-yielding
securities whose financial condition is adequate to meet future obligations,
has improved, or is expected to improve in the future. The Adviser's analysis
focuses on relative values based on such factors as interest or dividend cov-
erage, asset coverage, earnings prospects, and the experience and managerial
strength of the issuer.

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<PAGE>

The Global Dollar Government Portfolio may invest in securities having the
lowest ratings for non-subordinated debt instruments assigned by Moody's or
S&P (i.e., rated C by Moody's or CCC or lower by S&P) and in unrated securi-
ties of comparable investment quality. These securities are considered to have
extremely poor prospects of ever attaining any real investment standing, to
have a current identifiable vulnerability to default, to be unlikely to have
the capacity to pay interest and repay principal when due in the event of
adverse business, financial or economic conditions, and/or to be in default or
not current in the payment of interest or principal.

Certain lower-rated securities in which the High Yield Portfolio, the Global
Dollar Government Portfolio, the Utility Income Portfolio, the Growth Invest-
ors Portfolio, the Conservative Investors Portfolio and the Growth Portfolio
may invest, contain call or buy-back features which permit the issuer of the
security to call or repurchase it. Such securities may present risks based on
payment expectations. If an issuer exercises such a provision and redeems the
security, the Portfolio may have to replace the called security with a lower
yielding security, resulting in a decreased rate of return for the Portfolio.

NON-RATED SECURITIES

Non-rated securities will also be considered for investment by High-Yield
Portfolio, North American Government Income Portfolio, Global Dollar Govern-
ment when the Adviser believes that the financial condition of the issuers of
such securities, or the protection afforded by the terms of the securities
themselves, limits the risk to the Portfolio to a degree comparable to that of
rated securities which are consistent with the Portfolio's objective and poli-
cies.

NON-DIVERSIFIED STATUS

The Short-Term Multi-Market Portfolio, the Global Bond Portfolio, the North
American Government Income Portfolio, the Global Dollar Government Portfolio
and the Worldwide Privatization Portfolio are "non-diversified", which means
the Portfolios are not limited in the proportion of their assets that may be
invested in the securities of a single issuer. However, because the Portfolios
may invest in a smaller number of individual issuers than a diversified port-
folio, an investment in these Portfolios may, under certain circumstances,
present greater risk to an investor than an investment in a diversified port-
folio. Each Portfolio intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code. To
so qualify, among other requirements, each Portfolio will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of the Portfolio's total assets will be in-
vested in the securities of a single issuer, and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer and the
Portfolio will not own more than 10% of the outstanding voting securities of a
single issuer. The Portfolio's investments in U.S. Government Securities are
not subject to these limitations.

In order to meet the diversification tests and thereby maintain its status as
a regu-

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<PAGE>

lated investment company, the North American Government Income Portfolio will
be required to diversify its portfolio of Canadian Government Securities, Mexi-
can Government Securities and other foreign government securities in a manner
which would not be necessary if the Portfolio had made similar investments in
U.S. Government Securities.

DEFENSIVE POSITION

When business or financial conditions warrant, the Premier Growth Portfolio,
the Growth and Income Portfolio and the Utility Income Portfolio may assume a
temporary defensive position and invest without limit in high grade fixed in-
come securities or hold their assets in cash equivalents, including (i) short-
term obligations of the U.S. Government and its agencies or instrumentalities,
(ii) certificates of deposit, bankers' acceptances and interest-bearing savings
deposits of banks having total assets of more than $1 billion and which are
members of the Federal Deposit Insurance Corporation, and (iii) commercial pa-
per of prime quality rated A-1 or higher by S&P or Prime-1 or higher by Moody's
or, if not rated, issued by companies which have an outstanding debt issue
rated AA or higher by S&P or Aa or higher by Moody's.

For temporary defensive purposes, the Global Dollar Government Portfolio may
vary from its investment policies during periods in which economic or political
conditions warrant. Under such circumstances, the Fund may invest without limit
in (i) Government Securities and (ii) the following U.S. dollar-denominated in-
vestments: (a) indebtedness rated Aa or better by Moody's or AA or better by
S&P, or if not so rated, of equivalent investment quality as determined by the
Adviser, (b) certificates of deposit, bankers' acceptances and interest-bearing
savings deposits of banks having total assets of more than $1 billion and which
are members of the Federal De- posit Insurance Corporation and (c) commercial
paper of prime quality rated A-1 or better by S&P or Prime 1 or better by
Moody's or, if not so rated, issued by companies which have an outstanding debt
issue rated AA or better by S&P or Aa or better by Moody's. The Global Dollar
Government Portfolio may also at any time, with respect to up to 35% of its to-
tal assets, temporarily invest funds awaiting reinvestment or held for reserves
for dividends and other distributions to shareholders in such U.S. dollar-de-
nominated money market instruments.

For temporary defensive purposes, the Conservative Investors Portfolio, the
Growth Investors Portfolio and the Growth Portfolio may invest in money market
instruments. The Growth Portfolio may also invest in repurchase agreements.

For temporary defensive purposes, the Worldwide Privatization Portfolio may
vary from its fundamental investment policy during periods in which conditions
in securities markets or other economic or political conditions warrant. The
Portfolio may reduce its position in equity securities and increase without
limit its position in short- term, liquid, high-grade debt securities, which
may include securities issued by the U.S. government, its agencies and instru-
mentalities ("U.S. Government Securities"), bank deposits, money market instru-
ments, short-term (for this purpose, securities with a remaining maturity of
one year or less) debt

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<PAGE>

securities, including notes and bonds, and short-term foreign currency denomi-
nated debt securities rated A or higher by S&P or Moody's or, if not so rated,
of equivalent investment quality as determined by Alliance. For this purpose
the Portfolio will limit its investments in foreign currency denominated debt
securities to securities that are denominated in currencies in which the Port-
folio anticipates its subsequent investments will be denominated.

Subject to its policy of investing at least 65% of its total assets in equity
securities of enterprises undergoing privatization, the Portfolio may also at
any time temporarily invest funds awaiting reinvestment or held as reserves for
dividends and other distributions to shareholders in money market instruments
referred to above.

PORTFOLIO TURNOVER

Generally, the Fund's policy with respect to turnover of securities held in the
Portfolios is to purchase securities for investment purposes and not for the
purpose of realizing short-term trading profits or for the purpose of exercis-
ing control. When circumstances warrant, however, securities may be sold with-
out regard to the length of time held.

Because the Money Market Portfolio invests in securities with short maturities,
there may be a relatively high portfolio turnover rate. However, the turnover
rate does not have an adverse effect upon the net yield and net asset value of
the Portfolio's shares since the Portfolio's securities transactions occur pri-
marily with issuers, underwriters or major dealers in money market investments
acting as principals at net prices in which the Fund incurs little or no bro-
kerage costs.

The annual portfolio turnover rate of the Premier Growth Portfolio may be in
excess of 100%. Although the Fund cannot accurately predict its annual portfo-
lio turnover rate, the Adviser does not expect the annual portfolio turnover of
the Growth and Income Portfolio, the Total Return Portfolio and the Interna-
tional Portfolio to exceed 100%. A 100% annual portfolio turnover rate would
occur, for example, if all of the stocks in a portfolio were replaced in a pe-
riod of one year. A 100% turnover rate is greater than that of most other in-
vestment companies, including those which emphasize capital appreciation as a
basic policy, and may result in correspondingly greater brokerage commissions
being paid by the Portfolio and a higher incidence of short-term capital gain
taxable as ordinary income. It is anticipated that the annual portfolio rate of
the Growth and Income Portfolio may be in excess of 50% but less than 100%. See
"Dividends, Distributions and Taxes."

The High-Yield Portfolio, the U.S. Government/High Grade Securities Portfolio
and the Global Bond Portfolio will actively use trading to benefit from yield
disparities among different issues of fixed-income securities or otherwise to
achieve their investment objectives and policies. Management anticipates that
the annual turnover in the High-Yield Portfolio may be in excess of 200% in fu-
ture years (but is not expected to exceed 250%). An annual turnover rate of
200% occurs, for example, when all of the securities in a Portfolio are re-
placed twice in a period of one year. A

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<PAGE>

200% turnover rate is greater than that of many other investment companies.
Although management cannot accurately predict its portfolio turnover rate, it
is anticipated that the annual turnover rate for the U.S. Government/ High
Grade Securities Portfolio and the Global Bond Portfolio generally will not
exceed 400% (excluding turnover of securities having a maturity of one year or
less). The annual turnover rate of 400% occurs, for example, when all of the
securities in the Portfolio are replaced four times in a period of one year. A
400% turnover rate is greater than that of most other investment companies.
These Portfolios may be subject to a greater degree of turnover and, thus, a
higher incidence of short-term capital gain taxable as ordinary income than
might be expected from investment companies which invest substantially all of
their funds on a long-term basis and correspondingly larger mark-up charges
can be expected to be borne by the Portfolios. See "Dividends, Distributions
and Taxes."

The Short-Term Multi-Market Portfolio and the Global Dollar Government Portfo-
lio may engage in active short-term trading to benefit from yield disparities
among different issues of securities, to seek short-term profits during peri-
ods of fluctuating interest rates, or for other reasons. Such trading will in-
crease each Portfolio's rate of turnover and the incidence of short-term capi-
tal gain taxable as ordinary income. Management anticipates that the annual
turnover in the Short-Term Multi-Market Portfolio will not be in excess of
500%. An annual turnover rate of 500% occurs, for example, when all of the se-
curities in the portfolio are replaced five times in a period of one year. The
Adviser anticipates that the annual turnover in the Global Dollar Government
Portfolio will not be in excess of 300% (excluding turnover of securities hav-
ing a maturity of one year or less). An annual turnover rate of 300% occurs,
for example, when all of the securities in the Portfolio are replaced three
times in a period of one year. Management anticipates that the annual turnover
in the North American Government Income Portfolio will not be in excess of
400%. An annual turnover rate of 400% occurs, for example, when all of the se-
curities in the Portfolio are replaced four times in a period of one year.
Management anticipates that the annual turnover in the Utility Income Portfo-
lio will not be in excess of 200%. An annual turnover rate of 200% occurs, for
example, when all the securities in the Portfolio are replaced twice in a pe-
riod of one year.

Management expects that the annual turnover in the Growth Investors Portfolio
and the Growth Portfolio will not exceed 200%. An annual turnover rate of 200%
occurs, for example, when all the securities in a Portfolio are replaced twice
in a period of one year. Management expects that the annual turnover in the
Conservative Investors Portfolio will not exceed 100%. An annual turnover rate
of 100% occurs, for example, when all the securities in a Portfolio are re-
placed once in a period of one year.

Generally, the policy of the Worldwide Privatization Portfolio with respect to
portfolio turnover is to purchase securities with a view to holding them for
periods of time sufficient to assure that the Portfolio will realize less than
30% of its gross income from the sale or other disposition of securities held
for less than three months (see

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<PAGE>

"Dividends, Distributions and Taxes") and to hold its securities for six
months or longer. However, it is also the Portfolio's policy to sell any secu-
rity whenever, in the judgment of the Adviser, its appreciation possibilities
have been substantially realized or the business or market prospects for such
security have deteriorated, irrespective of the length of time that such secu-
rity has been held. The Adviser anticipates that the Portfolio's annual rate
of portfolio turnover will not exceed 200%. A 200% annual turnover rate would
occur if all the securities in the Portfolio's were replaced twice within a
period of one year.

A high rate of portfolio turnover involves correspondingly greater expenses
than a lower rate, which expenses must be borne by the Portfolio and its
shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. In order to continue to qualify as a
regulated investment company for Federal tax purposes, less than 30% of the
annual gross income of a Portfolio must be derived from the sale of securities
held by the Portfolio for less than three months. See "Dividends, Distribu-
tions and Taxes."

CERTAIN FUNDAMENTAL INVESTMENT POLICIES

The Fund has adopted certain fundamental investment policies applicable to the
Portfolios which may not be changed with respect to a Portfolio without the
approval of the shareholders of a Portfolio. Certain of those fundamental in-
vestment policies are set forth below. For a complete listing of such funda-
mental investment policies, see the Statement of Additional Information.

Briefly, with respect to the Money Market Portfolio, the Premier Growth Port-
folio, the Growth and Income Portfolio, the U.S. Government/High Grade Securi-
ties Portfolio, the High-Yield Portfolio, the Total Return Portfolio and the
International Portfolio, these fundamental investment policies provide that a
Portfolio may not: (i) invest in securities of any one issuer (including re-
purchase agreements with any one entity) other than securities issued or guar-
anteed by the United States Government, if immediately after such purchases
more than 5% of the value of its total assets would be invested in such issu-
er, except that 25% of the value of the total assets of a Portfolio may be in-
vested without regard to such 5% limitation; (ii) acquire more than 10% of any
class of the outstanding securities of any issuer (for this purpose, all pre-
ferred stock of an issuer shall be deemed a single class, and all indebtedness
of an issuer shall be deemed a single class); (iii) invest more than 25% of
the value of its total assets at the time an investment is made in the securi-
ties of issuers conducting their principal business activities in any one in-
dustry, except that there is no such limitation with respect to U.S. Govern-
ment securities or certificates of deposit, bankers' acceptances and interest-
bearing deposits. For purposes of this investment restriction, the electric,
gas, telephone and water business shall each be considered as a separate in-
dustry; (iv) borrow money, except that a Portfolio may borrow money only for
extraordinary or emergency purposes and then only in amounts not exceeding 15%
of its total assets at the time of borrowing; (v) mortgage, pledge or hypothe-
cate any of its assets, except as may be necessary in connection with permis-
sible borrowings de-

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<PAGE>

scribed in paragraph (iv) above (in an aggregate amount not to exceed 15% of
total assets of a Portfolio), or as permitted in connection with short sales of
securities "against the box" by the Growth Portfolio, as described above; (vi)
invest in illiquid securities if immediately after such investment more than
10% of the Portfolio's total assets (taken at market value) would be invested
in such securities. Illiquid securities purchased by the High-Yield Portfolio
may include: (i) subordinated debentures or other debt securities issued in the
course of acquisition financing such as that associated with leveraged buyout
transactions, and (ii) participation interests in loans to domestic companies,
or to foreign companies and governments, originated by commercial banks and
supported by letters of credit or other credit facilities offered by such banks
or other financial institutions; or (vii) invest more than 10% of the value of
its total assets in repurchase agreements not terminable within seven days.

With respect to the Short-Term Multi-Market Portfolio and the Global Bond Port-
folio, these fundamental investment policies provide that a Portfolio may not:
(i) invest 25% or more of its total assets in securities of companies engaged
principally in any one industry (other than, with respect to the Short-Term
Multi-Market Portfolio only, the banking industry) except that this restriction
does not apply to U.S. Government Securities; (ii) borrow money except from
banks for temporary or emergency purposes, including the meeting of redemption
requests which might require the untimely disposition of securities; borrowing
in the aggregate may not exceed 15%, and borrowing for purposes other than
meeting redemptions may not exceed 5% of the value of the Portfolio's total as-
sets (including the amount borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made; securities will not be purchased
while borrowings in excess of 5% of the value of the Portfolio's total assets
are outstanding; (iii) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings; or (iv) invest in illiquid secu-
rities if immediately after such investment more than 10% of the Portfolio's
total assets (taken at market value) would be invested in such securities.

With respect to the North American Government Income Portfolio and the Global
Dollar Government Portfolio, these fundamental investment policies provide that
a Portfolio may not: (i) invest 25% or more of their respective total assets in
securities of companies engaged principally in any one industry except that
this restriction does not apply to U.S. Government Securities; (ii) borrow mon-
ey, except (a) the North American Government Income Portfolio and the Global
Dollar Government Portfolio may, in accordance with provisions of the Act, bor-
row money from banks for temporary or emergency purposes, including the meeting
of redemption requests which might require the untimely disposition of securi-
ties; borrowing in the aggregate may not exceed 15%, and borrowing for purposes
other than meeting redemptions may not exceed 5% of the value of the Portfo-
lio's total assets (including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the value of the Portfolio's
total assets will be repaid before any subse-

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<PAGE>

quent investments are made and (b) the Global Dollar Government Portfolio may
enter into reverse repurchase agreements and dollar rolls; or (iii) pledge,
hypothecate, mortgage or otherwise encumber their respective assets, except to
secure permitted borrowings.

As a matter of fundamental policy, the Utility Income Portfolio may not: (i)
invest more than 5% of its total assets in the securities of any one issuer
except the U.S. Government, although with respect to 25% of its total assets
it may invest in any number of issuers; (ii) invest 25% or more of its total
assets in the securities of issuers conducting their principal business
activities in any one industry, other than the utilities industry, except that
this restriction does not apply to U.S. Government Securities; (iii) purchase
more than 10% of any class of the voting securities of any one issuer; (iv)
borrow money except from banks or temporary or emergency purposes, including
the meeting of redemption requests which might require the untimely disposi-
tion of securities; borrowing in the aggregate may not exceed 15%, and borrow-
ing for purposes other than meeting redemptions may not exceed 5% of the value
of the Portfolio's total assets (including the amount borrowed) less liabili-
ties (not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the value of the Portfolio's total
assets will be repaid before any subsequent investments are made; or (v) pur-
chase a security if, as a result (unless the security is acquired pursuant to
a plan of reorganization or an offer of exchange), the Portfolio would own any
securities of an open-end investment company or more than 3% of the total out-
standing voting stock of any closed-end investment company or more than 5% of
the value of the Portfolio's net assets would be invested in securities of any
one or more closed-end investment companies.

With respect to the Conservative Investors Portfolio, the Growth Investors
Portfolio and the Growth Portfolio, these fundamental investment policies pro-
vide that a Portfolio may not: (i) invest more than 5% of its total assets in
the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Portfolio's
total assets may be invested without regard to this restriction; or (ii) in-
vest 25% or more of its total assets in the securities of any one industry.
(Obligations of a foreign government and its agencies or instrumentalities
constitute a separate "industry" from those of another foreign government.)

With respect to the Worldwide Privatization Portfolio, these fundamental poli-
cies provide that the Portfolio may not: (i) invest 25% or more of its total
assets in securities of issuers conducting their principal business activities
in the same industry, except that this restriction does not apply to (a) U.S.
Government Securities; or (b) the purchase of securities of issuers whose pri-
mary business activity is in the national commercial banking industry, so long
as the Fund's Board of Directors determines, on the basis of factors such as
liquidity, availability of investments and anticipated returns, that the Port-
folio's ability to achieve its investment objective would be adversely af-
fected if the Portfolio were not permitted to invest more than 25% of its to-
tal assets in those securities, and so long

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<PAGE>

as the Portfolio notifies its shareholders of any decision by the Board of Di-
rectors to permit or cease to permit the Portfolio to invest more than 25% of
its total assets in those securities, such notice to include a discussion of
any increased investment risks to which the Portfolio may be subjected as a
result of the Board's determination; (ii) borrow money except from banks for
temporary or emergency purposes, including the meeting of redemption requests
which might require the untimely disposition of securities; borrowing in the
aggregate may not exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5% of the value of the Portfolio's total assets
(including the amount borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made; outstanding borrowings in excess
of 5% of the value of the Portfolio's total assets will be repaid before any
investments are made; or (iii) pledge, hypothecate, mortgage or otherwise en-
cumber its assets, except to secure permitted borrowings;

In addition, the Fund has adopted an investment policy, which is not desig-
nated a "fundamental policy" within the meaning of the Act, of intending to
have each Portfolio comply at all times with the diversification requirements
prescribed in Section 817(h) of the Internal Revenue Code or any successor
thereto and the applicable Treasury Regulations thereunder. This policy may be
changed upon notice to shareholders of the Fund, but without their approval.

MANAGEMENT OF THE FUND

DIRECTORS

John D. Carifa, Chairman of the Board and President, is President of Alliance
Capital Management Corporation ("ACMC"), the sole general partner of the Ad-
viser, with which he has been associated since prior to 1990.

Ruth Block is a Director of Ecolab Incorporated (specialty chemicals) and
Amoco Corporation (oil and gas). She was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance Society of the
United States since prior to 1990.

David H. Dievler was formerly President of the Fund, and a Senior Vice Presi-
dent of ACMC, with which he had been associated since prior to 1990.

John H. Dobkin is President of Historic Hudson Valley (historic preservation)
since 1990. Previously, he was Director of the National Academy of Design.
From 1987 to 1992, he was a Director of ACMC.

William H. Foulk, Jr. was formerly a Senior Manager of Barrett Associates,
Inc., a registered investment adviser, with which he had been associated since
prior to 1990.

Dr. James M. Hester is President of the Harry Frank Guggenheim Foundation and
a Director of Union Carbide Corporation since prior to 1990. He was formerly
President of New York University, The New York Botanical Garden and Rector of
the United Nations University.

Clifford L. Michel is a member of the law firm of Cahill Gordon & Reindel,
with

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<PAGE>

which he has been associated since prior to 1990.

Robert C. White is a Vice President and the Chief Financial Officer of the
Howard

Hughes Medical Institute, with which he has been associated since prior to
1990.

ADVISER

Alliance Capital Management L.P. (the "Adviser"), a Delaware limited partner-
ship with principal offices at 1345 Avenue of the Americas, New York, New York
10105 has been retained under an investment advisory agreement (the "Invest-
ment Advisory Agreement") to provide investment advice and, in general, to
conduct the management and investment program of each of the Fund's Portfolios
subject to the general supervision and control of the Board of Directors of
the Fund. The employee of the Adviser principally responsible for the Money
Market Portfolio's investment program since its inception is Pamela F. Rich-
ardson, who is a Vice President of ACMC. Ms. Richardson has been associated
with ACMC since 1990. Prior to that, Ms. Richardson was a Vice President of
Mitchell Hutchins Asset Management with which she was associated since prior
to 1990. The employee of the Adviser principally responsible for the Premier
Growth Portfolio's investment program since its inception is Alfred Harrison,
who is Vice Chairman of ACMC, with which he has been associated since prior to
1990. The employee of the Adviser principally responsible for the Growth and
Income Portfolio's investment program since its inception is Paul Rissman, who
is a Vice President of ACMC with which he has been associated since prior to
1990. The employee of the Adviser principally responsible for the U.S.
Government/High Grade Securities Portfolio's investment program since its in-
ception is Paul J. DeNoon, who is a Vice President of ACMC, with which he has
been associated since 1991. Prior to that, Mr. DeNoon was Vice President of
Manufacturers Hanover Trust since prior to 1990. The employee of the Adviser
principally responsible for the Total Return Portfolio's investment program
since its inception is Debra Gordon Ackerman, who is a Vice President of ACMC,
with which she has been associated since prior to 1990. The employee of the
Adviser principally responsible for the International Portfolio's investment
program since its inception is Kelly Morgan, a Vice President of ACMC with
which she has been associated since prior to 1990. The employee of the Adviser
principally responsible for the Short-Term Multi-Market Portfolio's investment
program since its inception is Douglas J. Peebles, who is a Vice President of
ACMC, with which he has been associated since prior to 1990. The person prin-
cipally responsible for the investment program of the Global Bond Portfolio
since its inception is Ian Coulman, an Investment Manager of the Sub-Adviser.
The employee of the Adviser principally responsible for the investment program
since inception of the North American Government Income Portfolio and the
Global Dollar Government Portfolio is Wayne D. Lyski, an Executive Vice Presi-
dent of ACMC, with which he has been associated since prior to 1990. The em-
ployee of the Adviser principally responsible for the investment program since
December 1994 of the Utility Income Portfolio is Gregory Allison, an Equity
Analyst of ACMC. Prior to joining the Adviser in De

95
<PAGE>

cember 1994, Mr. Allison was an equity analyst at Gaballi & Company Inc. since
1993 and prior thereto he was a institutional bond salesman at Dean Witter
since 1990.The employee of the Adviser principally responsible for the invest-
ment program since inception of the Conservative Investors Portfolio and
Growth Investors Portfolio is Franklin Kennedy III, who is Senior Vice Presi-
dent of the Adviser. Prior to joining the Adviser in July 1993, Mr. Kennedy
was employed by Equitable Capital Management Corporation ("Equitable Capital")
or its affiliates since prior to 1990. The employee of the Adviser principally
responsible for the investment program since inception of the Growth Portfolio
is Tyler J. Smith, who is a Senior Vice President of the Adviser. Prior to
joining the Adviser in July 1993, Mr. Smith was employed by Equitable Capital
or its affiliates since prior to 1990. The employee of the Adviser principally
responsible for the investment program since inception of the Worldwide
Privatization Portfolio is Mark H. Breedon, a Vice President of the Adviser
and a Director and Vice President of Alliance Capital Limited, an indirect
wholly-owned subsidiary of the Adviser, with which he has been associated
since prior to 1990.

The Adviser has retained under a subadvisory agreement a sub-adviser, AIGAM
International Limited (the "Sub-Adviser"), an indirect, majority owned subsid-
iary of American International Group, Inc., a major international financial
service company to provide research and management services to the Global Bond
Portfolio. In 1994, the Sub-Adviser changed its name from Dempsey & Company
International Limited, which was founded in 1988.

The Adviser is a leading international investment manager supervising client
accounts with assets as of December 31, 1994 totaling more than $121 billion
(of which more than $36 billion represented the assets of investment compa-
nies). The Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 51 registered investment companies managed by the Ad-
viser comprising 103 separate investment portfolios currently have over one
million shareholders. As of December 31, 1994, the Adviser was retained as an
investment manager by 29 of the Fortune 100 companies.

ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly- owned subsidiary of The Equi-
table Life Assurance Society of the United States ("Equitable"), one of the
largest life insurance companies in the United States and a wholly owned sub-
sidiary of the Equitable Companies Incorporated, a holding company which is
controlled by AXA, a French insurance holding company. Certain information
concerning the ownership and control of Equitable by AXA is set forth in the
Statement of Additional Information under "Management of the Fund."

The Sub-Adviser is an asset management firm specializing in global fixed-in-
come money management. The Sub-Adviser manages a range of institutional spe-
cialty funds, investment companies, and dedicated institutional portfolios.

The Adviser provides investment advisory services and order placement facili-
ties for

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<PAGE>

each of the Fund's Portfolios and pays all compensation of Directors and offi-
cers of the Fund who are affiliated persons of the Adviser. The Adviser or its
affiliates also furnish the Fund, without charge, management supervision and
assistance and office facilities and provide persons satisfactory to the
Fund's Board of Directors to serve as the Fund's officers. Each of the Portfo-
lios pays the Adviser at the following annual percentage rate of its average
daily net asset value:

<TABLE>
<S> <C>
Money Market Portfolio .500%
Premier Growth Portfolio 1.000%
Growth and Income Portfolio .625%
U.S. Government/High Grade
Securities Portfolio .600%
High-Yield Portfolio .625%
Total Return Portfolio .625%
International Portfolio 1.000%
Short-Term Multi-Market
Portfolio .550%
Global Bond Portfolio .650%
North American Government
Income Portfolio .650%
Utility Income Portfolio .750%
Global Dollar Government
Portfolio .750%
Conservative Investors
Portfolio .750%
Growth Investors Portfolio .750%
Growth Portfolio .750%
Worldwide Privatization
Portfolio 1.000%
</TABLE>

The fees are accrued daily and paid monthly. For the year ended December 31,
1994, the Adviser received no net advisory fees from the Money Market Portfo-
lio, the U.S. Government/High Grade Securities Portfolio, the Total Return
Portfolio, the International Portfolio, the North American Government Income
Portfolio, the Utility Income Portfolio, the Global Dollar Government Portfo-
lio, the Conservative Investors Portfolio, the Growth Investors Portfolio, the
Growth Portfolio, the Worldwide Privatization Portfolio and the Global Bond
Portfolio. For the year ended December 31, 1994 the Adviser received an advi-
sory fee from each of the Premier Growth Portfolio, the Growth and Income
Portfolio and the Short-Term Multi-Market Portfolio so that each such Portfo-
lio paid an advisory fee equal to .55%, .62% and .50% of each such Portfolio's
average net assets, respectively.

For the year ended December 31, 1994, for its services as Sub-Adviser to the
Global Bond Portfolio, the Sub-Adviser received from the Adviser a monthly fee
at the annual rate of .40% of that Portfolio's average daily net asset value.

The Commission takes the position that the rates of fees applicable to the
Premier Growth Portfolio, the International Portfolio, the Utility Income
Portfolio, the Global Dollar Government Portfolio, the Conservative Investors
Portfolio, the Growth Investors Portfolio, the Growth Portfolio and the World-
wide Privatization Portfolio are higher than those paid by most other invest-
ment companies; however, the Adviser believes the fees are comparable to those
paid by investment companies of similar investment orientation.

EXPENSES OF THE FUND

In addition to the payments to the Adviser under the Investment Advisory
Agreement described above, the Fund pays certain other costs including (a)
custody, transfer

<PAGE>

and dividend disbursing expenses, (b) fees of Directors who are not affiliated
with the Adviser, (c) legal and auditing expenses, (d) clerical, accounting and
other office costs, (e) costs of printing the Fund's prospectuses and share-
holder reports, (f) cost of maintaining the Fund's existence, (g) interest
charges, taxes, brokerage fees and commissions, (h) costs of stationery and
supplies, (i) expenses and fees related to registration and filing with the
Commission and with state regulatory authorities, and (j) cost of certain per-
sonnel of the Adviser or its affiliates rendering clerical, accounting and
other services to the Fund.

As to the obtaining of clerical and accounting services not required to be pro-
vided to the Fund by the Adviser under the Investment Advisory Agreement, the
Fund may employ its own personnel. For such services, it may also utilize per-
sonnel employed by the Adviser or by its affiliates; in such event, the serv-
ices are provided to the Fund at cost and the payments specifically approved in
advance by the Fund's Board of Directors.

For the year ended December 31, 1994, the ordinary operating expenses of the
Growth and Income Portfolio were .90%, the Short-Term Multi-Market Portfolio
were .94%, the Global Bond Portfolio were .95%, the Money Market Portfolio were
.95%, the Premier Growth Portfolio were .95%, the U.S. Government/High Grade
Portfolio were .95%, the Total Return Portfolio were .95%, the International
Portfolio were .95%, the North American Government Income Portfolio were .95%,
the Global Dollar Government Portfolio were .95%, the Utility Income Portfolio
were .95%, the Conservative Investors Portfolio were .95%, the Growth Portfolio
were .95%, the Growth Investors Portfolio were .95%, and the Worldwide
Privatization Portfolio were .95% of each such Portfolio's average net assets,
all net of voluntary expense reimbursements.

PURCHASE AND REDEMPTION OF SHARES

PURCHASE OF SHARES

Shares of each Portfolio of the Fund are offered on a continuous basis directly
by the Fund and by Alliance Fund Distributors, Inc., the Fund's Principal Un-
derwriter, to the separate accounts of certain life insurance companies without
any sales or other charge, at each Portfolio's net asset value, as described
below. The separate accounts of insurance companies place orders to purchase
shares of each Portfolio based on, among other things, the amount of premium
payments to be invested and surrender and transfer requests to be effected on
that day pursuant to variable annuity contracts and variable life insurance
policies which are funded by shares of the Portfolios. The Fund reserves the
right to suspend the sale of the Fund's shares in response to conditions in the
securities markets or for other reasons. Individuals may not place orders di-
rectly with the Fund. See the Prospectus of the separate account of the partic-
ipating insurance company for more information on the purchase of Portfolio
shares.

The public offering price of each Portfolio's shares is their net asset value.
The per

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<PAGE>

share net asset value of each Portfolio is computed in accordance with the
Fund's Articles of Incorporation and By-Laws, at the next close of regular
trading on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m.
New York time), following receipt of a purchase or redemption order by the
Fund, on each Fund business day on which such an order is received and trading
in the types of securities in which the Fund invests might materially affect
the value of Fund shares. The Fund's per share net asset value is computed by
dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any week-
day exclusive of national holidays on which the Exchange is closed and Good
Friday. For purposes of this computation, the securities in each Portfolio are
valued at their current market value (in the case of the Money Market Portfo-
lio, amortized cost value is used) determined on the basis of market quota-
tions or, if such quotations are not readily available, such other methods as
the Directors believe would accurately reflect fair market value. Portfolio
securities may also be valued on the basis of prices provided by a pricing
service when such prices are believed by the Adviser to reflect the fair mar-
ket value of such securities. In the case of the Money Market Portfolio, per
share net asset value is expected to be constant at $1.00 per share, although
this price is not guaranteed.

REDEMPTION OF SHARES

An insurance company separate account may redeem all or any portion of the
shares of any Portfolio in its account at any time at the net asset value per
share of that Portfolio next determined after a redemption request in proper
form is furnished to the Fund or the Principal Underwriter. Any certificates
representing shares being redeemed must be submitted with the redemption re-
quest. Shares redeemed are entitled to earn dividends, if any, up to and in-
cluding the day redemption is effected. There is no redemption charge. Payment
of the redemption price will normally be made within seven days after receipt
of such tender for redemption.

The right of redemption may be suspended or the date of payment may be post-
poned for any period during which the Exchange is closed (other than customary
weekend and holiday closings) or during which the Commission determines that
trading thereon is restricted, or for any period during which an emergency (as
determined by the Commission) exists as a result of which disposal by the Fund
of securities owned by a Portfolio is not reasonably practicable or as a re-
sult of which it is not reasonably practicable for the Fund fairly to deter-
mine the value of a Portfolio's net assets, or for such other periods as the
Commission may by order permit for the protection of security holders of the
Fund.

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<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES
The Money Market Portfolio declares income dividends each business day at 4:00
p.m. New York time and such dividends are paid monthly via automatic invest-
ment in additional full and fractional shares in each shareholders' account.
As such additional shares are entitled to dividends, a compounding growth of
income occurs. Net income consists of all accrued interest income on Portfolio
assets less the Portfolio's expenses (including accrued expenses and fees pay-
able to the Adviser) applicable to that dividend period. Realized gains and
losses are reflected in net asset value and are not included in net income.

Each of the other Portfolios will declare and distribute dividends from net
investment income and will distribute its net capital gains, if any, at least
annually. Such income and capital gains distributions will be made in shares
of such Portfolios.

Each Portfolio of the Fund qualified intends to continue to qualify to be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code (the "Code"). If so qualified, each Portfolio will not be subject
to Federal income or excise taxes on its investment company taxable income and
net capital gains to the extent such investment company taxable income and net
capital gains are distributed to the separate accounts of insurance companies
which hold its shares. Under current tax law, capital gains or dividends from
any Portfolio are not currently taxable when left to accumulate within a vari-
able annuity (other than an annuity interest owned by a person who is not a
natural person) or variable life in surance contract. Distributions of net in-
vestment income and net short-term capital gain will be treated as ordinary
income and distributions of net long-term capital gain will be treated as
long-term capital gain in the hands of the insurance companies.

Section 817(h) of the Code requires that the investments of a segregated asset
ac-count of an insurance company be "adequately diversified," in accordance
with Treasury Regulations promulgated there- under, in order for the holders
of the variable annuity contracts or variable life insurance policies under-
lying the account to receive the tax-deferred or tax-free treatment generally
afforded holders of annuities or life insurance policies under the Code. The
Department of the Treasury has issued Regulations under section 817(h) which,
among other things, provide the manner in which a segregated asset account
will treat investments in a regulated investment company for purposes of the
applicable diversification requirements. Under the Regulations, if a regulated
investment company satisfies certain conditions, a segregated asset account
owning shares of the regulated investment company will not be treated as a
single investment for these purposes, but rather the account will be treated
as owning its proportionate share of each of the assets of the regulated in-
vestment company. Each Portfolio plans to satisfy these conditions at all
times so that the shares of each Portfolio owned by a segregated asset account
of a life insurance company will be subject to this treatment under the Code.

100

<PAGE>

For information concerning federal income tax consequences for the holders of
variable annuity contracts and variable rate insurance policies, such holders
should consult the prospectus used in connection with the issuance of their
particular contracts or policies.

GENERAL INFORMATION
PORTFOLIO TRANSACTIONS

Subject to the general supervision of the Board of Directors of the Fund, the
Adviser is responsible for the investment decisions and the placing of the or-
ders for portfolio transactions for the Fund. Portfolio transactions for the
Money Market Portfolio, the U.S. Government/High Grade Securities Portfolio,
the High-Yield Portfolio, the Short-Term Multi-Market Portfolio, the Global
Bond Portfolio, the North American Government Income Portfolio, the Utility
Income Portfolio and the Global Dollar Government Portfolio occur primarily
with issuers, underwriters or major dealers acting as principals while trans-
actions for the Premier Growth Portfolio, the Growth and Income Portfolio, the
International Portfolio, the Growth Portfolio and the Worldwide Privatization
Portfolio are normally effected by brokers, and transactions for the Conserva-
tive Investors, the Growth Investors and the Total Return Portfolio are nor-
mally effected through any one or more of the foregoing entities.

The Fund has no obligation to enter into transactions in portfolio securities
with any broker, dealer, issuer, underwriter or other entity. In placing or-
ders, it is the policy of the Fund to obtain the best price and execution for
its transactions. Consistent with the objective of obtaining best execution,
the Fund may use brokers and dealers who provide research, statistical and
other information to the Adviser.

There may be occasions where the transaction cost charged by a broker may be
greater than that which another broker may charge if the Fund determines in
good faith that the amount of such transaction cost is reasonable in relation
to the value of the brokerage and research and statistical services provided
by the executing broker. Consistent with the Rules of Fair Practice of the Na-
tional Association of Securities Dealers, Inc., and subject to seeking best
price and execution, the Fund may consider sales of shares of the Fund as a
factor in the selection of brokers and dealers to enter into portfolio trans-
actions with the Fund.

The Fund may from time to time place orders for the purchase or sale of secu-
rities on an agency basis with Donaldson, Lufkin & Jenrette Securities Corpo-
ration, an affiliate of the Adviser, and with brokers which may have their
transactions cleared or settled, or both, by the Pershing Division of Donald-
son, Lufkin and Jenrette Securities Corporation, for which Donaldson, Lufkin
and Jenrette Securities Corporation may receive a portion of the brokerage
commission. In such instances, the placement of orders with such brokers would
be consistent with the Fund's objective of obtaining best execution and would
not be dependent upon the fact that Donaldson, Lufkin & Jenrette Securities
Corporation is an affiliate of the Adviser.

101
<PAGE>

ORGANIZATION

The Fund is a Maryland corporation organized on November 17, 1987. The autho-
rized capital stock of the Fund consists solely of 1,600,000,000 shares of
Common Stock having a par value of $.001 per share, which may, without share-
holder approval, be divided into an unlimited number of series. Such shares
are currently divided into 16 series, one underlying each Portfolio. Shares of
each Portfolio are normally entitled to one vote for all purposes. Generally,
shares of all Portfolios vote as a single series on matters, such as the elec-
tion of Directors, that affect all Portfolios in substantially the same man-
ner. Maryland law does not require a registered investment company to hold an-
nual meetings of shareholders and it is anticipated that shareholder meetings
will be held only when specifically required by federal or state law. Share-
holders have available certain procedures for the removal of Directors. Shares
of each Portfolio are freely transferable, are entitled to dividends as deter-
mined by the Board of Directors and, in liquidation of the Fund, are entitled
to receive the net assets of that Portfolio. Shareholders have no preference,
pre-emptive or conversion rights. In accordance with current law, it is antic-
ipated that an insurance company issuing a variable annuity contract or vari-
able life insurance policy that participates in the Fund will request voting
instructions from contract or policyholders and will vote shares in the sepa-
rate account in accordance with the voting instructions received.

PRINCIPAL UNDERWRITER

Alliance Fund Distributors, Inc., 1345 Avenue of the Americas, New York, New
York 10105, an indirect wholly-owned subsidiary of the Adviser, is the Princi-
pal Underwriter of shares of the Fund.

CUSTODIAN

State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachu-
setts 02110, acts as Custodian for the securities and cash of the Fund and as
its dividend disbursing agent, but plays no part in deciding on the purchase
or sale of portfolio securities.

REGISTRAR AND DIVIDEND-DISBURSING AGENT

Alliance Fund Services, Inc., an indirect wholly-owned subsidiary of the Ad-
viser, located at 500 Plaza Drive, Secaucus, New Jersey, 07094, acts as the
Fund's registrar and dividend-disbursing agent.

ADDITIONAL INFORMATION

Any shareholder inquiries may be directed to Alliance Fund Services, Inc. at
the address or telephone number shown on the front cover of this Prospectus.
This Prospectus and the Statement of Additional Information which has been in-
corporated by reference herein, does not contain all the information set forth
in the Registration Statement filed by the Fund with the Commission under the
Securities Act of 1933, as amended. Copies of the Registration Statement may
be obtained at a reasonable charge from the Commission or may be examined,
without charge, at the offices of the Commission in Washington, D.C.

This Prospectus does not constitute an offering in any state in which such of-
fering may not lawfully be made.

102
<PAGE>

APPENDIX A

BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

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

AA: Bonds which are rated Aa are judged to be of high quality by all stan-
dards. 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 protec-
tive elements may be of greater amplitude or there may be other elements pres-
ent which make the long-term risks appear somewhat larger than the Aaa securi-
ties.

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

BAA: Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payment
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 charac-
terizes 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 shortcom-
ings.

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

A-1
<PAGE>

ABSENCE OF RATING: When no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or issuer.

4. The issue was privately placed, in which case the rating is not published
in Moody's publications.

Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The mod-
ifier 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 modi-
fier 3 indicates that the issue ranks in the lower end of its generic rating
category.

STANDARD & POOR'S CORPORATION

AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay prin-
cipal 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 inter-
est and repay principal. Whereas it normally exhibits adequate protection pa-
rameters, 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 and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay in-
terest and repay principal. BB indicates the least degree of speculation and
CCC the highest. While such debt will

A-2
<PAGE>

likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.

C1: The rating C1 is reserved for income bonds on which no interest is being
paid.

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are jeopar-
dized.

PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the ad-
dition of a plus or minus sign to show relative standing within the major rat-
ing categories.

NR: Not rated.

DUFF & PHELPS CREDIT RATING CO.

AAA: Highest claims paying ability. Risk factors are negligible.

AA+, AA, AA-: Very high claims paying ability. Protection factors are
strong. Risk is modest, but may vary slightly over time due to economic and/or
underwriting conditions.

A+, A, A-: High claims paying ability. Protection factors are average and
there is an expectation of variability in risk over time due to economic
and/or underwriting conditions.

BBB+, BBB, BBB-: Adequate claims paying ability. Protection factors are ade-
quate. There is considerable variability in risk over time due to economic
and/or underwriting conditions.

BB+, BB, BB-: Uncertain claims paying ability and less than investment-grade
quality. However, the company is deemed likely to meet these obligations when
due. Protection factors will vary widely with changes in economic and/or un-
derwriting conditions.

B+, B, B-: Possessing risk that policy holder and contract-holder obliga-
tions will not be paid when due. Protection factors will vary widely with
changes in economic and/or underwriting conditions or company fortunes.

CCC: There is substantial risk that policy holder and contract holder obli-
gations will not be paid when due. Company has been or is likely to be placed
under state insurance department supervision.

DD: Company is under an order of liquidation.

A-3
<PAGE>

FITCH INVESTORS SERVICE, INC.

AAA: Bonds considered to be investment grade and of the highest credit quali-
ty. The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong, al-
though not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future devel-
opments, short-term debt of these issuers is generally rated F- 1+.

A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit qual-
ity. The obligor's ability to pay interest and repay principal is considered to
be adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes. How-
ever, business and financial alternatives can be identified which could assist
the obligor in satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.

CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default.

The ability to meet obligations requires an advantageous business and eco-
nomic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

DDD, DD, D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their ul-
timate recov

A-4
<PAGE>

ery value in liquidation or reorganization of the obligor. DDD represents the
highest potential for recovery on these bonds, and D represents the lowest po-
tential for recovery.

PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to in-
dicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.

NR: Indicates that Fitch does not rate the specific issue.

A-5

<PAGE>

ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.

_________________________________________________________________

P. O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
_________________________________________________________________

STATEMENT OF ADDITIONAL INFORMATION
May 1, 1995

_________________________________________________________________

This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the Fund's current Prospectus dated May 1, 1995. Copies of such
Prospectus may be obtained by contacting Alliance Fund Services,
Inc. at the address or telephone number shown above.

TABLE OF CONTENTS

PAGE

Introduction......................................... 3
Investment Policies and Restrictions................. 3
Money Market Portfolio.......................... 3
Premier Growth Portfolio........................ 9
Growth and Income Portfolio..................... 14
U.S. Government/High Grade
Securities Portfolio.......................... 15
High-Yield Portfolio............................ 33
Total Return Portfolio.......................... 41
International Portfolio......................... 43
Short-Term Multi-Market Portfolio
and Global Bond Portfolio..................... 49
North American Government Income
Portfolio..................................... 53
Global Dollar Government Portfolio.............. 90
Utility Income Portfolio........................ 104
Conservative Investors Portfolio,
Growth Investors Portfolio and
Growth Portfolio.............................. 111
Worldwide Privatization Portfolio............... 139
Other Investment Policies....................... 151
Management of the Fund............................... 155
Purchase and Redemption of Shares.................... 164
Net Asset Value...................................... 165

<PAGE>

Portfolio Transactions............................... 167
Dividends, Distributions and Taxes................... 168
General Information.................................. 169

Appendix A - Bond and Commercial Paper Ratings....... A-1
Appendix B - Description of Obligations Issued
or Guaranteed by U.S. Government Agencies
or Instrumentalities............................ B-1
Appendix C - Futures Contracts and Options on
Futures Contracts and Foreign Currencies........ C-1
Appendix D - Options................................. D-1
Appendix E - Japan................................... E-1

(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.

<PAGE>

_________________________________________________________________

INTRODUCTION
_________________________________________________________________

Alliance Variable Products Series Fund, Inc. ("the
Fund") is an open-end series investment company designed to fund
variable annuity contracts and variable life insurance policies
offered by the separate accounts of certain life insurance
companies. The Fund currently offers an opportunity to choose
among the separately managed pools of assets (the "Portfolios")
described in the Fund's Prospectus which have differing
investment objectives and policies. The Fund currently has
sixteen Portfolios, all of which are described in this Statement
of Additional Information.

_________________________________________________________________

INVESTMENT POLICIES AND RESTRICTIONS
_________________________________________________________________

The following investment policies and restrictions
supplement, and should be read in conjunction with, the
information regarding the investment objectives, policies and
restrictions of each Portfolio set forth in the Fund's
Prospectus. Except as noted below, the investment policies
described below are not fundamental and may be changed by the
Board of Directors of the Fund without the approval of the
shareholders of the affected Portfolio or Portfolios; however,
shareholders will be notified prior to a material change in such
policies.

Whenever any investment policy or restriction states a
minimum or maximum percentage of a Portfolio's assets which may
be invested in any security or other asset, it is intended that
such minimum or maximum percentage limitation be determined
immediately after and as a result of such Portfolio's acquisition
of such security or other asset. Accordingly, any later increase
or decrease in percentage beyond the specified limitations
resulting from a change in value or net assets will not be
considered a violation.

MONEY MARKET PORTFOLIO

GENERAL. The objectives of the Money Market Portfolio
are in the following order of priority: safety of principal,
excellent liquidity and maximum current income to the extent
consistent with the first two objectives. As a matter of
fundamental policy, the Fund pursues its objectives in this
Portfolio by maintaining the Portfolio's assets in high quality
money market securities, all of which at the time of investment

<PAGE>

have remaining maturities of one year or less (which maturities
may extend to 397 days). Accordingly, the Portfolio may make the
following investments diversified by maturities and issuers:

1. Marketable obligations of, or guaranteed by, the
United States Government, its agencies or instrumentalities.
These include issues of the U.S. Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of
agencies and instrumentalities established under the authority of
an act of Congress. The latter issues include, but are not
limited to, obligations of the Bank for Cooperatives, Federal
Financing Bank, Federal Home Loan Bank, Federal Intermediate
Credit Banks, Federal Land Banks, Federal National Mortgage
Association and Tennessee Valley Authority. Some of the
securities are supported by the full faith and credit of the U.S.
Treasury, others are supported by the right of the issuer to
borrow from the U.S. Treasury, and still others are supported
only by the credit of the agency or instrumentality.

2. Certificates of deposit, bankers' acceptances and
interest-bearing savings deposits issued or guaranteed by banks
or savings and loan associations having total assets of more than
$1 billion and which are members of the Federal Deposit Insurance
Corporation. Certificates of deposit are receipts issued by a
depository institution in exchange for the deposit of funds. The
issuer agrees to pay the amount deposited plus interest to the
bearer of the receipt on the date specified on the certificate.
Such certificates may include, for example, those issued by
foreign subsidiaries of such banks which are guaranteed by them.
The certificate usually can be traded in the secondary market
prior to maturity. Bankers' acceptances typically arise from
short-term credit arrangements designed to enable businesses to
obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in
effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held
by the accepting bank as an earning asset or it may be sold in
the secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.

3. Commercial paper, including variable amount master
demand notes, of prime quality rated A-1+ or A-1 by Standard &
Poor's Corporation ("S&P") or Prime-1 by Moody's Investors
Service, Inc. ("Moody's") or, if not rated, issued by domestic
and foreign companies which have an outstanding debt issue rated
AAA or AA by S&P, or Aaa or Aa by Moody's. For a description of
such ratings see Appendix A. Commercial paper consists of short-
term (usually from 1 to 270 days) unsecured promissory notes

<PAGE>

issued by corporations in order to finance their current
operations. A variable amount master demand note represents a
direct borrowing arrangement involving periodically fluctuating
rates of interest under a letter agreement between a commercial
paper issuer and an institutional lender pursuant to which the
lender may determine to invest varying amounts.

4. Repurchase agreements that are collateralized in
full each day by liquid securities of the types listed above.
Repurchase agreements may be entered into with member banks of
the Federal Reserve System or "primary dealers" (as designated by
the Federal Reserve Bank of New York) in U.S. Government
securities or the Fund's Custodian. It is the Portfolio's
current practice, which may be changed at any time without
shareholder approval, to enter into repurchase agreements only
with such primary dealers or the Fund's Custodian. While the
maturities of the underlying collateral may exceed one year, the
term of the repurchase agreement is always less than one year.
Repurchase agreements not terminable within seven days will be
limited to no more than 10% of the Portfolio's total assets.

For additional information regarding repurchase
agreements, see "Other Investment Policies -- Repurchase
Agreements," below.

REVERSE REPURCHASE AGREEMENTS. While the Portfolio has
no current plans to do so, it may enter into reverse repurchase
agreements, which involve the sale of money market securities
held by the Portfolio with an agreement to repurchase the
securities at an agreed-upon price, date and interest payment.
The Fund's Custodian will place cash not available for investment
or securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("Government Securities") or other
liquid high-quality debt securities in a separate account of the
Fund having a value equal to the aggregate amount of the Money
Market Portfolio's commitments in reverse repurchase agreements.

LIQUID RESTRICTED SECURITIES. The Portfolio may
purchase restricted securities eligible for resale under Rule
144A of the Securities Act of 1933, as amended (the "Securities
Act") that are determined by Alliance Capital Management L.P.
(the "Adviser") to be liquid in accordance with procedures
adopted by the Directors. Restricted securities are securities
subject to contractual or legal restrictions on resale, such as
those arising from an issuer's reliance upon certain exemptions
from registration under the Securities Act.

In recent years, a large institutional market has
developed for certain types of restricted securities including,
among others, private placements, repurchase agreements,
commercial paper, foreign securities and corporate bonds and

<PAGE>

notes. These instruments are often restricted securities because
they are sold in transactions not requiring registration. For
example, commercial paper issues in which the Portfolio may
invest include, among others, securities issued by major
corporations without registration under the Securities Act in
reliance on the exemption from registration afforded by Section
3(a)(3) of such Act and commercial paper issued in reliance on
the private placement exemption from registration which is
afforded by Section 4(2) of the Securities Act ("Section 4(2)
paper"). Section 4(2) paper is restricted as to disposition under
the Federal securities laws in that any resale must also be made
in an exempt transaction. Section 4(2) paper is normally resold
to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper,
thus providing liquidity. Institutional investors, rather than
selling these instruments to the general public, often depend on
an efficient institutional market in which such restricted
securities can be readily resold in transactions not involving a
public offering. In many instances, therefore, the existence of
contractual or legal restrictions on resale to the general public
does not, in practice, impair the liquidity of such investments
from the perspective of institutional holders.

In 1990, in part to enhance the liquidity in the
institutional markets for restricted securities, the Securities
and Exchange Commission (the "Commission") adopted Rule 144A
under the Securities Act to establish a safe harbor from the
Securities Act's registration requirements for resale of certain
restricted securities to qualified institutional buyers. Section
4(2) paper that is issued by a company that files reports under
the Securities Exchange Act of 1934 is generally eligible to be
resold in reliance on the safe harbor of Rule 144A. Pursuant to
Rule 144A, the institutional restricted securities markets may
provide both readily ascertainable values for restricted
securities and the ability to liquidate an investment in order to
satisfy share redemption orders on a timely basis. An
insufficient number of qualified institutional buyers interested
in purchasing certain restricted securities held by the
Portfolio, however, could affect adversely the marketability of
such portfolio securities and the Portfolio might be unable to
dispose of such securities promptly or at reasonable prices. Rule
144A has already produced enhanced liquidity for many restricted
securities, and market liquidity for such securities may continue
to expand as a result of Rule 144A and the consequent inception
of the PORTAL System sponsored by the National Association of
Securities Dealers, Inc., an automated system for the trading,
clearance and settlement of unregistered securities.

The Fund's Directors have the ultimate responsibility
for determining whether specific securities are liquid or
illiquid. The Directors have delegated the function of making

<PAGE>

day-to-day determinations of liquidity to the Adviser, pursuant
to guidelines approved by the Directors. The Adviser takes into
account a number of factors in determining whether a restricted
security being considered for purchase is liquid, including at
least the following:

(i) the frequency of trades and quotations for the
security;

(ii) the number of dealers making quotations to
purchase or sell the security;

(iii) the number of other potential purchasers of
the security;

(iv) the number of dealers undertaking to make a
market in the security;

(v) the nature of the security (including its
unregistered nature) and the nature of the
marketplace for the security (e.g., the time
needed to dispose of the security, the method
of soliciting offers and the mechanics of
transfer); and

(vi) any applicable Securities and Exchange
Commission interpretation or position with
respect to such types of securities.

Following the purchase of a restricted security by the
Portfolio, the Adviser monitors continuously the liquidity of
such security and reports to the Directors regarding purchases of
liquid restricted securities.

MONEY MARKET REQUIREMENTS. While there are many kinds
of short-term securities used by money market investors, the
Portfolio, in keeping with its primary investment objective of
safety of principal, restricts its portfolio to the types of
investments listed above. Of note, the Portfolio does not invest
in issues of savings and loan associations, letters of credit, or
issues of foreign banks. The Portfolio may make investments in
certificates of deposit issued by, and time deposits maintained
at, foreign branches of domestic banks specified above, prime
quality dollar-denominated commercial paper issued by foreign
companies meeting the rating criteria specified above, and in
certificates of deposit and bankers' acceptances denominated in
U.S. dollars that are issued by U.S. branches of foreign banks
having total assets of at least $1 billion that are believed by
the Adviser to be of quality equivalent to that of other such
investments in which the Portfolio may invest. To the extent
that the Portfolio invests in such instruments, consideration is

<PAGE>

given to their domestic marketability, the lower reserve
requirements generally mandated for overseas banking operations,
the possible impact of interruptions in the flow of international
currency transactions, potential political and social instability
or expropriation, imposition of foreign taxes, less government
supervision of issuers, difficulty in enforcing contractual
obligations and lack of uniform accounting standards. As even
the safest of securities involve some risk, there can be no
assurance, as is true with all investment companies, that the
Portfolio's objective will be achieved. The market value of the
Portfolio's investments tends to decrease during periods of
rising interest rates and to increase during intervals of falling
rates.

The Money Market Portfolio intends to comply with Rule
2a-7 under the Investment Company Act of 1940, as amended (the
"1940 Act"), as amended from time to time, including the
diversity, quality and maturity conditions imposed by the Rule.
Accordingly, in any case in which there is a variation between
the conditions imposed by the Rule and the Portfolio's investment
policies and restrictions, the Portfolio will be governed by the
more restrictive of the two requirements.

Currently, pursuant to Rule 2a-7, the Money Market
Portfolio may invest only in "eligible securities," as that term
is defined in the Rule. Generally, an eligible security is a
security that (i) is denominated in U.S. Dollars and has a
remaining maturity of 397 days or less; (ii) is rated, or is
issued by an issuer with short-term debt outstanding that is
rated, in one of the two highest rating categories by two
nationally recognized statistical rating organizations ("NRSROs")
or, if only one NRSRO has issued a rating, by that NRSRO; and
(iii) has been determined by the Adviser to present minimal
credit risks pursuant to procedures approved by the Board of
Directors. A security that originally had a maturity of greater
than 397 days is an eligible security if the issuer has
outstanding short-term debt that would be an eligible security.
Unrated securities may also be eligible securities if the Adviser
determines that they are of comparable quality to a rated
eligible security pursuant to guidelines approved by the Board of
Directors. A description of the ratings of some NRSROs appears
in Appendix A attached hereto.

Under Rule 2a-7, the Money Market Portfolio may not
invest more than 5% of its assets in the securities of any one
issuer other than the United States Government, its agencies and
instrumentalities. In addition, the Portfolio may not invest in
a security that has received, or is deemed comparable in quality
to a security that has received, the second highest rating by the
requisite number of NRSROs (a "second tier security") if
immediately after the acquisition thereof that Portfolio would

<PAGE>

have invested more than (A) the greater of 1% of its total assets
or one million dollars in securities issued by that issuer which
are second tier securities, or (B) five percent of its total
assets in second tier securities.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Money Market Portfolio, supplement
those set forth above and in the Prospectus and may not be
changed without Shareholder Approval, as defined under the
caption "General Information," below.

The Portfolio may not:

1. Purchase any security which has a maturity
date more than one year from the date of the Portfolio's
purchase;

2. Make investments for the purpose of exercising
control;

3. Purchase securities of other investment
companies, except in connection with a merger,
consolidation, acquisition or reorganization;

4. Invest in real estate (other than money market
securities secured by real estate or interests therein
or money market securities issued by companies which
invest in real estate or interests therein), commodities
or commodity contracts, interests in oil, gas and other
mineral exploration or other development programs;

5. Make short sales of securities or maintain a
short position or write, purchase or sell puts, calls,
straddles, spreads or combinations thereof; or

6. Purchase or retain securities of any issuers
if those officers and directors of the Fund and officers
and directors of the Adviser who own individually more
than 1/2% of the outstanding securities of such issuer
together own more than 5% of the securities of such
issuer.

PREMIER GROWTH PORTFOLIO

GENERAL. The objective of the Premier Growth Portfolio
is capital growth rather than current income. Since investments
will be made based upon their potential for capital appreciation,
current income will be incidental to the objective of capital
growth. The Portfolio will seek to achieve its objective through
aggressive investment policies and, therefore, is not intended

<PAGE>

for investors whose principal objective is assured income or
conservation of capital. Ordinarily, the annual portfolio
turnover rate may be in excess of 100%. For the fiscal period
June 26, 1992 (commencement of operations) to December 31, 1992,
the portfolio turnover rate was 14%. For the fiscal years ended
December 31, 1993 and December 31, 1994, the portfolio turnover
rates were 42% and 38%, respectively.

In seeking its investment goal, the Portfolio will
invest predominantly in the equity securities (common stocks,
securities convertible into common stocks and rights and warrants
to subscribe for or purchase common stocks) of a limited number
of large, carefully selected, high-quality American companies
that, in the judgment of the Adviser, are likely to achieve
superior earnings growth. The Portfolio's investments in the 25
of these companies most highly regarded at any point in time by
the Adviser will usually constitute approximately 70% of the
Portfolio's net assets. Normally, approximately 40 companies
will be represented in the Portfolio's investment portfolio. The
Portfolio thus differs from more typical equity mutual funds by
investing most of its assets in a relatively small number of
intensively researched companies.

The Adviser expects the average weighted market
capitalization of companies represented in the Portfolio's
portfolio (that is the number of a company's shares outstanding
multiplied by the price per share) to normally be in the range of
or exceed the average weighted market capitalization of companies
comprising the Standard & Poor's 500 Composite Stock Price Index,
a widely recognized unmanaged index of market activity based upon
the aggregate performance of a selected portfolio of publicly
traded common stocks, including monthly adjustments to reflect
the reinvestment of dividends and other distributions which
reflects the total return of securities comprising the Index,
including changes in market prices as well as accrued investment
income, which is presumed to be reinvested. Investments will be
made based upon their potential for capital appreciation.
Current income will be incidental to that objective. Because of
the market risks inherent in any investment, the selection of
securities on the basis of their appreciation possibilities
cannot ensure against possible loss in value, and there is, of
course, no assurance that the Portfolio's investment objective
will be met.

The Adviser expects that, under normal circumstances,
the Portfolio will invest at least 85% of the value of its total
assets in the equity securities of American companies (except
when in a temporary defensive position). The Portfolio defines
American companies to be entities (i) that are organized under
the laws of the United States and have their principal office in

<PAGE>

the United States, and (ii) the equity securities of which are
traded principally in the United States securities markets.

The Portfolio may invest in both listed and unlisted
domestic and foreign securities, and in restricted securities,
and in other assets having no ready market, but not more than 10%
of the Portfolio's total assets may be invested in all such
restricted or not readily marketable assets at any one time.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act, or
pursuant to Rule 144 promulgated under such Act. Where
registration is required, the Portfolio may be obligated to pay
all or part of the registration expense, and a considerable
period may elapse between the time of the decision to sell and
the time the Portfolio may be permitted to sell a security under
an effective registration statement. If during such a period
adverse market conditions were to develop, the Portfolio might
obtain a less favorable price than that which prevailed when it
decided to sell. Restricted securities and other not readily
marketable assets will be valued in such a manner as the Board of
Directors of the Fund in good faith deems appropriate to reflect
their fair market value. See "Other Investment Policies --
Illiquid Securities" below, for a more detailed discussion of the
Portfolio's investment policy on restricted securities and
securities with legal or contractual restrictions on resale.

SPECIAL SITUATIONS. The Portfolio will invest in
special situations from time to time. A special situation arises
when, in the opinion of the Adviser, the securities of a
particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value
solely by reason of a development particularly or uniquely
applicable to that company, and regardless of general business
conditions or movements of the market as a whole. Developments
creating special situations might include, among others,
liquidations, reorganizations, recapitalizations or mergers,
material litigation, technological breakthroughs and new
management or management policies. Although large and well-known
companies may be involved, special situations often involve much
greater risk than is inherent in ordinary investment securities.

SHORT SALES. The Portfolio may not sell securities
short, except that it may make short sales "against the box."
Such sales may be used by the Portfolio to defer the realization
of gain or loss for federal income tax purposes on securities
then owned by the Portfolio. Gains or losses will be short- or
long-term for federal income tax purposes depending upon the
length of time the securities are held by the Portfolio before
closing out the short sales by delivery to the lender. The
Portfolio may, in certain instances, realize short-term gains or

<PAGE>

losses on short sales "against the box" by covering the short
position through a subsequent purchase.

OPTIONS. The Portfolio may write call options and may
purchase and sell put and call options written by others,
combinations thereof, or similar options. The Portfolio may not
write put options. A put option gives the buyer of such option,
upon payment of a premium, the right to deliver a specified
number of shares of a stock to the writer of the option on or
before a fixed date at a predetermined price. A call option
gives the purchaser of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified number of
shares of a specified stock on or before a fixed date, at a
predetermined price, usually the market price at the time the
contract is negotiated. A call option written by the Portfolio
is "covered" if the Portfolio owns the underlying security
covered by the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or
for additional cash, U.S. Government Securities or other liquid
high grade debt obligation held in a segregated account by the
Fund's Custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the
Portfolio holds a call on the same security and in the same
principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of
the call written or (b) is greater than the exercise price of the
call written if the difference is maintained by the Portfolio in
cash in a segregated account with the Fund's Custodian. The
premium paid by the purchaser of an option will reflect, among
other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the
remaining term of the option, supply and demand and interest
rates.

The writing of call options will, therefore, involve a
potential loss of opportunity to sell securities at high prices.
In exchange for the premium received by it, the writer of a fully
collateralized call option assumes the full downside risk of the
securities subject to such option. In addition, the writer of the
call gives up the gain possibility of the stock protecting the
call. Generally, the opportunity for profit from the writing of
options occurs when the stocks involved are lower priced or
volatile, or both. While an option that has been written is in
force, the maximum profit that may be derived from the optioned
stock is the premium less brokerage commissions and fees.

It is the Portfolio's policy not to write a call option
if the premium to be received by the Portfolio in connection with
such options would not produce an annualized return of at least

<PAGE>

15% of the then market value of the securities subject to the
option. Commissions, stock transfer taxes and other expenses of
the Portfolio must be deducted from such premium receipts.
Option premiums vary widely depending primarily on supply and
demand. Calls written by the Portfolio will ordinarily be sold
either on a national securities exchange or through put and call
dealers, most, if not all, of which are members of a national
securities exchange on which options are traded, and will in such
case be endorsed or guaranteed by a member of a national
securities exchange or qualified broker-dealer, which may be
Donaldson, Lufkin & Jenrette Securities Corporation, an affiliate
of the Adviser. The endorsing or guaranteeing firm requires that
the option writer (in this case the Portfolio) maintain a margin
account containing either corresponding stock or other equity as
required by the endorsing or guaranteeing firm.

The Portfolio will not sell a call option written or
guaranteed by it if, as a result of such sale, the aggregate of
the Portfolio's securities subject to outstanding call options
(valued at the lower of the option price or market value of such
securities) would exceed 15% of the Portfolio's total assets.
The Portfolio will not sell any call option if such sale would
result in more than 10% of the Portfolio's assets being committed
to call options written by the Portfolio which, at the time of
sale by the Portfolio, have a remaining term of more than 100
days.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Growth Portfolio, supplement those
set forth above and in the Prospectus and may not be changed
without Shareholder Approval, as defined under the caption
"General Information," below.

The Portfolio may not:

1. Write put options;

2. Make investments for the purpose of exercising
control;

3. Except as permitted in connection with short
sales of securities "against the box" described under
the heading "Short Sales" above, make short sales of
securities;

4. Buy or hold securities of any issuer if any
officer or director of the Fund, the Adviser or any
officer, director or 10% shareholder of the Adviser owns
individually 1/2 of 1% of a class of securities of such

<PAGE>

issuer, and such persons together own beneficially more
than 5% of such securities; or

5. Buy or sell any real estate or interests
therein, commodities or commodity contracts, including
commodity futures contracts.

GROWTH AND INCOME PORTFOLIO

GENERAL. The Growth and Income Portfolio's objective is
reasonable current income and reasonable opportunity for
appreciation through investments primarily in dividend-paying
common stocks of good quality. It may invest whenever the
economic outlook is unfavorable for common stock investments in
other types of securities, such as bonds, convertible bonds,
preferred stocks and convertible preferred stocks. The Portfolio
may also write covered call options listed on domestic securities
exchanges. The Portfolio engages primarily in holding securities
for investment and not for trading purposes. Purchases and sales
of portfolio securities are made at such times and in such
amounts as are deemed advisable in the light of market, economic
and other conditions, irrespective of the volume of portfolio
turnover. Ordinarily the annual portfolio turnover rate will not
exceed 100%. The portfolio turnover rate for the fiscal year
ended December 31, 1992 was 49%. The portfolio turnover rates
for the fiscal years ended December 31, 1993 and December 31,
1994 were 69% and 95%, respectively.

The Portfolio may invest in foreign securities. Although
not a fundamental policy, the Portfolio will not make any such
investments unless such securities are listed on a national
securities exchange.

It is the Portfolio's policy not to concentrate its
investments in any one industry by investment of more than 25% of
the value of its total assets in such industry, underwrite
securities issued by other persons, purchase any securities as to
which it might be deemed a statutory underwriter under the
Securities Act, purchase or sell commodities or commodity
contracts or engage in the business of purchasing and selling
real estate.

OPTIONS. The Portfolio may write covered call options,
provided that the option is listed on a domestic securities
exchange and that no option will be written if, as a result, more
than 25% of the Portfolio's assets are subject to call options.
For a discussion of options, see "Premier Growth Portfolio -
Options" above.

<PAGE>

The Portfolio will purchase call options only to close
out a position in an option written by it. In order to close out
a position, the Portfolio will make a "closing purchase
transaction" if such is available. In such a transaction, the
Portfolio will purchase a call option on the same security option
which it has previously written. When a security is sold from
the Portfolio against which a call option has been written, the
Portfolio will effect a closing purchase transaction so as to
close out any existing call option on that security. The
Portfolio will realize a profit or loss from a closing purchase
transaction if the amount paid to purchase a call option is less
or more than the amount received as a premium for the writing
thereof. A closing purchase transaction cannot be made if
trading in the option has been suspended.

The premium received by the Portfolio upon writing a
call option will increase the Portfolio's assets, and a
corresponding liability will be recorded and subsequently
adjusted from day to day to the current value of the option
written. For example, if the current value of the option exceeds
the premium received, the excess would be an unrealized loss and,
conversely, if the premium exceeds the current value, such excess
would be an unrealized gain. The current value of the option
will be the last sales price on the principal exchange on which
the option is traded or, in the absence of any transactions, the
mean between the closing bid and asked price.

INVESTMENT RESTRICTIONS. The following investment
restrictions, which are applicable to the Growth and Income
Portfolio, supplement those set forth above and in the Prospectus
and may not be changed without shareholder approval, as defined
under the caption "General Information," below.

The Portfolio may not:

1. Purchase the securities of any other
investment company except in a regular transaction on
the open market;

2. Purchase the securities of any issuer if
directors or officers of the Fund or certain other
interested persons own more than 5% of such securities;
or

3. Invest in the securities of any company for
the purpose of exercising control of management.

<PAGE>

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO

The investment objective of the U.S. Government/High
Grade Securities Portfolio is high current income consistent with
preservation of capital. In seeking to achieve this objective,
the Portfolio will invest principally in a portfolio of (i)
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Securities") and
repurchase agreements pertaining to U.S. Government Securities
and (ii) other high grade debt securities rated AAA, AA or A by
S&P or Aaa, Aa or A by Moody's or that have not received a rating
but are determined to be of comparable quality by the Adviser.
As a fundamental investment policy, the Portfolio will invest at
least 65% of its total assets in these types of securities,
including the securities held subject to repurchase agreements.
The Portfolio will utilize certain other investment techniques,
including options and futures contracts, intended to enhance
income and reduce market risk. The Fund's Custodian will place
cash not available for investment or U.S. Government Securities
or other liquid high-quality debt securities in a separate
account of the Fund having a value equal to the aggregate amount
of any options transactions which may be entered into by the
Portfolio. The Portfolio is designed primarily for long-term
investors and investors should not consider it a trading vehicle.
As with all investment company portfolios, there can be no
assurance that the Portfolio's objective will be achieved.

The Portfolio is subject to the diversification
requirements prescribed by the U.S. Treasury Department which,
among other things, limits the Portfolio to investing no more
than 55% of its total assets in any one investment. For this
purpose, all securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities are
considered a single investment. Accordingly, the U.S.
Government/High Grade Securities Portfolio will limit its
purchases of U.S. Government Securities to 55% of the total
assets of the Portfolio. Consistent with this limitation, the
Portfolio will, as a matter of fundamental policy, invest at
least 45% of its total assets in U.S. Government Securities.
Nevertheless, the Portfolio reserves the right to modify the
percentage of its investments in U.S. Government Securities in
order to comply with all applicable tax requirements.

U.S. GOVERNMENT SECURITIES. Securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities, include: (i) U.S. Treasury obligations, which
differ only in their interest rates, maturities and times of
issuance, U.S. Treasury bills (maturity of one year or less),
U.S. Treasury notes (maturities of one to 10 years), and U.S.
Treasury bonds (generally maturities of greater than 10 years),
all of which are backed by the full faith and credit of the

<PAGE>

United States; and (ii) obligations issued or guaranteed by U.S.
Government agencies or instrumentalities, including government
guaranteed mortgage-related securities, some of which are backed
by the full faith and credit of the U.S. Treasury (e.g., direct
pass-through certificates of the Government National Mortgage
Association), some of which are supported by the right of the
issuer to borrow from the U.S. Government (e.g., obligations of
Federal Home Loan Banks), and some of which are backed only by
the credit of the issuer itself (e.g., obligations of the Student
Loan Marketing Association). See Appendix B hereto for a
description of obligations issued or guaranteed by U.S.
Government agencies or instrumentalities.

U.S. GOVERNMENT GUARANTEED MORTGAGE-RELATED SECURITIES--
GENERAL. Mortgages backing the U.S. Government guaranteed
mortgage-related securities purchased by the Portfolio include,
among others, conventional 30 year fixed rate mortgages,
graduated payment mortgages, 15 year mortgages and adjustable
rate mortgages. All of these mortgages can be used to create
pass-through securities. A pass-through security is formed when
mortgages are pooled together and undivided interests in the pool
or pools are sold. The cash flow from the mortgages is passed
through to the holders of the securities in the form of periodic
payments of interest, principal and prepayments (net of a service
fee). Prepayments occur when the holder of an individual
mortgage prepays the remaining principal before the mortgage's
scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-
backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the
prepayment characteristics of the underlying mortgages vary, it
is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates.
Prepayment rates are important because of their effect on the
yield and price of the securities. Accelerated prepayments
adversely impact yields for pass-throughs purchased at a premium
(i.e., a price in excess of principal amount) and may involve
additional risk of loss of principal because the premium may not
be fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The
Portfolio may purchase mortgage-related securities at a premium
or at a discount. Principal and interest payments on the
mortgage-related securities are government guaranteed to the
extent described below. Such guarantees do not extend to the
value or yield of the mortgage-related securities themselves or
of the Portfolio's shares of Common Stock.

GNMA CERTIFICATES. Certificates of the Government
National Mortgage Association ("GNMA Certificates") are mortgage-
related securities, which evidence an undivided interest in a
pool or pools of mortgages. GNMA Certificates that the Portfolio

<PAGE>

may purchase are the "modified pass-through" type, which entitle
the holder to receive timely payment of all interest and
principal payments due on the mortgage pool, net of fees paid to
the "issuer" and GNMA, regardless of whether or not the
mortgagors actually make mortgage payments when due.

The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on securities backed
by a pool or mortgages insured by the Federal Housing
Administration ("FHA") or guaranteed by the Veterans
Administration ("VA"). The GNMA guarantee is backed by the full
faith and credit of the United States Government. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if
necessary to make any payments required under its guarantee.

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

FHLMC SECURITIES. The Federal Home Loan Mortgage
Corporation ("FHLMC") was created in 1970 through enactment of
Title III of the Emergency Home Finance Act of 1970. Its purpose
is to promote development of a nationwide secondary market in
conventional residential mortgages.

The FHLMC issues two types of mortgage-related pass-
through securities ("FHLMC Certificates"), mortgage participation
certificates ("PCs") and guaranteed mortgage securities ("GMCs").
PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made and owed
on the underlying pool. The FHLMC guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal.

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

FNMA SECURITIES. The Federal National Mortgage
Association ("FNMA") was established in 1938 to create a
secondary market in mortgages insured by the FHA. FNMA issues
guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in

<PAGE>

that each FNMA Certificate represents a pro rata share of all
interest and principal payments made and owed on the underlying
pool. FNMA guarantees timely payment of interest and principal
on FNMA Certificates. The FNMA guarantee is not backed by the
full faith and credit of the United States.

ZERO COUPON TREASURY SECURITIES. The Portfolio may
invest in "zero coupon" Treasury securities, which are U.S.
Treasury bills, notes and bonds which have been stripped of their
unmatured interest coupons and receipts or certificates
representing interests in such stripped debt obligations and
coupons. A zero coupon security is a debt obligation that does
not entitle the holder to any periodic payments prior to maturity
but; instead, is issued and traded at a discount from its face
amount. The discount varies depending on the time remaining
until maturity, prevailing interest rates, liquidity of the
security and perceived credit quality of the issuer. The market
prices of zero coupon securities are generally more volatile than
those of interest-bearing securities, and are likely to respond
to changes in interest rates to a greater degree than otherwise
comparable securities that do pay periodic interest. Current
federal tax law requires that a holder (such as the Portfolio) of
a zero coupon security accrue a portion of the discount at which
the security was purchased as income each year, even though the
holder receives no interest payment on the security during the
year. As a result, in order to make the distributions necessary
for the Portfolio not to be subject to federal income or excise
taxes, the Portfolio might be required to pay out as an income
distribution each year an amount, obtained by liquidation of
portfolio securities if necessary, greater than the total amount
of cash that the Portfolio has actually received as interest
during the year. The Adviser believes, however, that it is
highly unlikely that it would be necessary to liquidate any
portfolio securities for this purpose.

Currently the only U.S. Treasury security issued without
coupons is the Treasury bill. Although the U.S. Treasury does
not itself issue treasury notes and bonds without coupons, under
the U.S. Treasury STRIPS program interest and principal on
certain long term treasury securities may be maintained
separately in the Federal Reserve book entry system and may be
separately traded and owned. However, in the last few years a
number of banks and brokerage firms have separated ("stripped")
the principal portions ("corpus") from the coupon portions of the
U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests
in these instruments (which instruments are generally held by a
bank in a custodial or trust account). The staff of the
Commission has indicated that these receipts or certificates
representing stripped corpus interests in U.S. Treasury
securities sold by banks and brokerage firms should be considered

<PAGE>

as securities issued by the bank or brokerage firm involved and,
therefore, should not be included in the Portfolio's
categorization of U.S. Government Securities for purposes of the
Portfolio's investing at least 45% of its assets in U.S.
Government Securities. The Fund disagrees with the staff's
interpretation but has undertaken, until final resolution of the
issue, to include the Portfolio's purchases of such securities in
the non-U.S. Government Securities portion of the Portfolio's
investments which may be as much as 55% of its total assets.
However, if such securities are deemed to be U.S. Government
Securities, the Portfolio will include them as such for purposes
of determining the 55% limitation on U.S. Government Securities.

REPURCHASE AGREEMENTS. The Portfolio may enter into
repurchase agreements pertaining to U.S. Government Securities
with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York)
in such securities. Currently the Portfolio plans to enter into
repurchase agreements only with the Fund's Custodian and such
primary dealers. For a general discussion of repurchase
agreements, see "Other Investment Policies -- Repurchase
Agreements," below.

GENERAL. U.S. Government Securities do not generally
involve the credit risks associated with other types of interest
bearing securities. As a result, the yields available from U.S.
Government Securities are generally lower than the yields
available from other interest-bearing securities. Like other
fixed-income securities, however, the values of U.S. Government
Securities change as interest rates fluctuate. When interest
rates decline, the values of U.S. Government Securities can be
expected to increase and when interest rates rise, the values of
U.S. Government Securities can be expected to decrease.

HIGH GRADE DEBT SECURITIES. High grade debt securities
which, together with U.S. Government Securities, will constitute
at least 65% of the Portfolio's assets include:

1. Debt securities which are rated AAA, AA, or A
by S&P or Aaa, Aa or A by Moody's;

2. Obligations of, or guaranteed by, national or
state bank holding companies, which obligations,
although not rated as a matter of policy by either S&P
or Moody's, are rated AAA, AA or A by Fitch Investors
Services, Inc. ("Fitch");

3. Commercial paper rated A-1+, A-1, A-2 or A-3
by S&P or Prime-1, Prime-2 or Prime-3 by Moody's; and

<PAGE>

4. Bankers' acceptances or negotiable
certificates of deposit issued by banks rated AAA, AA or
A by Fitch.

INVESTMENT IN HIGH GRADE DEBT SECURITIES. With respect
to the Portfolio's investment in high grade debt securities, it
will not acquire common stocks or equities exchangeable for or
convertible into common stock or rights or warrants to subscribe
for or purchase common stock, except that with respect to
convertible debt securities, the Portfolio may acquire common
stock through the exercise of conversion rights in situations
where it believes such exercise is in the best interest of the
Portfolio and its shareholders. In such event, the Portfolio
will sell the common stock resulting from such conversion as soon
as practical. The Portfolio may acquire debt securities and
nonconvertible preferred stock which may have voting rights, but
in no case will the Portfolio acquire more than 10% of the voting
securities of any one issuer. The relative size of the
Portfolio's investments in any grade or type of security will
vary from time to time. Critical factors which are considered in
the selection of securities relate to other investment
alternatives as well as trends in the determinants of interest
rates, corporate profits and management capabilities and
practices.

FOREIGN SECURITIES. The Portfolio may invest up to 25%
of the value of its total assets at the time of investment in
debt securities of foreign issuers meeting the rating criteria
set forth above. Investment in foreign debt securities may
involve risks greater than those ordinarily associated with
investment in domestic debt securities: debt obligations of
foreign government issuers may be affected by political or
economic instabilities; financial information published by
foreign corporations may be less reliable or complete than
information disclosed by domestic corporations pursuant to U.S.
securities laws; and fluctuations in foreign exchange rates may
affect the value of foreign securities not denominated in U.S.
currency.

RESTRICTED SECURITIES. Consistent with its investment
restrictions, the Portfolio may acquire restricted securities.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act or
pursuant to Rule 144 promulgated under such Act. Where
registration is required, the Portfolio may be obligated to pay
all or part of the registration expense, and a considerable
period may elapse between the time of the decision to sell and
the time the Portfolio may be permitted to sell a security under
an effective registration statement. If during such a period
adverse market conditions were to develop, the Portfolio might

<PAGE>

obtain a less favorable price than prevailed when it decided to
sell. Restricted securities will be valued in such manner as the
Board of Directors of the Fund in good faith deem appropriate to
reflect their fair market value. If through the appreciation of
restricted securities or the depreciation of unrestricted
securities, the Portfolio should be in a position where more than
10% of the value of its total assets is invested in illiquid
assets, including restricted securities, the Portfolio will take
appropriate steps to protect liquidity. See "Other Investment
Policies -- Illiquid Securities" below, for a more detailed
discussion of the Portfolio's investment policy in securities
with legal or contractual restrictions on resale.

OTHER SECURITIES. While the Portfolio's investment
strategy emphasizes U.S. Government Securities and high grade
debt securities, the Portfolio may, consistent with its
investment objectives, invest up to 35% of its total assets in
securities other than U.S. Government Securities and high grade
debt securities, including (i) Foreign Government Securities (see
"Foreign Government Securities" below), (ii) investment grade
corporate debt securities of a type other than the high grade
debt securities described above (including collateralized
mortgage obligations), (iii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of banks having
total assets of more than $1 billion and which are members of the
Federal Deposit Insurance Corporation, and (iv) put and call
options, futures contracts and options thereon, options on
Foreign Government Securities, options on foreign currencies and
forward currency exchange contracts. Investment grade debt
securities are those rated Baa or higher by Moody's or BBB or
higher by S&P or, if not so rated, of equivalent investment
quality in the opinion of the Adviser. Securities rated Baa by
Moody's or BBB by S&P normally provide higher yields but are
considered to have speculative characteristics. Sustained
periods of deteriorating economic conditions or rising interest
rates are more likely to lead to a weakening in the issuer's
capacity to pay interest and repay principal than in the case of
higher-rated securities. See Appendix A hereto for a description
of corporate debt ratings.

FOREIGN GOVERNMENT SECURITIES. As described above, the
Portfolio may invest up to 35% of its total assets in Foreign
Government Securities of issuers considered stable by the
Adviser. Foreign Government Securities are obligations issued or
guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies, or instrumentalities. The
Adviser's determination that a particular country should be
considered stable depends on the Adviser's evaluation of
political and economic developments affecting the country as well
as recent experience in the markets for Foreign Government
Securities of the country. Examples of foreign governments which

<PAGE>

the Adviser currently considers to be stable, among others, are
the governments of Canada, Japan, Sweden, West Germany and the
United Kingdom. The Adviser does not believe that the credit
risk inherent in the obligations of such stable foreign
governments is significantly greater than that of U.S. Government
Securities. The percentage of the Portfolio's assets invested in
Foreign Government Securities will vary depending on the relative
yields of such securities, the economies of the countries in
which the investments are made and such countries' financial
markets, the interest rate climate of such countries and the
relationship of such countries' currencies to the U.S. dollar.
Currency is judged on the basis of fundamental economic criteria
(e.g., relative inflation levels and trends, growth rate
forecasts, balance of payments status, and economic policies) as
well as technical and political data. The Portfolio's
investments in Foreign Government Securities may include those of
a number of foreign countries or, depending upon market
conditions, those of a single country. The Portfolio may also
hold foreign currency for hedging purposes.

Investing in Foreign Government Securities involves
considerations and possible risks not typically associated with
investing in U.S. Government Securities. The value of Foreign
Government Securities investments will be affected by changes in
currency rates or exchange control regulations, application of
foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in
this country or abroad) or changed circumstances in dealings
between nations. Costs may be incurred in connection with
conversions between various currencies. Foreign brokerage
commissions are generally higher than in the United States, and
foreign securities markets may be less liquid, more volatile and
less subject to governmental supervision than in the United
States. Investments in foreign countries could be affected by
other factors not present in the United States, including
expropriation, confiscatory taxation and potential difficulties
in enforcing contractual obligations and could be subject to
extended settlement periods.

COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized
mortgage obligations ("CMOs") are debt obligations issued
generally by finance subsidiaries or trusts that are secured by
mortgage-backed certificates, including, in many cases, GNMA
Certificates, FHLMC Certificates and FNMA Certificates, together
with certain funds and other collateral.

Scheduled distributions on the mortgage-backed
certificates pledged to secure the CMOs, together with certain
funds and other collateral, will be sufficient to make timely
payments of interest on the CMOs and to retire the CMOs not later
than their stated maturity. Since the rate of payment of

<PAGE>

principal of the CMOs will depend on the rate of payment
(including prepayments) of the principal of the underlying
mortgage-backed certificates, the actual maturity of the CMOs
could occur significantly earlier than their stated maturity.
The CMOs may be subject to redemption under certain
circumstances. CMOs bought at a premium (i.e., a price in excess
of principal amount) may involve additional risk of loss of
principal in the event of unanticipated prepayments of the
underlying mortgages because the premium may not have been fully
amortized at the time the obligation is repaid.

Although payment of the principal of and interest on the
mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FHLMC, or FNMA, the CMOs represent
obligations solely of the issuer and are not insured or
guaranteed by GNMA, FHLMC, FNMA or any other governmental agency,
or by any other person or entity. The issuers of CMOs typically
have no significant assets other than those pledged as collateral
for the obligations.

The staff of the Commission currently takes the
position, in a reversal of its former view, that certain issuers
of CMOs are not investment companies for purposes of Section
12(d)(i) of the 1940 Act, which limits the ability of one
investment company to invest in another investment company. The
staff of the Commission has determined that certain issuers of
CMOs are investment companies for purposes of the 1940 Act. In
reliance on a recent staff interpretation, the Portfolio's
investments in certain qualifying CMOs, including CMOs that have
elected to be treated as Real Estate Mortgage Investment Conduits
(REMICs), are not subject to the 1940 Act's limitation on
acquiring interests in other investment companies. In order to
be able to rely on the staff's interpretation, the CMOs and
REMICs must be unmanaged, fixed-asset issuers, that (a) invest
primarily in mortgage-backed securities, (b) do not issue
redeemable securities, (c) operate under general exemptive orders
exempting them from all provisions of the 1940 Act, and (d) are
not registered or regulated under the 1940 Act as investment
companies. To the extent that the Portfolio selects CMOs or
REMICs that do not meet the above requirements, the Portfolio may
not invest more than 10% of its assets in all such entities and
may not acquire more than 3% of the voting securities of any
single such entity.

INVESTMENT PRACTICES

OPTIONS ON U.S. AND FOREIGN GOVERNMENT SECURITIES. In
an effort to increase current income and to reduce fluctuations
in net asset value, the Portfolio intends to write covered put
and call options and purchase put and call options on U.S.
Government Securities and Foreign Government Securities that are

<PAGE>

traded on United States and foreign securities exchanges and over
the counter. The Portfolio may also write such call options that
are not covered for cross-hedging purposes. There are no
specific percentage limitations on the Portfolio's investments in
options.

The Portfolio intends to write call options for cross-
hedging purposes. A call option is for cross-hedging purposes if
it 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 such circumstances, the Portfolio collateralizes the
option by maintaining in a segregated account with the Custodian,
cash or U.S. Governmental Securities in an amount not less than
the market value of the underlying security, marked to market
daily.

In purchasing a call option, the Portfolio would be in a
position to realize a gain if, during the option period, the
price of the security increased by an amount in excess of the
premium paid. It would realize a loss if the price of the
security declined or remained the same or did not increase during
the period by more than the amount of the premium. In purchasing
a put option, the Portfolio would be in a position to realize a
gain if, during the option period, the price of the security
declined by an amount in excess of the premium paid. It would
realize a loss if the price of the security increased or remained
the same or did not decrease during that period by more than the
amount of the premium. If a put or call option purchased by the
Portfolio were permitted to expire without being sold or
exercised, its premium would be lost by the Portfolio.

If a put option written by the Portfolio were exercised,
the Portfolio would be obligated to purchase the underlying
security at the exercise price. If a call option written by the
Portfolio were exercised, the Portfolio would be obligated to
sell the underlying security at the exercise price. The risk
involved in writing a put option is that there could be a
decrease in the market value of the underlying security caused by
rising interest rates or other factors. If this occurred, the
option could be exercised and the underlying security would then
be sold to the Portfolio at a higher price than its current
market value. The risk involved in writing a call option is that
there could be an increase in the market value of the underlying
security caused by declining interest rates or other factors. If
this occurred, the option could be exercised and the underlying
security would then be sold by the Portfolio at a lower price
than its current market value. The Portfolio retains the premium
received from writing a put or call option whether or not the
option is exercised.

<PAGE>

Over-the-counter options are purchased or written by the
Portfolio in privately negotiated transactions. Such options are
illiquid and it may not be possible for the Portfolio to dispose
of any option it has purchased or terminate its obligations under
an option it has written at a time when the Adviser believes it
would be advantageous to do so.

The Portfolio intends to write covered put and call
options and purchase put and call options on U.S. Government
Securities and Foreign Government Securities that are traded on
United States and foreign securities exchanges and over the
counter. The Portfolio also intends to write call options that
are not covered for cross-hedging purposes.

For additional information on the use, risks and costs
of options, see Appendix D.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The
Portfolio may enter into contracts for the purchase or sale for
future delivery of fixed income securities or foreign currencies,
or contracts based on financial indices including any index of
U.S. Government Securities or Foreign Government Securities
("futures contracts") and may purchase and write options to buy
or sell futures contracts ("options on futures contracts").
Options on futures contracts to be written or purchased by the
Portfolio will be traded on U.S. or foreign exchanges or over the
counter. These investment techniques will be used only to hedge
against anticipated future changes in interest or exchange rates
which otherwise might either adversely affect the value of the
Portfolio's securities or adversely affect the prices of
securities which the Portfolio intends to purchase at a later
date. The successful use of such instruments draws upon the
Adviser's special skills and experience with respect to such
instrumentalities and usually depends on the Adviser's ability to
forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an
unexpected manner, the Portfolio may not achieve the anticipated
benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if
such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on
futures contracts and movements in the price of securities and
currencies hedged or used for cover will not be perfect.

A "sale" of a futures contract means the acquisition of
a contractual obligation to deliver the securities or foreign
currencies called for by the contract at a specified price on a
specified date. A "purchase" of a futures contract means the
acquisition of a contractual obligation to acquire the securities

<PAGE>

or foreign currencies called for by the contract at a specified
price on a specified date. The purchaser of a futures contract
on an index agrees to take or make delivery of an amount of cash
equal to the difference between a specified dollar multiple of
the value of the index on the expiration date of the contract and
the price at which the contract was originally struck.

The Portfolio will enter into futures contracts which
are based on debt securities that are backed by the full faith
and credit of the U.S. Government, such as long-term U.S.
Treasury bonds, Treasury notes, GNMA modified pass-through
mortgage-backed securities and three-month U.S. Treasury bills.
The Portfolio may also enter into futures contracts which are
based on non-U.S. Government bonds.

The Portfolio's ability to engage in the options and
futures strategies described above will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to U.S. Government Securities
are relatively new and still developing. It is impossible to
predict the amount of trading interest that may exist in various
types of options or futures. Therefore no assurance can be given
that the Portfolio will be able to utilize these instruments
effectively for the purposes set forth above. Furthermore, the
Portfolio's ability to engage in options and futures transactions
may be limited by tax considerations.

It is the policy of the Portfolio that futures contracts
and options on futures contracts only be used as a hedge and not
for speculation. In addition to this requirement, the Portfolio
adheres to two percentage restrictions on the use of futures
contracts. The first restriction is that the Portfolio will not
enter into any futures contracts and options on futures contracts
if immediately thereafter the amount of initial margin deposits
on all the futures contracts of the Portfolio and premiums paid
on options on futures contracts would exceed 5% of the market
value of the total assets of the Portfolio. The second
restriction is that the aggregate market value of the futures
contracts held by the Portfolio not exceed 50% of the market
value of the total assets of the Portfolio. Neither of these
restrictions will be changed by the Portfolio without considering
the policies and concerns of the various applicable federal and
state regulatory agencies.

For additional information on the use, risks and costs
of future contracts and options on future contracts, see Appendix
C.

OPTIONS ON FOREIGN CURRENCIES. The Portfolio may
purchase and write put and call options on foreign currencies for
the purpose of protecting against declines in the dollar value of

<PAGE>

foreign currency-denominated securities and against increases in
the dollar cost of such securities to be acquired. As in the
case of other kinds of 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 purchase 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
position, it may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be
written or purchased by the Portfolio will be traded on U.S. and
foreign exchanges or over the counter. There is no specific
percentage limitation on the Portfolio's investment in options on
foreign currencies.

For additional information on the use, risks and costs
of options on foreign currencies, see Appendix D.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The
Portfolio may enter into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk
to the Portfolio from adverse changes in the relationship between
the U.S. dollar and foreign currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and
privately traded by currency traders and their customers. The
Portfolio may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. Additionally, for example, when
the Adviser believes that a foreign currency may suffer a
substantial decline against the U.S. dollar, it may cause the
Portfolio to enter into a forward contract to sell an amount of
that foreign currency approximating the value of some or all of
the Portfolio's securities denominated in such foreign currency,
or when the Adviser believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may cause the
Portfolio to enter into a forward contract to buy that foreign
currency for a fixed dollar amount. The Custodian will place
cash not available for investment or liquid debt securities in a
separate account of the Portfolio having a value equal to the
aggregate amount of the Portfolio's commitments under forward
contracts entered into under the second circumstance, as set
forth above. If the value of the securities placed in the
separate account declines, additional cash or securities will be
placed in the account on a daily basis so that the value of the
account will equal the amount of the Portfolio's commitments with
respect to such contracts. As an alternative to maintaining all
or part of the separate account, the Portfolio may purchase a

<PAGE>

call option permitting the Portfolio to purchase the amount of
foreign currency being hedged by a forward sale contract at a
price no higher than the forward contract price or the Portfolio
may purchase a put option permitting the Portfolio to sell the
amount of foreign currency subject to a forward purchase contract
at a price as high or higher than the forward contract price.
While these contracts are not presently regulated by the CFTC,
the CFTC may in the future assert authority to regulate forward
contracts. In such event the Portfolio's ability to utilize
forward contracts in the manner set forth above may be
restricted. Forward contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Portfolio than if it
had not entered into such contracts.

LENDING OF PORTFOLIO SECURITIES. In order to increase
income, the Portfolio may from time to time lend its securities
to brokers, dealers and financial institutions and receive
collateral in the form of cash or U.S. Government Securities.
Under the Portfolio's procedures, collateral for such loans must
be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities (including
interest accrued on the loaned securities). The interest
accruing on the loaned securities will be paid to the Portfolio
and the Portfolio will have the right, on demand, to call back
the loaned securities. The Portfolio may pay fees to arrange the
loans. The Portfolio will not lend its securities in excess of
30% of the value of its total assets, nor will the Portfolio lend
its securities to any officer, director, employee or affiliate of
the Fund or the Adviser.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The
Portfolio may enter into forward commitments for the purchase or
sale of securities. Such transactions may include purchases on a
"when-issued" basis or purchases or sales on a "delayed delivery"
basis. In some cases, a forward commitment may be conditioned
upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt
restructuring (i.e., a "when, as and if issued" trade).

When such transactions are negotiated, the price, which
is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities
take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements
beyond two months may be negotiated. Securities purchased or
sold under a forward commitment are subject to market
fluctuation, and no interest (or dividend) accrues to the

<PAGE>

purchaser prior to the settlement date. At the time the
Portfolio enters into a forward commitment, it will record the
transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a "when, as and if
issued" security would be cancelled in the event that the
required condition did not occur and the trade was cancelled.

The use of when-issued transactions and forward
commitments enables the Portfolio to protect against anticipated
changes in interest rates and prices. For instance, in periods
of rising interest rates and falling bond prices, the Portfolio
might sell its securities on a forward commitment basis to limit
its exposure to falling prices. In periods of falling interest
rates and rising bond prices, the Portfolio might sell a security
and purchase the same or a similar security on a when-issued or
forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements,
the Portfolio might be required to complete such when-issued or
forward transactions at prices inferior to then current market
values. No when-issued transactions forward commitments will be
made by the Portfolio if, as a result, the Portfolio's aggregate
commitments under such transactions would be more than 30% of the
then current value of the Portfolio's total assets.

When-issued and forward commitments may be sold prior to
the settlement date, but the Portfolio enters into forward
commitments only with the intention of actually receiving or
delivering the securities, as the case may be. To facilitate
such transactions, the Custodian will maintain, in the separate
account, cash, U.S. Government Securities or other liquid, high-
grade debt obligations, having value equal to, or greater than,
any commitments to purchase securities on a when-issued or
forward commitment basis and, with respect to forward commitments
to sell the Portfolio's securities themselves. If the Adviser,
however, chooses to dispose of its right to acquire a when-issued
security prior to its acquisition or dispose of its right to
receive or deliver a security subject to a forward commitment
prior to the settlement date of the transaction, the Portfolio
can incur a gain or loss. At the time the Portfolio makes the
commitment to purchase or sell a security on a when-issued or
forward commitment basis, it records the transaction and reflects
the value of the security purchased or, if a sale, the proceeds
to be received, in determining its net asset value. In the event
the other party to a forward commitment transaction were to
default, the Portfolio might lose the opportunity to invest money

<PAGE>

at favorable rates or to dispose of securities at favorable
prices.

FUTURE DEVELOPMENTS. The Portfolio may, following
written notice thereof to its shareholders, take advantage of
opportunities in the area of options and futures contracts and
options on futures contracts which are not presently contemplated
for use by the Portfolio or which are not currently available but
which may be developed, to the extent such opportunities are both
consistent with the Portfolio's investment objective and legally
permissible for the Portfolio. Such opportunities, if they
arise, may involve risks which exceed those involved in the
options and futures activities described above.

PORTFOLIO TURNOVER. Because the Portfolio will actively
use trading to benefit from yield disparities among different
issues of fixed-income securities or otherwise to achieve its
investment objective and policies, the Portfolio may be subject
to a greater degree of portfolio turnover than might be expected
from investment companies which invest substantially all of their
funds on a long-term basis. The Portfolio cannot accurately
predict its portfolio turnover rate, but it is anticipated that
the annual turnover rate of the Portfolio generally will not
exceed 400%(excluding turnover of securities having a maturity of
one year of less). An annual turnover rate of 400% occurs, for
example, when all of the Portfolio's securities are replaced four
times in a period of one year. A 400% turnover rate is greater
than that of many other investment companies. A higher incidence
of short term capital gain taxable as ordinary income than might
be expected from investment companies which invest substantially
all their funds on a long term basis and correspondingly larger
mark up charges can be expected to be borne by the Portfolio.
For the fiscal period ended December 31, 1992 the portfolio
turnover rate was 13%. For the fiscal years ended December 31,
1993 and December 31, 1994 the portfolio turnover rates were 177%
and 32% respectively.

INVESTMENT RESTRICTIONS. The following investment
restrictions, which are applicable to the U.S. Government/High
Grade Securities Portfolio, supplement those set forth above and
in the Prospectus and may not be changed without Shareholder
Approval, as defined under the caption "General Information"
below.

The Portfolio may not:

1. Participate on a joint or joint and several
basis in any securities trading account;

<PAGE>

2. Invest in companies for the purpose of
exercising control;

3. Issue senior securities, except in connection
with permitted borrowing for extraordinary emergency
purposes;

4. Sell securities short or maintain a short
position, unless at all times when a short position is
open it owns an equal amount of such securities or
securities convertible into or exchangeable for, without
payment of any further consideration, securities of the
same issue as, and equal in amount to, the securities
sold short ("short sales against the box"), and unless
not more than 10% of the Portfolio's net assets (taken
at market value) is held as collateral for such sales at
any one time (it is the Portfolio's present intention to
make such sales only for the purpose of deferring
realization of gain or loss for federal income tax
purposes);

5. Borrow money, except the Portfolio may borrow
for temporary purposes in an amount not exceeding 5% of
the value of the total assets of the Portfolio;

6. Invest in illiquid securities, including
direct placements or other securities which are subject
to legal or contractual restrictions on resale or for
which there is no readily available trading market, if
more than 10% of the Portfolio's assets (taken at market
value) would be invested in such securities;

7. Invest more than 5% of the value of its total
assets at the time an investment is made in the
nonconvertible preferred stock of issuers whose
nonconvertible preferred stock is not readily
marketable;

8. Invest in the securities of any investment
company, except in connection with a merger,
consolidation, acquisition of assets or other
reorganization approved by the Fund's shareholders;

9. Invest more than 25% of the value of its total
assets at the time of investment in the aggregate of:

(a) nonconvertible preferred stock of issuers
whose senior debt securities are rated Aaa, Aa, or
A by Moody's or AAA, AA or A by S&P, provided that
in no event may such nonconvertible preferred
stocks exceed in the aggregate 20% of the value of

<PAGE>

the Portfolio's total assets at the time of
investment;

(b) debt securities of foreign issuers which
are rated Aaa, Aa or A by Moody's or AAA, AA or A
by S&P; and

(c) convertible debt securities which are
rated Aaa, Aa or A by Moody's, or AAA, AA or A by
S&P, provided that in no event may such securities
exceed in the aggregate 10% of the value of the
Portfolio's total assets at the time of investment;

10. Purchase or sell real estate, except that it
may purchase and sell securities of companies which deal
in real estate or interests therein;

11. Purchase or sell commodities or commodity
contracts (except currencies, currency futures, forward
contracts or contracts for the future acquisition or
delivery of fixed income securities and related options)
and other similar contracts; or

12. Purchase securities on margin, except for such
short-term credits as may be necessary for the clearance
of transactions.

HIGH YIELD PORTFOLIO

GENERAL. As discussed in the Prospectus for the High
Yield Portfolio, the Portfolio will invest principally in fixed-
income securities rated Baa or lower by Moody's or BBB or lower
by S&P. The ratings of fixed-income securities by Moody's and
S&P are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's
standpoint. For a description of credit ratings see Appendix A to
the Prospectus.

Such limitations include the following: the rating of
an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions; there is
frequently a lag between the time a rating is assigned and the
time it is updated; and there may be varying degrees of
difference in credit risk of securities in each rating category.
The Adviser will attempt to reduce the overall portfolio credit
risk through diversification and selection of portfolio
securities based on considerations mentioned below.

While ratings provide a generally useful guide to credit
risks, they do not, nor do they purport to, offer any criteria
for evaluating interest rate risk. Changes in the general level

<PAGE>

of interest rates cause fluctuations in the prices of fixed-
income securities already outstanding and will therefore result
in fluctuation in net asset value of the Portfolio's shares. The
extent of the fluctuation is determined by a complex interaction
of a number of factors. The Adviser will evaluate those factors
it considers relevant and will make portfolio changes when it
deems it appropriate in seeking to reduce the risk of
depreciation in the value of the Portfolio.

PUBLIC UTILITIES. The High-Yield Portfolio's
investments in public utilities, if any, may be subject to
certain risks. Such utilities may have difficulty meeting
environmental standards and obtaining satisfactory fuel supplies
at reasonable costs. During an inflationary period, public
utilities also face increasing fuel, construction and other costs
and may have difficulty realizing an adequate return on invested
capital. There is no assurance that regulatory authorities will
grant sufficient rate increases to cover expenses associated with
the foregoing difficulties as well as debt service requirements.
In addition, with respect to utilities engaged in nuclear power
generation, there is the possibility that Federal, State or
municipal governmental authorities may from time to time impose
additional regulations or take other governmental action which
might cause delays in the licensing, construction, or operation
of nuclear power plants, or suspension of operation of such
plants which have been or are being financed by proceeds of the
fixed income securities in the Portfolio.

MORTGAGE-RELATED SECURITIES. The mortgage-related
securities in which the High-Yield Portfolio may invest provide
funds for mortgage loans made to residential home buyers. These
include securities which represent interests on pools of mortgage
loans made by lenders such as savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled for sale to investors (such as the Portfolio)
by various governmental, government-related and private
organizations.

Government-related (i.e., not backed by the full faith
and credit of the United States Government) guarantors include
FNMA and FHLMC. For a description of FNMA and FHLMC and the
securities they issue see above, U.S. Government/ High Grade
Securities Portfolio -- U.S. Government Securities, FHLMC
Securities and FNMA Securities."

Yields on mortgage-related securities are typically
quoted by investment dealers and vendors based on the maturity of
the underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of
prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-related securities.

<PAGE>

Conversely, in periods of rising interest rates the rate of
prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Historically, actual average life has
been consistent with the 12-year assumption referred to above.

Actual prepayment experience may cause the yield to
differ from the issued average life yield. Reinvestment of
prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of the Portfolio.
The compounding effect from reinvestment of monthly payments
received by the Portfolio will increase the yield to shareholders
compared to bonds that pay interest semi-annually.

DIRECT INVESTMENT IN MORTGAGES. The High-Yield
Portfolio may invest directly in residential mortgages securing
residential real estate (i.e., the Portfolio becomes the
mortgagee). Such investments are not mortgage-related securities
as described above. They are normally available from lending
institutions which group together a number of mortgages for
resale (usually from 10 to 50 mortgages) and which act as serving
agent for the purchaser with respect to, among other things, the
receipt of principal and interest payments. (Such investments
are also referred to as "whole loans"). The vendor of such
mortgages receives a fee from the Portfolio for acting a
servicing agent. The vendor does not provide any insurance or
guarantees covering the repayment of principal or interest on the
mortgages. At present, such investments are considered to be
illiquid by the Adviser. The Portfolio will invest in such
mortgages only if the Adviser has determined through an
examination of the mortgage loans and their originators (which
may include an examination of such factors as percentage of
family income dedicated to loan service and relationship between
loan value and market value) that the purchase of the mortgages
should not present a significant risk of loss to the Portfolio.
The Portfolio has no present intention of making direct
investments in mortgages.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The
High-Yield Portfolio may purchase securities offered on a "when-
issued" basis and may purchase or sell securities on a "forward
commitment" basis. For a general description of when-issued
securities and forward commitments, see above, "U.S.
Government/High Grade Portfolio-Investment Practices-When-Issued
Securities and Forward Commitments." No when-issued or forward
commitments will be made by the Portfolio if, as a result, more
than 20% of the value of the Portfolio's total assets would be
committed to such transactions.

The High-Yield Portfolio may purchase securities on a
"when, as and if issued" basis as described above in "U.S.
Government/High Grade Portfolio-Investment Practices-When-Issued

<PAGE>

Securities and Forward Commitments." The commitment for the
purchase of any such security will not be recognized in the
Portfolio until the Adviser determines that issuance of the
security is probable. At such time, the Portfolio will record
the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the
Portfolio will also establish a segregated account with its
custodian bank in which it will maintain U.S. Government
Securities, cash or cash equivalents or other high grade debt
portfolio securities equal in value to recognized commitments for
such securities. The value of the Portfolio's commitments to
purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Portfolio,
may not exceed 5% of the value of the Portfolio's total assets at
the time the initial commitment to purchase such securities is
made. Subject to the foregoing restrictions, the Portfolio may
purchase securities on such basis without limit. An increase in
the percentage of the Portfolio's assets committed to the
purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value. The Adviser and
the Directors of the Fund do not believe that the net asset value
of the Portfolio will be adversely affected by its purchase of
securities on such basis.

FUTURES CONTRACTS AND OPTIONS ON FUTURES. The High-
Yield Portfolio may invest in financial futures contracts
("futures contracts") and related options thereon. The Portfolio
may sell a futures contract or a call option thereon or purchase
a put option on such futures contract if the Adviser anticipates
that interest rates will rise, as a hedge against a decrease in
the value of the Portfolio's securities. If the Adviser
anticipates that interest rates will decline, the Portfolio may
purchase a futures contract or a call option thereon to protect
against an increase in the price of the securities the Portfolio
intends to purchase. These futures contracts and related options
thereon will be used only as a hedge against anticipated interest
rate changes. For a general discussion of futures contracts and
options thereon, including their risks, see "U.S. Government/High
Grade Securities Portfolio-Investment Practices-Futures Contracts
and Options on Futures Contracts" above and Appendix C.

Currently, futures contracts can be purchased on debt
securities such as U.S. Treasury bills and bonds, U.S. Treasury
notes with maturities between 6 l/2 years and 10 years, GNMA
certificates and bank certificates of deposit. The Portfolio may
invest in futures contracts covering these types of financial
instruments as well as in new types of such contracts that may
become available.

<PAGE>

Financial futures contracts are traded in an auction
environment on the floors of several exchanges principally the
Chicago Board of Trade, the Chicago Mercantile Exchange and the
New York Futures Exchange. Each exchange guarantees performance
under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership which
is also responsible for handling daily accounting of deposits or
withdrawals of margin.

The Portfolio may not enter into futures contracts or
related options thereon if immediately thereafter the amount
committed to margin plus the amount paid for option premiums
exceeds 5% of the value of the Portfolio's total assets. In
instances involving the purchase of futures contracts by the
Portfolio, an amount equal to the market value of the futures
contract will be deposited in a segregated account of cash and
cash equivalents to collateralize the position and thereby insure
that the use of such futures contract is unleveraged.

PUT AND CALL OPTIONS. The High-Yield Portfolio may
purchase put and call options written by others and write put and
call options covering the types of securities in which the
Portfolio may invest. For a description of put and call options,
including their risks, see above, "U.S. Government/High Grade
Securities Portfolio-Investment Practices-Options on U.S. and
Foreign Government Securities." The Portfolio will not purchase
any option if, immediately thereafter, the aggregate cost of all
outstanding options purchased by the Portfolio would exceed 2% of
the value of its total assets; the Portfolio will not write any
option (other than options on futures contracts) if, immediately
thereafter, the aggregate value of its portfolio securities
subject to outstanding options would exceed 15% of its total
assets.

FOREIGN SECURITIES. The portfolio may invest in debt
securities of foreign issuers without limitation. For the risks
associated with investments in foreign debt securities, see
above, "U.S. Government/High Grade Securities Portfolio-High
Grade Debt Securities-Foreign Securities."

FOREIGN CURRENCY TRANSACTIONS. Since investments in
foreign companies will usually involve currencies of foreign
countries, and since the High-Yield Portfolio may temporarily
hold funds in bank deposits in foreign currencies during the
completion of investment programs, the value of the assets of the
Portfolio as measured in United States dollars may be affected
favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Portfolio may
incur costs in connection with conversions between various

<PAGE>

currencies. The Portfolio will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or
through entering into forward contracts to purchase or sell
foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at
a future date, which may be any fixed number of days (usually
less than one year) from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for
trades. Although foreign exchange dealers do not charge a fee
for conversion, they do realize a profit based on the difference
(the "spread") between the price at which they are buying and
selling various currencies.

The Portfolio may enter into forward foreign currency
exchange contracts only under two circumstances. First, when the
Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to
"lock in" the U.S. dollar price of the security. By entering
into a forward contract for the purchase or sale, for a fixed
amount of dollars, of the amount of foreign currency involved in
the underlying security transactions, the Portfolio will be able
to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment
is made or received.

Second, when the Adviser believes that the currency of a
particular foreign country may suffer a substantial decline
against the U.S. dollar, the Portfolio may enter into a forward
contract to sell for a fixed amount of dollars the amount of
foreign currency approximating the value of some or all of the
Portfolio's portfolio securities denominated in such foreign
currency. The precise matching of the forward contract amounts
and the value of the securities involved will not generally be
possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in
the value of those securities between the date the forward
contract is entered into and the date it matures. The projection
of short-term currency market movement is extremely difficult,
and the successful execution of a short-term hedging strategy is
highly uncertain. The Adviser does not intend to enter into such
forward contracts under this second set of circumstances on a
regular or continuous basis, and will not do so if, as a result,
the Portfolio will have more than 5% of the value of its total
assets committed to the consummation of such contracts.

<PAGE>

The Portfolio will also not enter into such forward
contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Portfolio to
deliver an amount of foreign currency in excess of the value of
the securities in the Portfolio or other assets denominated in
that currency. At the consummation of such a forward contract,
the Portfolio may either make delivery of the foreign currency or
terminate its contractual obligation to deliver the foreign
currency by purchasing an offsetting contract obligating it to
purchase, at the same maturity date, the same amount of such
foreign currency. If the Portfolio chooses to make delivery of
the foreign currency, it may be required to obtain such currency
through the sale of portfolio securities denominated in such
currency or through conversion of other assets of the Portfolio
into such currency. If the Portfolio engages in an offsetting
transaction, the Portfolio will incur a gain or a loss to the
extent that there has been a change in forward contract prices.

Under normal circumstances, consideration of the
prospect for currency parities will be incorporated in a longer
term investment decision made with regard to overall
diversification strategies. However, the Adviser believes that
it is important to have a flexibility to enter into such forward
contract when it determines that the best interest of the
Portfolio will be served.

The Fund's custodian bank will place cash not available
for investment or liquid equity (denominated in the foreign
currency subject to the forward contract) or other liquid high
grade debt securities in a separate account of the Portfolio in
an amount equal to the value of the Portfolio's total assets
committed to the consummation of forward foreign currency
exchange contracts entered into under the second set of
circumstances, as set forth above. If the value of the
securities placed in the separate account declines, additional
cash or securities will be placed in the account on a daily basis
so that the value of the account will equal the amount of the
Portfolio's commitments with respect to such contracts.

The Portfolio's dealing in forward foreign currency
exchange contracts will be limited to the transactions described
above. Of course, the Portfolio is not required to enter into
such transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by the
Adviser. It also should be realized that this method of
protecting the value of the Portfolio's portfolio securities
against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which can be achieved at
some future point in time. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value

<PAGE>

of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such
currency increase.

RESTRICTED SECURITIES. The Portfolio may acquire
restricted securities within the limits set forth in the
Prospectus. For a description of such securities including their
risks, see above, "U.S. Government/High Grade Securities
Portfolio Restricted Securities" and "Other Investment Policies-
Illiquid Securities" below. If through the appreciation of
restricted securities or the depreciation of unrestricted
securities the Portfolio should be in a position where more than
10% of the value of its total assets is invested in illiquid
assets, including restricted securities, the Portfolio will take
appropriate steps to protect liquidity.

REPURCHASE AGREEMENTS. The Portfolio may invest in
repurchase agreements terminable within seven days and pertaining
to issues of the United States Treasury with member banks of the
Federal Reserve System or primary dealers in United States
Government securities, so long as such investments do not in the
aggregate exceed the Investment Restrictions as set forth in the
Prospectus. Such investments would be made in accordance with
procedures established by the Portfolio to require that the
securities serving as collateral for each repurchase agreement be
delivered either physically or in book entry form to the Fund's
custodian and to require that such collateral be marked to the
market with sufficient frequency to ensure that each such
agreement is fully collateralized at all times. The Portfolio
follows established procedures, which are periodically reviewed
by the Fund's Board of Directors, pursuant to which the Adviser
will monitor the creditworthiness of the dealers with which the
Portfolio enters into repurchase agreement transactions. For a
discussion of repurchase agreements, see "Other Investment
Policies -- Repurchase Agreement," below.

LENDING OF PORTFOLIO SECURITIES. Consistent with
applicable regulatory requirements, the Portfolio may loan its
portfolio securities where such loans are continuously secured by
cash collateral equal to no less than the market value,
determined daily, of the securities loaned. In loaning its
portfolio securities, the Portfolio will require that interest or
dividends on securities loaned be paid to the Portfolio. Where
voting or consent rights with respect to loaned securities pass
to the borrower, the Portfolio will follow the policy of calling
the loan, in whole or in part as may be appropriate, to permit it
to exercise such voting or consent rights if the exercise of such
rights involves issues having a material effect on the
Portfolio's investment in the securities loaned. Although the
Portfolio cannot at the present time determine the types of
borrowers to whom it may lend its portfolio securities, the

<PAGE>

Portfolio anticipates that such loans will be made primarily to
bond dealers.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the High-Yield Portfolio, supplement
those set forth above and in the Prospectus and may not be
changed without Shareholder Approval, as defined under the
caption "General Information," below.

The Portfolio may not:

1. Invest more than 5% of the value of its total
assets at the time an investment is made in the non-
convertible preferred stock of issuers whose non-
convertible preferred stock is not readily marketable;

2. Act as securities underwriter or invest in
commodities or commodity contracts, except that the
Portfolio (i) may acquire restricted or not readily
marketable securities under circumstances where, if such
securities are sold, the Portfolio might be deemed to be
an underwriter for purposes of the Securities Act, and
(ii) may purchase financial futures as described in the
Prospectus and above;

3. Engage in the purchase or sale of real estate,
except that the Portfolio may invest in securities
secured by real estate or interests therein or issued by
companies, including real estate investment trusts,
which deal in real estate or interests therein;

4. Invest in companies for the purpose of
exercising control of management;

5. Issue any senior securities as defined in the
1940 Act (except to the extent that when-issued
securities transactions, forward commitments or stand-by
commitments may be considered senior securities);

6. Participate on a joint, or on a joint and
several, basis in any trading account in securities;

7. Effect a short sale of any security;

8. Purchase securities on margin, but it may
obtain such short-term credits as may be necessary for
the clearance of purchases and sales of securities; or

9. Invest in the securities of any other
investment company except in connection with a merger,

<PAGE>

consolidation, acquisition of assets or other
reorganization.

TOTAL RETURN PORTFOLIO

The investment objective of the Total Return Portfolio
is to achieve a high return through a combination of current
income and capital appreciation. The Portfolio has adopted, as a
fundamental policy, that it be a "balanced fund;" this
fundamental policy cannot be changed without Shareholder
Approval. The percentage of the Portfolio's assets invested in
each type of security at any time shall be in accordance with the
judgment of the Adviser. The Portfolio's assets are invested in
U.S. Government and agency obligations, bonds whether convertible
or non-convertible and preferred and common stocks in such
proportions and of such type as are deemed best adapted to the
current economic and market outlooks. Ordinarily, the annual
portfolio turnover rate will not exceed 100%. For the fiscal
period December 28, 1992 (commencement of operations) through
December 31, 1992 the portfolio turnover rate was 0%. For the
fiscal years ended December 31, 1993 and December 31, 1994 the
portfolio turnover rates were 25% and 83%, respectively.

Subject to market conditions the Portfolio may also try
to realize income by writing covered call options listed on a
domestic securities exchange. In so doing, the Portfolio
foregoes the opportunity to profit from an increase in the market
price in the underlying security above the exercise price of the
option in return for the premium it received from the purchaser
of the option. The Adviser believes that such premiums will
increase the Portfolio's distributions without subjecting it to
substantial risks. No option will be written by the Portfolio
if, as a result, more than 25% of the Portfolio's assets are
subject to call options. For a discussion of covered call
options see "High Yield Portfolio -- Put and Call Options" above.
The Portfolio will purchase call options only to close out a
position in an option written by it. In order to close out a
position the Portfolio will make a "closing purchase transaction"
if such is available. Except as stated above, the Portfolio may
not purchase or sell puts or calls or combinations thereof.

The Portfolio engages primarily in holding securities
for investment and not for trading purposes. Purchases and sales
of portfolio securities are made at such times and in such
amounts as are deemed advisable in the light of market, economic
and other conditions, irrespective of the volume of portfolio
turnover. Ordinarily the annual portfolio turnover rate of
either the equity or the fixed income securities will not exceed
100%, respectively.

<PAGE>

Although the Portfolio may invest in foreign securities,
it has no present intention to do so.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Total Return Portfolio, supplement
those set forth above and in the Prospectus and may not be
changed without Shareholder Approval, as defined under the
caption "General Information," below.

The Portfolio may not:

1. Purchase the securities of any other
investment company except in a regular transaction in
the open market;

2. Retain investments in the securities of any
issuer if directors or officers of the Fund or certain
other interested persons own more than 5% of such
securities;

3. Invest in other companies for the purchase of
exercising control of management;

4. Purchase securities on margin, borrow money,
or sell securities short, except that the Portfolio may
borrow in an amount up to 10% of its total assets to
meet redemption requests and for the clearance of
purchases and sales of portfolio securities (this
borrowing provision is not for investment leverage but
solely to enable the Portfolio to meet redemption
requests where the liquidation of portfolio securities
is deemed to be disadvantageous or inconvenient and to
obtain such short-term credits as may be necessary for
the clearance of purchases and sales of portfolio
securities; all borrowings at any time outstanding will
be repaid before any additional investments are made;
the Portfolio will not mortgage, pledge or hypothecate
any assets in connection with any such borrowing in
excess of 15% of the Portfolio's total assets);

5. Underwrite securities issued by other persons;

6. Purchase any securities as to which it would
be deemed a statutory underwriter under the Securities
Act of 1933;

7. Purchase or sell commodities or commodity
contracts; or

8. Issue any securities senior to the capital
stock offered hereby.

<PAGE>

INTERNATIONAL PORTFOLIO

GENERAL. The objective of the International Portfolio
is to seek to obtain a total return on its assets from long-term
growth of capital principally through a broad portfolio of
marketable securities of established non-United States companies
(e.g. incorporated outside the United States), companies
participating in foreign economies with prospects for growth and
foreign government securities. As a secondary objective, the
Portfolio will attempt to increase its current income without
assuming undue risk. There is no limitation on the percent or
amount of the Portfolio's assets which may be invested for growth
or income, and therefore, at any point in time, the investment
emphasis may be placed solely or primarily on growth of capital
or solely or primarily on income. There can be no assurance, of
course, that the Portfolio will achieve its objective.
Ordinarily, the annual portfolio turnover rate will not exceed
100%. For the fiscal period December 28, 1992 (commencement of
operations) through December 31, 1992 the portfolio turnover rate
was 0%. For the fiscal years ended December 31, 1993 and
December 31, 1994 the portfolio turnover rates were 85% and 95%,
respectively.

In determining whether the Portfolio will be invested
for capital appreciation or for income or any combination of
both, the Adviser regularly analyzes a broad range of
international equity and fixed income markets in order to assess
the degree of risk and level of return that can be expected from
each market. Based upon the current assessment of the Adviser,
the Portfolio expects that its objective will, over the long
term, be met principally through investing in the equity
securities of established non-United States companies which, in
the opinion of the Adviser, have potential for growth of capital.
However, the Portfolio can be expected during certain periods to
place substantial emphasis on income through investment in
foreign debt securities when it appears that the total return
from such securities will equal or exceed the return on equity
securities.

Investments may be made from time to time in companies
in, or governments of, developing countries as well as developed
countries. Although there is no universally accepted definition,
a developing country is generally considered to be a country
which is in the initial stages of its industrialization cycle
with a low per capita gross national product. Historical
experience indicates that the markets of developing countries
have been more volatile than the markets of the more mature
economies of developed countries; however, such markets often
have provided higher rates of return to investors. The Adviser

<PAGE>

at present does not intend to invest more than 10% of the
Portfolio's total assets in companies in, or governments of,
developing countries.

The Adviser, in determining the composition of the
Portfolio, will initially seek the appropriate distribution of
investments among various countries and geographic regions.
Accordingly, the Adviser will consider the following factors in
making investment decisions on this basis: prospects for
relative economic growth between foreign countries; expected
levels of inflation; government policies influencing business
conditions; the outlook for currency relationships; and the range
of individual investment opportunities available to the
international portfolio investor. On December 31, 1994, 39.70%
of the Portfolio's net assets were invested in Japanese issuers.
For a description of Japan, see Appendix E.

The Adviser will, in analyzing individual companies for
investment, look 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 companies to compete
successfully in their marketplace. While current dividend income
is not a prerequisite in the selection of portfolio companies,
the companies in which the Portfolio invests normally will have a
record of paying dividends for at least one year, and will
generally be expected to increase the amounts of such dividends
in future years as earnings increase.

Foreign securities such as those purchased by the
Portfolio may be subject to foreign government taxes which could
reduce the yield on such securities, although a shareholder
otherwise subject to U.S. federal income taxes will, subject to
certain limitations, be entitled to claim a credit or deduction
for U.S. federal income tax purposes for his or her proportionate
share of such foreign taxes paid by the Portfolio.

It is expected that the Portfolio's investments will
ordinarily be traded on exchanges located in the respective
countries in which the various issuers of such securities are
principally based and in some case on other exchanges. As much
as 25% of the value of the Portfolio's total assets may be
invested in the securities of issuers having their principal
business activities in the same industry.

<PAGE>

Under exceptional economic or market conditions abroad,
the Portfolio may temporarily invest for defensive purposes all
or a major portion of its assets in U.S. government obligations
or debt obligations of companies incorporated in and having their
principal activities in the United States. As discussed below,
the Portfolio may also from time to time invest its temporary
cash balances in United States short-term money market
instruments.

SECURITIES LENDING. The Portfolio may seek to increase
income by lending portfolio securities. The Portfolio will have
the right to call a loan to obtain the securities loaned at any
time on five days' notice or such shorter period as may be
necessary to vote the securities. During the existence of a loan
the Portfolio will receive the income earned on investment of the
collateral. The Portfolio will not, however, have the right to
vote any securities having voting rights during the existence of
the loan, but the Portfolio will call the loan in anticipation of
an important vote to be taken among holders of the securities or
the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in
the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms
deemed by the Adviser to be in good standing, and when, in its
judgment, the amount which may be earned currently from
securities loans of this type justifies the attendant risk. The
value of the securities loaned will not exceed 30% of the value
of the Portfolio's total assets.

WARRANTS. The Portfolio may invest in warrants which
entitle the holder to buy equity securities at a specific price
for a specific period of time. Warrants may be considered more
speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with
respect to the securities which may be purchased nor do they
represent any rights in the assets of the issuing company. Also,
the value of the warrant does not necessarily change with the
value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to the expiration date.

SPECIAL RISK CONSIDERATIONS. Investors should
understand and consider carefully the substantial risks involved
in securities of foreign companies and governments of foreign
nations, some of which are referred to below, and which are in
addition to the usual risks inherent in domestic investments.

There is generally less publicly available information
about foreign companies comparable to reports and ratings that
are published about companies in the United States. Foreign
companies are also generally not subject to uniform accounting

<PAGE>

and auditing and financial reporting standards, practices and
requirements comparable to those applicable to United States
companies.

It is contemplated that foreign securities will be
purchased in over-the-counter markets or on stock exchanges
located in the countries in which the respective principal
offices of the issuers of the various securities are located, if
that is the best available market. Foreign securities markets
are generally not as developed or efficient as those in the
United States. While growing in volume, they usually have
substantially less volume than the New York Stock Exchange, and
securities of some foreign companies are less liquid and more
volatile than securities of comparable United States companies.
Similarly, volume and liquidity in most foreign bond markets is
less than in the United States and, at times, volatility of price
can be greater than in the United States. Fixed commissions on
foreign stock exchanges are generally higher than negotiated
commissions on United States exchanges, although the Portfolio
will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges, brokers
and listed companies than in the United States.

With respect to certain foreign countries, there is the
possibility of adverse changes in investment or exchange control
regulations and interest rates, expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of
the Portfolio, political or social instability, or diplomatic
developments which could affect United States investments in
those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States' economy
in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.

The dividends and interest payable on certain of the
Portfolio's foreign securities may be subject to foreign
withholding taxes, thus reducing the net amount of income
available for distribution to the Portfolio's shareholders. A
shareholder otherwise subject to United States federal income
taxes will, subject to certain limitations, be entitled to claim
a credit or deduction for U.S. federal income tax purposes for
his or her proportionate share of such foreign taxes paid by the
Portfolio.

Although the Portfolio values its assets daily in terms
of U.S. dollars, its does not intend to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. It will
do so from time to time, and investors should be aware of the
costs of currency conversion. Although foreign exchange dealers

<PAGE>

do not charge a fee, they do realize a profit based on the
difference (commonly known as the "spread") between the price at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Portfolio at
one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.

Investors should understand that the expense ratio of
the Portfolio can be expected to be higher than investment
companies investing in domestic securities since, among other
things, the cost of maintaining the custody of foreign securities
is higher and the purchase and sale of portfolio securities may
be subject to higher transaction charges, such as stamp duties
and turnover taxes.

Investors should further understand that all investments
have a risk factor. There can be no guarantee against loss
resulting from an investment in the Portfolio, and there can be
no assurance that the Portfolio's investment objective will be
attained. The Portfolio is designed for investors who wish to
diversify beyond the United States in an actively researched and
managed portfolio. The Portfolio may not be suitable for all
investors and is intended for long-term investors who can accept
the risks entailed in seeking long-term growth of capital through
investment in foreign securities as described above.

FOREIGN CURRENCY TRANSACTIONS. Since investments in
foreign companies will usually involve currencies of foreign
countries, and since the Portfolio may temporarily hold funds in
bank deposits in foreign currencies during the completion of
investment programs, the value of the assets of the Portfolio as
measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Portfolio may incur costs
in connection with conversions between various currencies. The
Portfolio will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. For a
discussion of forward foreign currency exchange contracts which
also apply to the International Portfolio, see "High Yield
Portfolio -- Foreign Currency Transactions," above.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the International Portfolio, supplement
those set forth above and in the Prospectus, and may not be
changed without Shareholder Approval, as defined under the
caption "General Information," below.

The Portfolio may not:

<PAGE>

1. Purchase a security if, as a result, the
Portfolio would own any securities of an open-end
investment company or more than 3% of the total
outstanding voting stock of any closed-end investment
company, or more than 5% of the value of the Portfolio's
total assets would be invested in securities of any
closed-end investment company or more than 10% of such
value in closed-end investment companies in general,
unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange;

2. Purchase or sell real estate (although it may
purchase securities secured by real estate or interest
therein, or issued by companies or investment trusts
which invest in real estate or interest therein);

3. Purchase or sell commodity contracts,
provided, however, that this policy does not prevent the
Portfolio from entering into forward foreign currency
exchange contracts;

4. Purchase securities on margin, except for use
of the short-term credit necessary for clearance of
purchases of portfolio securities;

5. Effect short sales of securities;

6. Act as an underwriter of securities, except
insofar as it might be deemed to be such for purposes of
the Securities Act with respect to the disposition of
certain portfolio securities acquired within the
limitations of restriction 4 above;

7. Purchase or retain the securities of any
issuer if, to the knowledge of the Adviser, the officers
and directors of the Fund and of the Adviser, who each
owns beneficially more than 1/2 of 1% of the outstanding
securities of such issuer, and together own beneficially
more than 5% of the securities of such issuer;

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

9. Issue senior securities except as permitted by
the 1940 Act.

SHORT-TERM MULTI-MARKET PORTFOLIO AND GLOBAL BOND PORTFOLIO

GENERAL. The objective of the Short-Term Multi-Market
Portfolio is to seek the highest level of current income,
consistent with what the Adviser considers to be prudent

<PAGE>

investment risk, that is available from a portfolio of high-
quality debt securities having remaining maturities of not more
than three years. The Portfolio seeks high current yields by
investing in debt securities denominated in the U.S. dollar and a
range of foreign currencies. Accordingly, the Portfolio will
seek investment opportunities in foreign, as well as domestic,
securities markets. While the Portfolio normally will maintain a
substantial portion of its assets in debt securities denominated
in foreign currencies, the Portfolio will invest at least 25% of
its net assets in U.S. dollar-denominated securities. The
Portfolio is designed for the investor who seeks a higher yield
than a money market fund or certificate of deposit and less
fluctuation in net asset value than a longer-term bond fund.
Certificates of deposit are insured and generally have fixed
interest rates while yields for the Portfolio will fluctuate with
changes in interest rates and other market conditions.

The investment objective of the Global Bond Portfolio is
to seek a high level of return from a combination of current
income and capital appreciation by investing in a globally
diversified portfolio of high quality debt securities denominated
in the U.S. dollar and a range of foreign currencies. On
December 31, 1994, 27.0% of the Portfolio's net assets were
invested in Japanese issuers. For a description of Japan, see
Appendix E.

INVESTMENT POLICIES. The following investment policies,
which are applicable to the Short-Term Multi-Market Portfolio and
the Global Bond Portfolio, supplement, and should be read in
conjunction with, the information set forth in the Prospectus
under "Other Investment Policies and Techniques." The investment
policies are not designated "fundamental policies" within the
meaning of the 1940 Act and may be changed by the Fund's Board of
Directors without Shareholder Approval as defined under the
caption "General Information", below. However, a Portfolio will
not change its investment policies without contemporaneous
written notice to shareholders.

U.S. GOVERNMENT SECURITIES. See Appendix B hereto for a
description of obligations issued or guaranteed by U.S.
Government agencies or instrumentalities.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
Each Portfolio may enter into futures contracts and options on
futures contracts. The successful use of such instruments draws
upon the Adviser's special skills and experience with respect to
such instruments and usually depends on the Adviser's ability to
forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an

<PAGE>

unexpected manner, a Portfolio may not achieve the anticipated
benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if
such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities
and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses. The Fund's Custodian will
place cash not available for investment in U.S. Government
Securities or other liquid high-quality debt securities in a
separate account of the Fund having a value equal to the
aggregate amount of, the Short-Term Multi-Market Portfolio's and
the Global Bond Portfolio's commitments in futures and options on
futures contracts.

The Board of Directors has adopted the requirement that
futures contracts and options on futures contracts only be used
as a hedge and not for speculation. In addition to this
requirement, the Board of Directors has also adopted two
percentage restrictions on the use of futures contracts. The
first restriction is that a Portfolio will not enter into any
futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures
contracts of the Portfolio and premiums paid on options on
futures contracts would exceed 5% of the market value of the
total assets of the Portfolio. The second restriction is that
the aggregate market value of the outstanding futures contracts
purchased by a Portfolio not exceed 50% of the market value of
the total assets of the Portfolio. Neither of these restrictions
will be changed by the Board of Directors without considering the
policies and concerns of the various applicable federal and state
regulatory agencies.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix C.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix C.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each
Portfolio may purchase or sell forward foreign currency exchange
contracts. While these contracts are not presently regulated by
the CFTC, the CFTC may in the future assert authority to regulate
forward contracts. In such event a Portfolio's ability to
utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts will reduce the
potential gain from a positive change in the relationship between
the U.S. dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance for a

<PAGE>

Portfolio than if it had not entered into such contracts. The
use of foreign currency forward contracts will not eliminate
fluctuations in the underlying U.S. Dollar equivalent value of
the prices of or rates of return on a Portfolio's foreign
currency-denominated portfolio securities and the use of such
techniques will subject the Portfolio to certain risks.

The matching of the increase in value of a forward
contract and the decline in the U.S Dollar equivalent value of
the foreign currency-denominated asset that is the subject of the
hedge generally will not be precise. In addition, a Portfolio
may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the
Portfolio's ability to use such contracts to hedge or cross-hedge
its assets. Also, with regard to a Portfolio's use of cross-
hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to
the U.S. Dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange rates of
the foreign currencies underlying the Portfolio's cross-hedges
and the movements in the exchange rates of the foreign currencies
in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.

PORTFOLIO TURNOVER. Since the Short-Term Multi-Market
Portfolio and the Global Bond Portfolio may engage in active
trading, their rates of portfolio turnover may be higher than
that of many other investment companies. The Portfolios cannot
accurately predict their portfolio turnover rates, but it is
anticipated that the annual turnover rate generally will not
exceed 500% for the Short-Term Multi Market Portfolio and 400%
for the Global Bond Portfolio (excluding turnover of securities
having a maturity of one year of less). An annual turnover rate
of 400% or 500% occurs, for example, when all of the Portfolio's
securities are replaced four or five times, respectively, in a
period of one year. A 400% and 500% turnover rate are greater
than that of many other investment companies. A higher incidence
of short term capital gain taxable as ordinary income than might
be expected from investment companies which invest substantially
all their funds on a long term basis and correspondingly larger
mark up charges can be expected to be borne by the Portfolios.
The annual portfolio turnover rates of securities of the Short-
Term Multi-Market Portfolio for the fiscal years ended December
31, 1992, December 31, 1993 and December 31, 1994 were 153%, 210%
and 134%, respectively. The annual portfolio turnover rates of
securities of the Global Bond Portfolio for the fiscal years
ended December 31, 1992, December 31, 1993 and December 31, 1994

<PAGE>

were 78%, 125% and 102%, respectively.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Short-Term Multi-Market Portfolio and
the Global Bond Portfolio, supplement those set forth above and
in the Prospectus, and may not be changed without Shareholder
Approval, as defined under the caption "General Information,"
below.

A Portfolio may not:

1. Make loans except through (i) the purchase of
debt obligations in accordance with its investment
objectives and policies; (ii) the lending of portfolio
securities; or (iii) the use of repurchase agreements;

2. Participate on a joint or joint and several
basis in any securities trading account;

3. Invest in companies for the purpose of
exercising control;

4. Make short sales of securities or maintain a
short position, unless at all times when a short
position is open it owns an equal amount of such
securities or securities convertible into or
exchangeable for, without payment of any further
consideration, securities of the same issue as, and
equal in amount to, the securities sold short ("short
sales against the box"), and unless not more than 10% of
the Portfolio's net assets (taken at market value) is
held as collateral for such sales at any one time (it is
the Portfolio's present intention to make such sales
only for the purpose of deferring realization of gain or
loss for Federal income tax purposes);

5. Purchase a security if, as a result (unless
the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Portfolio
would own any securities of an open-end investment
company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than
5% of the value of the Portfolio's total assets would be
invested in securities of any one or more closed-end
investment companies; or

<PAGE>

therein; (ii) purchase or sell commodities or commodity
contracts (except currencies, futures contracts on
currencies and related options, forward contracts or
contracts for the future acquisition or delivery of
fixed-income securities and related options, futures
contracts and options on futures contracts and other
similar contracts); (iii) invest in interests in oil,
gas, or other mineral exploration or development
programs; (iv) purchase securities on margin, except for
such short-term credits as may be necessary for the
clearance of transactions; and (v) act as an underwriter
of securities, except that the Portfolio may acquire
restricted securities under circumstances in which, if
such securities were sold, the Portfolio might be deemed
to be an underwriter for purposes of the Securities Act.

In addition to the restrictions set forth above, in
connection with the qualification of its shares for sale in
certain states, a Portfolio may not invest in warrants if, such
warrants valued at the lower cost or market, would exceed 5% of
the value of the Portfolio's net assets.

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO

The objective of the North American Government Income
Portfolio is to seek the highest level of current income,
consistent with what the Adviser considers to be prudent
investment risk, that is available from a portfolio of debt
securities issued or guaranteed by the governments of the United
States, Canada and Mexico, their political subdivisions
(including Canadian Provinces but excluding States of the United
States), agencies, instrumentalities or authorities ("Government
Securities"). The Portfolio seeks high current yields by
investing in Government Securities denominated in the U.S.
Dollar, the Canadian Dollar and the Mexican Peso (including the
Mexican New Peso). Normally, the Portfolio expects to maintain
at least 25% of its assets in securities denominated in the U.S.
Dollar. The Portfolio will utilize certain other investment
techniques, including options and futures.

The Portfolio may invest its assets in Government
Securities considered investment grade or higher (i.e.,
securities rated at least BBB by S&P or at least Baa by Moody's)
or, if not so rated, of equivalent investment quality as
determined by the Portfolio's Adviser. Securities rated BBB by
S&P or Baa by Moody's are considered to have speculative
characteristics. Sustained periods of deteriorating economic
conditions or rising interest rates are more likely to lead to a
weakening in the issuer's capacity to pay interest and repay
principal than in the case of higher-rated securities. The
Portfolio expects that it will not retain a debt security which

<PAGE>

is downgraded below BBB or Baa or, if unrated, determined by the
Portfolio's Adviser to have undergone similar credit quality
deterioration, subsequent to purchase by the Portfolio.

The Portfolio's Adviser will actively manage the
Portfolio's assets in relation to market conditions and general
economic conditions in the United States, Canada and Mexico and
elsewhere, and will adjust the Portfolio's investments in
Government Securities based on its perception of which Government
Securities will best enable the Portfolio to achieve its
investment objective of seeking the highest level of current
income, consistent with what the Portfolio's Adviser considers to
be prudent investment risk. In this regard, subject to the
limitations described above, the percentage of assets invested in
a particular country or denominated in a particular currency will
vary in accordance with the assessment of the Portfolio's Adviser
of the relative yield and appreciation potential of such
securities and the relationship of the country's currency to the
U.S. Dollar. The Adviser anticipates that, under the conditions
appertaining at the date of this Prospectus, not more than
approximately 25% of the Portfolio's assets would be invested in
securities denominated in the Mexican Peso.

The Portfolio will invest at least, and normally
substantially more than, 65% of its total assets in Government
Securities. To the extent that its assets are not invested in
Government Securities, however, the Portfolio may invest the
balance of its total assets in debt securities issued by the
governments of countries located in Central and South America or
any of their political subdivisions, agencies, instrumentalities
or authorities, provided that such securities are denominated in
their local currencies and are rated investment grade or, if not
so rated, are of equivalent investment quality as determined by
the Portfolio's Adviser. The Portfolio will not invest more than
10% of its total assets in debt securities issued by the
governmental entities of any one such country, provided, however,
that the Portfolio may invest up to 25% of its total assets in
debt securities issued by governmental entities of Argentina
("Argentine Government Securities").

INVESTMENT POLICIES.

U.S. GOVERNMENT SECURITIES. For a general description
of obligations issued or guaranteed by U.S. Government agencies
or instrumentalities, see Appendix A.

U.S. GOVERNMENT GUARANTEED MORTGAGE-RELATED SECURITIES--
GENERAL. For information regarding U.S. Government guaranteed
mortgage-related securities, see "U.S. Government/High Grade
Securities Portfolio -- U.S. Government Guaranteed Mortgage-
Related Securities -- General," above.

<PAGE>

GNMA CERTIFICATES. For information regarding GNMA
Certificates, see "U.S. Government/High Grade Securities
Portfolio -- GNMA Certificates," above.

FHLMC SECURITIES. For information regarding FHLMC
Securities, see "U.S. Government/High Grade Securities Portfolio
- -- FHLMC Securities," above.

FNMA SECURITIES. For information regarding FNMA
Securities, see "U.S. Government/High Grade Securities Portfolio
- -- FNMA Securities," above.

ZERO COUPON TREASURY SECURITIES. The Portfolio may
invest in "zero coupon" Treasury securities. Currently the only
U.S. Treasury security issued without coupons is the Treasury
bill. Although the U.S. Treasury does not itself issue Treasury
notes and bonds without coupons, under the U.S. Treasury STRIPS
program interest and principal payments on certain long term
treasury securities may be maintained separately in the Federal
Reserve book entry system and may be separately traded and owned.
In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal
portions ("corpus") from the coupon portions of the U.S. Treasury
bonds and notes and sold them separately in the form of receipts
or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a
custodial or trust account). The staff of the Commission has
indicated that in its view, these receipts or certificates should
be considered as securities issued by the bank or brokerage firm
involved and, therefore, should not be included in the
Portfolio's categorization of U.S. Government Securities. The
Portfolio disagrees with the staff's interpretation, but until
final resolution of the issue will include the Portfolio's
purchases of such securities in the non-U.S. Government security
portion of the Portfolio's investments. However, if such
securities are deemed to be U.S. Government Securities the
Portfolio will not be subject to any limitations on their
purchase.

Zero coupon Treasury securities do not entitle the
holder to any periodic payments of interest prior to maturity.
Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest
rates than debt obligations of comparable maturities which make
current distributions of interest. Current federal tax law
requires that a holder (such as the Portfolio) of a zero coupon
security accrue a portion of the discount at which the security
was purchased as income each year even though the Portfolio
receives no interest payment in cash on the security during the
year.

<PAGE>

CANADIAN GOVERNMENT GUARANTEED MORTGAGE-RELATED
SECURITIES. Canadian mortgage-related securities may be issued
in several ways, the most common of which is a modified pass-
through vehicle issued pursuant to the program (the "NHA MBS
Program") established under the National Housing Act of Canada
("NHA"). Certificates issued pursuant to the NHA MBS Program
("NHA Mortgage-Related Securities") benefit from the guarantee of
the Canada Mortgage and Housing Corporation ("CMHC"), a federal
Crown corporation that is (except for certain limited purposes)
an agent of the Government of Canada whose guarantee (similar to
that of GNMA in the United States) is an unconditional obligation
of the Government of Canada except as described below. The NHA
currently provides that the aggregate principal amount of all
issues of NHA Mortgage-Related Securities in respect of which
CMHC may give a guarantee must not exceed $60 billion.

NHA Mortgage-Related Securities are backed by a pool of
insured mortgages that satisfy the requirements established by
the NHA. Issuers that wish to issue NHA Mortgage-Related
Securities must meet the status and other requirements of CMHC
and submit the necessary documentation to become an "approved
issuer". When an approved issuer wishes to issue NHA Mortgage-
Related Securities in respect of a particular pool of mortgages,
it must seek the approval of CMHC. Such mortgages must, among
other things, be first mortgages that are insured under the NHA,
not be in default and provide for equal monthly payments
throughout their respective terms.

The mortgages in each NHA Mortgage-Related Securities
pool are assigned to CMHC which, in turn, issues a guarantee of
timely payment of principal and interest that is shown on the
face of the certificates representing the NHA Mortgage-Related
Securities (the "NHA MBS Certificates"). NHA Mortgage-Related
Securities do not constitute any liability of, nor evidence any
recourse against, the issuer of the NHA Mortgage-Related
Securities, but in the event of any failure, delay or default
under the terms of NHA MBS Certificates, the holder has recourse
to CMHC in respect of its guarantee set out on the NHA MBS
Certificates.

In any legal action or proceeding or otherwise, CMHC has
agreed not to contest or defend against a demand for the timely
payment of the amount set forth and provided for in, and unpaid
on, any duly and validly issued NHA MBS Certificate, provided
that such payment is sought and claimed by or on behalf of a bona
fide purchaser of and investor in such security, without actual
notice at the time of the purchase of the basis or grounds for
contesting or defending against that demand for timely payment.

While most Canadian Mortgage-Related Securities are
subject to voluntary prepayments, some pools are not and function

<PAGE>

more like a traditional bond. The typical maturity of Canadian
Mortgage-Related Securities is five years as most Canadian
residential mortgages provide for a five-year maturity with equal
monthly blended payments of interest and principal based on a
twenty-five year amortization schedule. Pursuant to recent
changes adopted by CMHC, maturities of NHA Mortgaged-Related
Securities may be as short as six months or as long as eighteen
years.

ILLIQUID SECURITIES. The Portfolio has adopted the
following investment policy which may be changed by the vote of
the Board of Directors.

The North American Government Income Portfolio will not
invest in illiquid securities if immediately after such
investment more than 15% of the Portfolio's net assets
(taken at market value) would be invested in such
securities. For this purpose, illiquid securities
include, among others, (a) securities that are illiquid
by virtue of the absence of a readily available market
or legal or contractual restriction on resale, (b)
options purchased by the Portfolio over-the-counter and
the cover for options written by the Portfolio over-the-
counter and (c) repurchase agreements not terminable
within seven days.

See "Other Investment Policies -- Illiquid Securities," below,
for a more detailed discussion of the Portfolio's investment
policy on restricted securities and securities with legal or
contractual restrictions on resale.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The
Portfolio may enter into futures contracts and options on futures
contracts. The successful use of such instruments draws upon the
Adviser's special skills and experience with respect to such
instruments and usually depends on the Adviser's ability to
forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an
unexpected manner, the Portfolio may not achieve the anticipated
benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if
such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on
futures and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.

<PAGE>

Portfolio's use of futures contracts so that the aggregate of the
market value of the outstanding futures contracts purchased by
the Portfolio not exceed 50% of the market value of the total
assets of the Portfolio. These restrictions will not be changed
by the Fund's Board of Directors without considering the policies
and concerns of the various applicable federal and state
regulatory agencies.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix C.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix C.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The
Portfolio may purchase or sell forward foreign currency exchange
contracts. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock
in" the U.S. Dollar price of the security ("transaction hedge").
Additionally, for example, when the Fund believes that a foreign
currency may suffer a substantial decline against the U.S.
Dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such
foreign currency, or, when the Fund believes that the U.S. Dollar
may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign
currency for a fixed U.S. Dollar amount ("position hedge"). In
this situation the Fund may, in the alternative, enter into a
forward contract to sell a different foreign currency for a fixed
U.S. Dollar amount where the Fund believes that the U.S. Dollar
value of the currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the U.S. Dollar value of
the currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). The Fund's Custodian will place
cash not available for investment or liquid high-grade Government
Securities in a segregated account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under
forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the securities placed in the
segregated account declines, additional cash or liquid high-grade
Government Securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of
the Fund's commitments with respect to such contracts. As an
alternative to maintaining all or part of the segregated account,
the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward
sale contract at a price no higher than the forward contract

<PAGE>

price or the Fund may purchase a put option permitting the Fund
to sell the amount of foreign currency subject to a forward
purchase contract at a price as high or higher than the forward
contract price.

While these contracts are not presently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate forward contracts. In
such event the Portfolio's ability to utilize forward contracts
in the manner set forth in the Prospectus may be restricted.
Forward contracts will reduce the potential gain from a positive
change in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result
in poorer overall performance for the Portfolio than if it had
not entered into such contracts. The use of foreign currency
forward contracts will not eliminate fluctuations in the
underlying U.S. Dollar equivalent value of the proceeds of or
rates of return on the Portfolio's foreign currency denominated
portfolio securities and the use of such techniques will subject
the Portfolio to certain risks.

The matching of the increase in value of a forward
contract and the decline in the U.S. Dollar equivalent value of
the foreign currency denominated asset that is the subject of the
hedge generally will not be precise. In addition, the Portfolio
may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the
Portfolio's ability to use such contracts to hedge its assets.
Also, with regard to the Portfolio's use of cross-hedges, there
can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S.
Dollar will continue. Thus, at any time poor correlation may
exist between movements in the exchange rates of the foreign
currencies underlying the Portfolio's cross-hedges and the
movements in the exchange rates of the foreign currencies in
which the Portfolio's assets that are the subject of such cross-
hedges are denominated.

OPTIONS ON U.S. GOVERNMENT SECURITIES AND FOREIGN
GOVERNMENT SECURITIES. For additional information on the use,
risks and costs of options in U.S. Government Securities and
foreign government securities, see Appendix D.

REPURCHASE AGREEMENTS. The Portfolio may invest in
repurchase agreements pertaining to the types of securities in
which it invests. For additional information regarding
repurchase agreements, see "Other Investment Policies --
Repurchase Agreement," below.

<PAGE>

PORTFOLIO TURNOVER. The Portfolio may engage in active
short-term trading to benefit from yield disparities among
different issues of securities, to seek short-term profits during
periods of fluctuating interest rates or for other reasons. Such
trading will increase the Portfolio's rate of turnover and the
incidence of short-term capital gain taxable as ordinary income.
The portfolio turnover rate of securities of the Portfolio for
the fiscal period ended December 31, 1994 was 15%. Management
anticipates that the annual turnover in the Portfolio will not be
in excess of 400%. An annual turnover rate of 400% occurs, for
example, when all of the securities in the Portfolio's portfolio
are replaced four times in a period of one year. A high rate of
portfolio turnover involves correspondingly greater expenses than
a lower rate, which expenses must be borne by the Portfolio and
its shareholders. High portfolio turnover also may result in the
realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" and "Portfolio
Transactions."

INVESTMENT RESTRICTIONS.

The following restrictions, which are applicable to the
North American Government Income Portfolio, supplement those set
forth above and in the Prospectus, and may not be changed without
Shareholder Approval, as defined under the caption "General
Information," below.

The Portfolio may not:

2. Participate on a joint or joint and several
basis in any securities trading account;

3. Invest in companies for the purpose of
exercising control;

<PAGE>

held as collateral for such sales at any one time (it is
the Portfolio's present intention to make such sales
only for the purpose of deferring realization of gain or
loss for Federal income tax purposes);

6. (i) Purchase or sell real estate, except that
it may purchase and sell securities of companies which
deal in real estate or purchase and sell securities of
companies which deal in real estate or interests
therein; (ii) purchase or sell commodities or commodity
contracts (except currencies, futures contracts on
currencies and related options, forward contracts or
contracts for the future acquisition or delivery of
fixed-income securities and related options, futures
contracts and options on futures contracts and other
similar contracts); (iii) invest in interests in oil,
gas, or other mineral exploration or development
programs; (iv) purchase securities on margin, except for
such short-term credits as may be necessary for the
clearance of transactions; and (v) act as an underwriter
of securities, except that the Portfolio may acquire
restricted securities under circumstances in which, if
such securities were sold, the Portfolio might be deemed
to be an underwriter for purposes of the Securities Act.

In addition to the restrictions set forth above, in
connection with the qualification of its shares for sale in
certain states, the Portfolio may not invest in warrants if, such
warrants valued at the lower of cost or market, would exceed 5%
of the value of the Portfolio's net assets. Included within such
amount, but not to exceed 2% of the Portfolio's net assets may be
warrants which are not listed on the New York Stock Exchange or
the American Stock Exchange. Warrants acquired by the Portfolio
in units or attached to securities may be deemed to be without
value. The Portfolio will also not purchase puts, calls,
straddles, spreads and any combination thereof if by reason
thereof the value of its aggregate investment in such classes of
securities will exceed 5% of its total assets.

<PAGE>

ADDITIONAL INFORMATION ABOUT CANADA, THE
UNITED MEXICAN STATES AND THE REPUBLIC OF ARGENTINA

The information in this section is based on material
obtained by the Fund from various Canadian, Mexican and Argentine
governmental and other economic sources believed to be accurate
but has not been independently verified by the Fund or the
Adviser. It is not intended to be a complete description of
Canada, Mexico or Argentina, their economies, or the consequences
of investing in Mexican Government Securities, Canadian
Government Securities or Argentine Government Securities.

ADDITIONAL INFORMATION ABOUT CANADA

Territory and Population

Canada is the second largest country in the world in
terms of land mass with an area of 9.97 million square kilometers
(3.85 million square miles). It is located north of the
continental United States of America and east of Alaska. Canada
comprises ten provinces (Alberta, British Columbia, Manitoba, New
Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward
Island, Quebec and Saskatchewan) and two territories (the
Northwest Territories and the Yukon Territory). Its population
is approximately 29 million.

Government

Canada is a constitutional monarchy with Queen Elizabeth
II of the United Kingdom its nominal head of state. The Queen is
represented by the Canadian governor-general, appointed on the
recommendation of the Canadian prime minister. Canada's
government has a federal structure, with a federal government and
ten provincial governments. Its Parliament consists of a House
of Commons and a Senate. Members of the House of Commons are
elected by Canadian citizens over 18 years of age. Senators are
appointed on a regional basis by the Prime Minister. The federal
government is headed by the Prime Minister who is chosen from the
party that has won the majority of seats in the House of Commons.
The provincial governments each have a Legislative Assembly and a

<PAGE>

Premier.

Legislative authority resides in the federal parliament
and the ten provincial legislative assemblies. Provinces have
extensive power with specific areas of jurisdiction. The federal
government has defined areas of jurisdiction and the power to act
in areas declared by Parliament to be for the general advantage
of Canada. This general power has been used to justify federal
action in certain areas of provincial jurisdiction. Concurrent
federal and provincial jurisdiction exists in certain matters,
including agriculture, immigration and pensions. The power-
sharing issue between the federal government and provincial
governments has been contentious and has proven to be a central
issue in the process of constitutional reform.

Politics

Since World War II, the federal government has been
formed by either the Liberal Party or the Progressive
Conservative Party. In October 1993, the Liberal Party under the
leadership of Mr. Jean Chretien, won 178 of the 295 seats in the
Canadian House of Commons ending nine years of rule by the
Progressive Conservative Party. He remains popular and unless
the Liberal Party calls for an earlier election, the next general
election will take place in October 1998.

Canada has had three major developments regarding unity
and constitutional reform in four years. The first two major
developments were the rejection of the Meech Lake Agreement in
1990 and the Charlottetown Accord in 1992. Those reforms would
have given Quebec constitutional recognition as a distinct
society, transferred powers from the federal to the provincial
governments and reformed the Senate by providing for more equal
representation among the provinces.

The third major development is the possibility of
Quebec's independence. On September 12, 1994, the Quebec
separatist party, Parti Quebecois under the leadership of Jacques
Parizeau won 77 seats in the provincial election with 44.7% of
the vote. The Liberal Party won 47 seats with 44.3% of the vote.
The Parti Quebecois' agenda includes a call for a referendum,
sometime in 1995, supporting independence. On February 6, 1995,
the first of 15 regional commissions started a month of

<PAGE>

consultations with regard to a draft law regarding independence.
The commissions are expected to produce a joint-report which will
provide the basis for amendments to the draft law. This would be
followed by the referendum campaign and vote. In 1980, Quebec
voted against independence by a margin of 60% to 40%. Polls
indicate that there is not enough support to pass a referendum
for independence. Furthermore, on February 13, 1995, in what had
been seen as a preview to the referendum Liberal Party
candidates defeated Parti Quebecois candidates in two
parliamentary by-elections in Quebec.

Mr. Parizeau has also suggested that he might introduce
a series of referendums until separatism wins, instead of one
all-encompassing referendum. The Quebec Government's proposals
suggest that Quebec would be able to keep the Canadian dollar as
its currency, share its armed forces with Canada and be a partner
of Canada with regard to international agreements and alliances.
The actual mechanics of separation, if it were to occur, and the
possible effects on Canada's economy are still not clear. Prime
Minister Chretien has stated that the national government would
prevail in a vote on separatism. Still, until the vote on the
referendum, and for the foreseeable future, Quebec's position
within Canada will continue to dominate political debate.

Monetary and Banking System

The central bank of Canada is the Bank of Canada. Its
main functions are to advise on the formulation and execution of
monetary policy, supervising commercial bank acting as a fiscal
agent to the federal government managing the foreign exchange
fund. The currency unit of Canada is the Canadian dollar.
Canada does not impose foreign exchange controls on capital
receipts or payments by residents or non-residents.

North American Free Trade Agreement

Canada and the United States are each other's largest
trading partners and, as a result there is a significant linkage
between the two economies. Bilateral trade between Canada and
the United States, in 1993, was larger than between any other two
countries in the world. On January 2, 1988, Canada and the
United States signed the Free Trade Agreement (the "FTA"), which
was ratified by the Canadian Parliament and the United States
Senate. In the summer of 1991, the United States, Canada and
Mexico began negotiating the North American Free Trade Agreement

<PAGE>

("NAFTA"). NAFTA was signed on December 17, 1992 at separate
ceremonies in Washington D.C., Mexico City and Ottawa. On
December 30, 1993, after the Legislatures in the United States
and Mexico had ratified NAFTA, the Canadian government announced
that it had proclaimed NAFTA into law and had exchanged the
written notifications with the United States and Mexico needed to
bring NAFTA into force. As a result, NAFTA effectively replaced
the FTA. When fully-implemented, NAFTA is designed to create a
North America Free Trade Area, expand the flow of goods, services
and investment, and eventually eliminate tariff barriers, import
quotas and technical barriers among Canada, the United States and
Mexico.

Economic Information Regarding Canada

Canada experienced rapid economic expansion during most
of the 1980's. Its economy, like many other industrialized
nations fell into a recession from late 1990 through 1992. The
1990-1992 recession partly created and partly highlighted some
difficulties which the present government is attempting to
resolve. The relatively low level of economic activity during
this period reduced the growth of tax receipts with the result
that the already high levels of government debt increased.

RECENT DEVELOPMENTS. In its first budget, presented in
February 1994, the Liberal Party introduced new spending cuts to
reduce Canada's budget deficit. Canada's budget deficit is one
of the largest for any of the OECD members. For the fiscal year
1994-95, its budget deficit is estimated to be 5.5% of GDP
compared to 2.5% for the United States. The Government has
stated its commitment to reduce the deficit to approximately 4.2%
of GDP in the 1995-1996 fiscal year and to 3% of GDP in the 1996-
1997 fiscal year. While the Government's budget deficit
objectives can be achieved with continued economic growth and
lower interest rates, they also indicate a further rise in the
debt-to-GDP ratio which would continue to grow until the 1996-
1997 fiscal year.

In addition to the growth of the federal government
deficit, provincial government debt has risen rapidly.
Developments, including increased spending on social services at
the provincial level, were responsible for a significant amount
of the growth of public debt from 1990-1992. In response to the

<PAGE>

increase in provincial debt, a number of rating agencies
downgraded some provincial debt ratings. All provinces now have
plans to balance their respective budgets. This may prove to be
difficult considering the increase in interest rates and the
federal government's plan to reduce certain transfers to the
provinces.

During 1994, despite growing output and low inflation,
concern over the country's deficit and the uncertainty associated
with Quebec's status within Canada has lead to a weakening of its
currency and higher interest rates. These higher interest rates
have threatened the federal deficit reduction target. In
December 1994, the Canadian Parliament proposed legislation
increasing taxes by C$1.1 billion and reducing spending by C$8.7
billion over the next two years. It is still not clear whether
these measures, if enacted, will have the effect of meeting the
federal deficit reduction targets. Through January 31, 1995, the
Canadian Dollar decreased in value compared to the U.S. Dollar by
approximately 21% from October 1991 and approximately 5% from
September 1994. On January 20, 1995, the Canadian dollar fell to
70.2, its lowest rate in almost nine years and close to its
record low of 69.2. The Bank of Canada responded by increasing
rates on Treasury bills and selling U.S. dollars. The Canadian
dollar has increased in value against the U.S. dollar from 70.2
on January 20, 1995 to 70.8 on February 16, 1995.

The following provides certain statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Canadian Dollar, information concerning
inflation rates, historical information regarding the Canadian
gross domestic product and information concerning yields on
certain Canadian Government Securities. Historical figures are
not necessarily indicative of future fluctuations.

CURRENCY EXCHANGE RATES. The exchange rate between the
U.S. Dollar and the Canadian Dollar is at any moment related to
the supply of and demand for the two currencies, and changes in
the rate result over time from the interaction of many factors
directly or indirectly affecting economic conditions in the
United States and Canada, including economic and political
developments in other countries and government policy and
intervention in the money markets.

<PAGE>

Despite the recent drop in value of the Canadian dollar,
the range of fluctuation in the U.S. Dollar/Canadian Dollar
exchange rate has been narrower than the range of fluctuation
between the U.S. Dollar and most other major currencies.
However, the range that occurred in the past is not necessarily
indicative of fluctuations in that rate that may occur over time
which may be wider or more confined than the range that occurred
over an historic period of comparable length. Future rates of
exchange cannot be predicted, particularly over extended periods
of time.

The following table sets forth, for each year indicated,
the annual average of the daily noon buying rates in New York for
cable transfers in U.S. Dollars for one Canadian Dollar as
certified by the Federal Reserve Bank of New York:

U.S. Dollars
____________

1981 . . . . . . . . . . . . . . 0.83
1982 . . . . . . . . . . . . . . 0.81
1983 . . . . . . . . . . . . . . 0.81
1984 . . . . . . . . . . . . . . 0.77
1985 . . . . . . . . . . . . . . 0.73
1986 . . . . . . . . . . . . . . 0.72
1987 . . . . . . . . . . . . . . 0.75
1988 . . . . . . . . . . . . . . 0.81
1989 . . . . . . . . . . . . . . 0.84
1990 . . . . . . . . . . . . . . 0.86
1991 . . . . . . . . . . . . . . 0.87
1992 . . . . . . . . . . . . . . 0.83
1993 . . . . . . . . . . . . . . 0.78
1994 . . . . . . . . . . . . . . 0.73

Source: Federal Reserve Bulletin

INFLATION RATE OF THE CANADIAN CONSUMER PRICE INDEX.
Inflation has remained below 2% since 1991 and the Government and
the Bank of Canada have reaffirmed the target of holding
inflation inside a band of 1-3% for 1995.

The following table sets forth for each year indicated
the average change in the Canadian consumer price index for the

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twelve months ended December 31, of such year (1986 = 100).

National Consumer
Price Index
_________________

1981 . . . . . . . . . . . . . . . 12.4%
1982 . . . . . . . . . . . . . . . 10.9
1983 . . . . . . . . . . . . . . . 5.7
1984 . . . . . . . . . . . . . . . 4.4
1985 . . . . . . . . . . . . . . . 3.9
1986 . . . . . . . . . . . . . . . 4.2
1987 . . . . . . . . . . . . . . . 4.4
1988 . . . . . . . . . . . . . . . 4.0
1989 . . . . . . . . . . . . . . . 5.0
1990 . . . . . . . . . . . . . . . 4.8
1991 . . . . . . . . . . . . . . . 5.6
1992 . . . . . . . . . . . . . . . 1.5
1993 . . . . . . . . . . . . . . . 1.8

Source: BANK OF CANADA REVIEW Winter 1994-1995; Statistics
Canada.

CANADIAN GROSS DOMESTIC PRODUCT. The following table
sets forth Canada's gross domestic product ("GDP") for the years
1981 through 1993 at historical and constant prices.

<PAGE>

Gross Domestic Change from
Gross Domestic Product at 1986 Prior Year at
Product Prices Constant Prices
_____________ ______________ _______________

(millions of Canadian Dollars) (%)

1981 . . . . . 355,994 440,127 3.7%
1982 . . . . . 374,442 425,970 (3.2)
1983 . . . . . 405,717 439,448 3.2
1984 . . . . . 444,735 467,167 6.3
1985 . . . . . 477,988 489,437 4.8
1986 . . . . . 505,666 505,666 3.3
1987 . . . . . 551,597 526,730 4.2
1988 . . . . . 605,906 552,958 5.0
1989 . . . . . 650,748 566,486 2.4
1990 . . . . . 669,467 565,155 (0.2)
1991 . . . . . 674,766 554,735 (1.8)
1992 . . . . . 688,391 558,165 0.6
1993 . . . . . 711,658 570,541 2.2

Source: BANK OF CANADA REVIEW Winter 1994-1995; Statistics
Canada.

YIELDS ON CANADIAN GOVERNMENT TREASURY BILLS AND BONDS. The
following table sets forth the average monthly yield on 3-month
and 6-month government of Canada Treasury bills and 5-year and
10-year Canada Benchmark Bonds for 1994.

<PAGE>

Treasury Bills Benchmark Bonds
1994 3 Months 6 Months 5 Years 10 Years
____ ___________________ __________________

January 3.63% 3.71% 5.40% 6.39%
February 3.84 4.17 6.12 6.94
March 5.47 6.04 7.47 7.95
April 5.86 6.28 7.44 7.95
May 6.14 6.55 8.01 8.41
June 6.38 7.29 8.82 9.11
July 5.76 6.64 8.96 9.36
August 5.52 5.79 8.32 8.74
September 5.20 5.69 8.36 8.88
October 5.39 6.04 8.55 9.14
November 5.86 6.52 8.81 9.16
December 7.14 8.12 8.99 9.07

Source: BANK OF CANADA REVIEW Winter 1994-1995; Statistics
Canada.

<PAGE>

ADDITIONAL INFORMATION ABOUT THE UNITED MEXICAN STATES

Territory and Population

The United Mexican States ("Mexico") occupies a
territory of 1.96 million square kilometers (756 thousand square
miles). To the north, Mexico shares a border with the United
States of America, and to the south it has borders with Guatemala
and Belize. Its coastline is along both the Gulf of Mexico and
the Pacific Ocean. Mexico comprises 31 states and a Federal
District (Mexico City). It is the second most populous nation in
Latin America, with an estimated population of 91 million.

Mexico's three largest cities are Mexico City,
Guadalajara and Monterrey, with estimated populations in 1990 of
14.9 million, 2.8 million and 2.5 million, respectively. Due to
improved economic and social conditions and better medical care,
the annual rate of population growth averaged 3.5% in the 1960s
and 1970s and 2.2% in the 1980s. In recent years, Government
efforts concerning family planning and birth control, together
with declining birth rates among women under 35 and those living
in urban areas (where approximately 70% of the population lives)
have resulted in a reduction of such rate to an estimated 2.1% at
December 31, 1990.

Government

The present form of government was established by the
Constitution, which took effect on May 1, 1917. The Constitution
established Mexico as a Federal Republic and provides for the
separation of the executive, legislative and judicial branches.
The President and the members of Congress are elected by popular
vote of Mexican citizens over 18 years of age.

Executive authority is vested in the President, who is
elected for a single six-year term. The executive branch
consists of 18 Ministries, the Attorney General, the Federal
District Department and the Attorney General of Mexico City.

Legislative authority is vested in the Congress, which
is composed of the Senate and the Chamber of Deputies. Senators
serve a six-year term. Deputies serve a three-year term, and

<PAGE>

neither Senators nor Deputies may serve consecutive terms in the
same chamber. The Senate has 128 members, two for each state and
two for the Federal District. The Chamber of Deputies has 500
members, of whom 300 are elected by direct vote from the
electoral districts, and 200 are selected by a system of
proportional representation. The Constitution provides that the
President may veto bills and that Congress may override such
vetoes with a two-thirds majority of each Chamber. Judicial
authority is vested in the Supreme Court of Justice, circuit and
district courts. The Supreme Court has 21 members who, subject
to ratification by the Senate, are appointed for life by the
President.

Politics

The Partido Revolucionario Instituctional ("PRI") is the
dominant political party in Mexico. Since 1929 the PRI has won
all presidential elections and has held a majority in General
Congress. Until 1989 it had also won all of the state
governorships. The oldest opposition party in Mexico is the
Partido Accion Nacional ("PAN"). The third major party in Mexico
is the Partido de la Revolucion Democratica ("PRD").

On August 21, 1994, elections were held to select a new
President of Mexico for a six-year term beginning on December 1,
1994. In addition, elections were held for three-quarters of the
Senate and the entire Chamber of Deputies. The candidate of the
PRI, Ernesto Zedillo Ponce de Leon, won the Presidential election
with 50.2% of the votes, the candidate of the PAN was second with
26.7% of the votes and the PRD candidate was third with 17.1% of
the votes. With respect to the Congressional elections, the PRI
maintained its majority in both chambers, with 93 seats in the
Senate and 300 seats in the Chamber of Deputies. The PAN has the
second largest representation with 25 seats in the Senate and 119
seats in the Chamber of Deputies and the PRD the third largest
representation with 10 seats in the Senate and 71 seats in the
Chamber of Deputies.

In January 1994, an area in the southern state of
Chiapas experienced civil unrest, including armed attacks on
several villages. The Federal Government responded immediately
by providing support to the local authorities, agreeing to
accelerate the disbursement of expenditures in connection with
social programs that were provided for in the 1994 budget and
publicly offering to negotiate a peaceful resolution that would

<PAGE>

address the underlying concerns of the local population. Despite
the Federal Government's attempt to resolve the situation,
sporadic attacks have continued and the area of conflict expanded
in December 1994. In addition, in December 1994, the PRI
candidate, Mr. Eduardo Robledo Rincon, became the Governor of
Chiapas amid speculations of election fraud. His election and
subsequent actions, before his resignation in February 1995, led
to more tension between the rebels and the Government. The
Mexican military, in early February 1995, conducted an operation
to restore order in Chiapas. After restoring order, President
Zedillo ordered the military to halt its offensive, offered
amnesty to the rebels and urged them to return to negotiating a
peaceful settlement.

In addition to the civil unrest in Chiapas, certain
national developments have led to disillusionment among the
electorate with the institutions of government. These events
were the assassination of Luis Donaldo Colosio, the likely
successor to former President Salinas and the murder of Mr. Jose
Francisco Ruiz Massieu, a high-ranking PRI official.

Continuing the reform of the political system, and in
response to the civil unrest in Chiapas and the economic turmoil
facing Mexico resulting from the devaluation of the Peso (as
described below), the Mexican Government and leaders of the PRI
signed an agreement with the opposition parties on January 17,
1995, to continue to democratize the country's political system.
Changes would include controls on fund-raising and campaign
spending, full access to the media for the opposition parties and
the complete independence of the federal elections agency. This
pact may also lead to new elections in Tabasco and Chiapas, where
disputed elections were held last year.

On February 13, 1995, the PRI suffered its worst
election defeat in sixty years when the PAN won almost every
major elective office in the state of Jalisco. It is only the
third time in the PRI's history that it has accepted a defeat in
a state-wide election. Additional state-wide elections are
scheduled throughout 1995, the effect of this recent election
result on the upcoming elections is not clear.

<PAGE>

Money and Banking

Banco de Mexico, chartered in 1925, is the central bank
of Mexico. It is the Federal Government's primary instrument for
the execution of monetary policy and the regulation of currency
and credit. It is authorized by law to regulate interest rates
payable on time deposits, to establish minimum reserve
requirements for credit institutions and to provide discount
facilities for certain types of bank loans. The currency unit of
Mexico is the Peso. Mexico repealed its exchange control rules
in 1991 and now maintains only a market exchange rate.

A constitutional amendment relating to Banco de Mexico's
activities and role within the Mexican economy became effective
on August 23, 1993. The amendment's purpose was to reinforce the
independence of Banco de Mexico, which may in the future act as a
counterbalance to the executive and legislative branches in
fiscal policy matters. The amendment significantly strengthens
Banco de Mexico's authority with respect to monetary policy,
foreign exchange and related activities and the regulation of the
financial services industry. On April 1, 1994, a new law
governing the activities of Banco de Mexico became effective.
The new law was intended to put into effect the greater degree of
autonomy granted to Banco de Mexico under the constitutional
amendment described above and also established a Foreign Exchange
Commission charged with determining the nation's exchange rate
policies.

Trade Reform

Mexico has been a member of the General Agreement on
Tariffs and Trade ("GATT") since 1986. Mexico has also entered
into NAFTA with the United States and Canada. In addition,
Mexico signed a framework for a free trade agreement in 1992 with
Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua and
entered into a definitive free trade agreement with Costa Rica in
April 1994. A free trade agreement between Mexico and Chile went
into effect on January 1, 1992. A free trade agreement with
Colombia and Venezuela was signed in June 1994 and a similar
agreement with Bolivia was signed in September 1994; both
agreements entered into force in January 1995. In connection
with the implementation of NAFTA, amendments to several laws
relating to financial services (including the Banking Law and the
Securities Market Law) became effective on January 1, 1994.
These measures permit non-Mexican financial groups and financial

<PAGE>

intermediaries, through Mexican subsidiaries, to engage in
various activities in the Mexican financial system, including
banking and securities activities.

Economic Information Regarding Mexico

During the period from World War II through the mid-
1970's, Mexico experienced sustained economic growth. During the
mid 1970's, Mexico experienced high inflation and, as a result,
the government embarked on a high-growth strategy based on oil
exports and external borrowing. The economy suffered a set back
in 1981 because of a severe drop in oil prices and high interest
rates that substantially increased the country's external debt
service obligations. With no new lending from international
creditors, the Peso was devalued and inflation again rose
sharply. Through much of the 1980's, the Mexican economy
continued to experience high inflation and large foreign
indebtedness. In February 1990, Mexico became the first Latin
American country to reach an agreement with external creditor
banks and multi-national agencies under the U.S. Treasury's
approach to debt reduction known as the "Brady Plan." As part of
the Brady Plan, commercial banks and Mexico agreed to debt
reduction and new financing in a set of agreements comprising the
1989-1992 Financing Package. The implementation of this package
resulted in a substantial reduction in Mexico's foreign debt and
debt service obligations.

The value of Peso has been central to the performance of
the Mexican economy. From late 1982 until November 11, 1991,
Mexico maintained a dual foreign exchange rate system, with a
"controlled" rate and a "free market" rate. The controlled
exchange rate applied to certain imports and exports of goods,
advances and payments of registered foreign debt and funds used
in connection with the in-bond industry (the industry is
comprised of companies which import raw materials without paying
a duty) funds used for payments of royalties and technical
assistance under registered agreements requiring such payments.
The free market rate was used for all other types of
transactions. The dual system assisted in controlling the value
of the Mexican Peso, particularly from 1983 to 1985. In later
years the difference between the two rates was not significant.
Mexico has since repealed the controlled rate.

<PAGE>

Under economic policy initiatives implemented since
December 1987, the Mexican government introduced a schedule of
gradual devaluations of the Mexican Peso that initially amounted
to an average depreciation of the Mexican Peso against the U.S.
Dollar of one Mexican Peso per day. On May 28, 1990, the Mexican
Peso began devaluing by an average of .80 Mexican Pesos per day
instead of one Mexican Peso per day. On November 12, 1990 this
average was decreased to .40 Mexican Pesos per day and on
November 11, 1991 the daily devaluation rate was lowered to .20
Mexican Pesos per day.

On January 1, 1993, the Mexican Government introduced a
new currency, the New Peso. Each New Peso is worth 1,000 old
Mexican Pesos. The New Pesos and old Mexican Pesos were to
continue to be circulated for at least a year with Mexican
businesses being required to post prices in both pesos. At that
time, the Mexican government stated that the New Peso
(hereinafter, the "Peso") was not a devaluation but a move to
simplify the Mexican currency.

Throughout 1993 and most of 1994, the U.S. Dollar
exchange rate was allowed to fluctuate within a band that widened
daily. The ceiling of the band, which is the maximum selling
rate, depreciated at a daily rate of 0.0004 Pesos (equal to
approximately 4.5% per year), while the minimum buying rate
remained fixed.

RECENT DEVELOPMENTS. On December 20, 1994, the Mexican
Government announced a new policy that would allow a more
substantial yet still controlled devaluation of the Mexican Peso.
On December 22, 1994 the Mexican Government announced that it
would not continue with the policy announced two days earlier and
it would instead permit the Peso to float against other
currencies, resulting in a continued decline against the U.S.
Dollar. On December 23, 1994 the exchange rate was 4.67 Pesos to
the U.S. Dollar, and on January 4, 1995 it had fallen further to
5.57 to the U.S. Dollar.

On January 12, 1995, President Clinton proposed a plan
to help stabilize the Mexican economy. Under terms of the
proposal, the United States would guarantee $40 billion in new
loans to Mexico to be used in the event of a default on

<PAGE>

outstanding bonds or loans. In response to President Clinton's
plan, the Peso gained approximately 8% in one day against the
U.S. Dollar. During the next two weeks as it appeared the plan
would not be approved by Congress, the Peso fell again, reaching
a new low on January 31, 1995 of 6.35 Pesos to the U.S. Dollar or
an effective devaluation of approximately 40% since December 20,
1994.

With foreign exchange reserves down from an estimated
$30 billion in February 1994 to $6 billion in December 1994 and
$3.5 billion at the end of January 1995, there existed
significant concern about the possibility of a Mexican government
default on the approximately $11 billion in Tesobonos maturing
from February to April 1995. Tesobonos are U.S. dollar-
denominated Mexican Government bonds with a face value of $1,000.
The purchase price of a Tesobono is the Peso equivalent of $1,000
on the day the bond is acquired. On the date the bond matures,
an amount equal to the principal plus interest will be paid in
Pesos at the exchange rate in effect on the date the bond
matures.

During January 1995, with foreign investors estimated to
be holding 70% of outstanding Cetes and 80% of outstanding
Tesobonos, it became imperative that Mexico restore foreign
investor confidence. The obligation to repay the Tesobonos was a
significant cause of Mexico's economic turmoil, both because of
the size of the debt and the continuing devaluation of the Peso.
On January 24, 1995, demand for Tesobonos fell dramatically from
the previous week, with interest rates rising to more than 26%.
During this same time, the prices of Mexican Brady Bonds had
decreased by approximately 23%.

On January 31, 1995, President Clinton announced a new
plan that would not require Congressional approval in order to be
implemented. Under the plan, the United States will exchange up
to $20 billion in foreign exchange reserves for Dollars, which,
in turn, will be swapped for Pesos. Mexico has an obligation to
return the Dollars within three to five years. The Federal
Reserve will make available to Mexico up to $6 billion in short-
term loans. The International Monetary Fund will provide $17.8
billion in five-year loans and the Bank for International
Settlements will provide $10 billion in credit to Mexico. In
addition, Canada pledged $1 billion and Latin American nations
pledged $1 billion in credit to Mexico. Under the terms of the
plan, Mexico has an obligation to pay fees for the use of the

<PAGE>

loan guarantees and has pledged oil revenues as collateral for
loan guarantees from the United States. In addition, Mexico will
be required to adhere to a program of economic reform, which will
include a reduction in government spending, slowing the growth of
the money-supply and the privatization of more industries.

It is unclear what effect, if any, these recent
developments will have on the value of the Peso or on the Mexican
economy.

Statistical and Related Information
Concerning Mexico

The following provides certain statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Mexican Peso, information concerning
inflation rates, historical information regarding the Mexican
gross domestic product and information concerning interest rates
on certain Mexican Government Securities. Historical information
is not necessarily indicative of future fluctuations or exchange
rates. In 1982, Mexico imposed strict foreign exchange controls
which shortly thereafter were relaxed and were eliminated in
1991.

CURRENCY EXCHANGE RATES. There is no assurance that
future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.

The following table sets forth the exchange rates of the
Mexican Peso to the U.S. Dollar with respect to each year from
1981 to 1994 and the months of January and February 1995.

<PAGE>

Free Market Rate Controlled Rate
________________ _______________

End of End of
Period Average Period Average
______ ________ _______ _______

1981. . . . . . . 26 24 -- --
1982. . . . . . . 148 57 96 57
1983. . . . . . . 161 150 143 120
1984. . . . . . . 210 185 192 167
1985. . . . . . . 447 310 371 256
1986. . . . . . . 915 637 923 611
1987. . . . . . . 2.209 1.378 2.198 1.366
1988. . . . . . . 2.281 2.273 2.257 2.250
1989. . . . . . . 2.681 2.483 2.637 2.453
1990. . . . . . . 2.943 2.838 2.939 2.807
1991. . . . . . . 3.075 3.016 3.065* 3.007*
1992. . . . . . . 3.119 3.094 -- --
1993. . . . . . . 3.192 3.155 -- --
1994. . . . . . . 5.325 5.075 -- --
January 1995. . . 6.500 -- -- --
February 1995 . . 6.078 -- -- --

* Through November 10, 1991.

Source: Banco de Mexico.

INFLATION AND CONSUMER PRICES. Through much of the
1980's, the Mexican economy continued to be affected by high
inflation, low growth and high levels of domestic and foreign
indebtedness. The annual inflation rate, as measured by the
consumer price index, rose from 28.7% in December 1981 to 159.2%
in December 1987. In December 1987, the Mexican Government
agreed with labor and business to curb the economy's inflationary
pressures by freezing the surge in wages and prices. The Pacto
de Solidaridad Economica (Pact for Economic Solidarity, the
"PSE") was announced in December 1987 and included the
implementation of restrictive fiscal and monetary policies, the
elimination of trade barriers and the reduction of import
tariffs. The PSE was renamed the Pacto para las Estabilidad y el
Crecimiento Economica (Pact for Stability and Economic Growth,
the "PECE") in November 1988. The PECE has been extended on five
occasions. After substantive increases in public sector prices
and utility rates, price controls were introduced. These
policies lowered the consumer inflation rate from 159.2% in 1987,
to 19.7% in 1989, 29.9% in 1990, 18.8% in 1991, 11.9% in 1992,

<PAGE>

and 8.0% in 1993.

Under the PECE, the prices of certain goods and services
provided by the public sector (particularly gasoline, energy for
industrial use and utility services) were increased. The private
sector agreed to accept the increases without increasing private
sector prices. Furthermore, the government committed itself to
implementing measures to reduce agricultural sector costs.

On October 3, 1993, the 1993-94 PECE went into effect.
The purposes of that PECE, which was effective through
December 31, 1994, were essentially the same as those of its
predecessor pacts. The Government promised to maintain fiscal
discipline and a balanced budget. Mexico's foreign exchange
policy remains unchanged. The 1993-94 PECE set an inflation
target of 5% for 1994. In addition, the Government agreed to
reduce the highest income tax rate from 35% to 34% and to reduce
(for the next two years) the withholding tax applicable to
interest payments on external debt payable to certain financial
institutions and on publicly issued external debt from 15% to
4.9%. In order to assure industry of stable prices for certain
factors of production, the government has agreed to limit annual
increases in the price of gasoline (except in the border region
with the United States) to a maximum of 5% annually. Commercial
and residential electricity rate increases were also limited to
5%. As the Mexican economy stabilized, there has been a gradual
reduction in the number of goods and services whose prices are
covered by the original PECE, the 1992-93 PECE and the 1993-94
PECE.

On September 24, 1994, the government, together with the
business and labor sectors, entered into a new agreement that
extends the 1993-94 PECE for 1995. That agreement became
effective on January 1, 1995. Its main points are as follows:
(i) an inflation target of 4% for 1995; (ii) a 4% GDP growth
target for 1995; (iii) an increase in salaries by 4%, together
with a productivity increase, the terms of which are yet to be
determined; (iv) the maintenance of the current foreign exchange
policy; (v) the creation of an investment fund to be financed
with the proceeds of privatizations in order to encourage the
participation of the private sector in infrastructure projects;
(vi) gradual increases in the prices of gasoline and electricity,
in amounts not to exceed a 4% increase in 1995; (vii) the
creation of tax benefits for workers receiving certain minimum
salaries; and (viii) a reduction of asset taxes to 1.8% (together

<PAGE>

with other benefits relating to asset taxes).

On January 3, 1995, in response to the economic turmoil
following the devaluation of the Peso, President Zedillo
announced an emergency economic plan. The plan reiterates most
of the projections contained in the 1993-94 PECE, but modifies
the inflation projection (increased to 20%) and lowers GDP growth
target (to approximately 1%) for 1995. In addition, President
Zedillo reiterated that taxes would not be increased, Government
spending would decrease by approximately 1.3% of GDP, wages would
be allowed to increase by no more than 7% and a Fiscal Advisory
Committee would be created to examine Mexico's fiscal
legislation. It is unclear what effect, if any, these policies
will have on the Mexican economy.

CONSUMER PRICE INDEX. The following table sets forth
the changes in the Mexican consumer price index for each of the
thirteen years ended December 31, 1994.

Annual
Increases in
National Consumer
Price Index
_____________________

1981 . . . . . . . . . . . . . . . . . 28.7%
1982 . . . . . . . . . . . . . . . . . 98.9
1983 . . . . . . . . . . . . . . . . . 80.8
1984 . . . . . . . . . . . . . . . . . 59.2
1985 . . . . . . . . . . . . . . . . . 63.7
1986 . . . . . . . . . . . . . . . . . 105.7
1987 . . . . . . . . . . . . . . . . . 159.2
1988 . . . . . . . . . . . . . . . . . 51.7
1989 . . . . . . . . . . . . . . . . . 19.7
1990 . . . . . . . . . . . . . . . . . 29.9
1991 . . . . . . . . . . . . . . . . . 18.8
1992 . . . . . . . . . . . . . . . . . 11.9
1993 . . . . . . . . . . . . . . . . . 8.0
1994 . . . . . . . . . . . . . . . . . 7.1

Source: Banco de Mexico.

<PAGE>

MEXICAN GROSS DOMESTIC PRODUCT. The following table
sets forth certain information concerning Mexico's GDP for the
years 1981 through 1993 at historical and constant prices.

Gross Change from Prior
Gross Domestic Product Year at
Domestic Product at 1985 Prices Constant Prices
________________ _______________ _______________

(billions of Mexican Old Pesos) (percentage)

1981 . . . . 6,128 46,795 7.9%
1982 . . . . 9,798 46,538 (0.5)
1983 . . . . 17,879 44,548 (4.3)
1984 . . . . 29,472 46,195 3.7
1985 . . . . 47,392 47,392 2.6
1986 . . . . 79,191 45,613 (3.8)
1987 . . . . 193,312 46,460 1.9
1988 . . . . 390,451 47,039 1.2
1989 . . . . 507,618 48,613 3.3
1990 . . . . 686,406 50,774 4.4
1991 . . . . 865,166 52,615 3.6
1992 . . . . 1,019,156 54,010 2.6
1993 . . . . 1,122,928 54,337 0.4

Source: Banco de Mexico.

<PAGE>

INTEREST RATES. The following table sets forth the
average yield as of the date of issuance on 28-day and 91-day
Cetes and Tesobonos for the periods listed below:

Average Cetes and Tesobonos Rates
_________________________________

28-Day 91-Day 28-Day 91-Day
Cetes Cetes Tesobonos Tesobonos
_____ _____ _________ _________

1989:
Jan.-June ............. 51.1% 51.5% --- ---
July-Dec. ............. 38.9 38.0 --- 15.1%
1990:
Jan.-June ............. 41.2 40.7 --- ---
July-Dec. ............. 28.3 29.4 12.0% ---
1991:
Jan.-June ............. 21.2 21.7 --- ---
July-Dec. ............. 17.3 18.0 9.1 ---
1992:
Jan.-June ............. 13.8 13.8 7.5 ---
July-Dec. ............. 17.4 18.0 4.9 4.0
1993:
Jan.-June ............. 16.4 17.3 4.1 5.8
July-Dec. ............. 13.4 13.6 4.0 5.1
1994:
Jan.-Oct. ............. 14.7 15.1 7.0 6.6
November ............. 13.9 14.8 --- 7.3
December ............. 31.0 32.0 --- 10.5
1995:
January ............. 37.0 38.0 --- 25.0
February ............. 59.0 57.0 --- 17.0

Source: Banco de Mexico

ADDITIONAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA

Territory and Population

The Republic of Argentina ("Argentina") is the second
largest country in Latin America, occupying a territory of 2.8
million square kilometers (1.1 million square miles) (3.8 million
square kilometers (1.5 million square miles) if territorial
claims in the Antarctic and certain South Atlantic islands are
included). It is located at the extreme south of the South
American continent, bordered by Chile, Bolivia, Paraguay, Brazil,

<PAGE>

Uruguay and the South Atlantic Ocean. Argentina consists of 23
provinces and the federal capital of Buenos Aires. It has a
population of approximately 34 million.

The most densely inhabited areas and the traditional
agricultural wealth are on the wide temperate belt that stretches
from east to west in central Argentina. About one-third of the
population lives in the greater Buenos Aires area. Five other
urban centers, Cordoba, Rosario, Mendoza, San Miguel de Tucuman
and La Plata, have a population of over 500,000 each.
Approximately 80% of the country's population is urban. During
the past two decades, Argentina's population grew at a 1.2%
average annual rate.

Government

The Argentine federal constitution (the "Constitution"),
was promulgated on August 24, 1994 and became effective
immediately. The Constitution retains the basic principles of
the Constitution first established in 1853. The Constitution
provides for a tripartite system of government: an executive
branch headed by a President; a legislative branch made up of a
bicameral congress; and a judicial branch, of which the Supreme
Court is the highest body of authority. The President is elected
by an electoral college and may now serve for consecutive four-
year terms. The next election for the Presidency is scheduled to
take place in May 1995. The President directs the general
administration of the country and has the power to veto laws in
whole or in part, although Congress may override a veto by a two-
thirds vote.

The Congress is made up of the Senate and the Chamber of
Deputies. The Senate consists of three Senators selected by each
provincial legislature and by the electoral college in the case
of the federal capital of Buenos Aires. Senators are elected for
nine-year terms, and serve in staggered terms so that one-third
of the Senate's seats are subject to elections every three years.
The Chamber of Deputies consists of 257 seats which are allocated
according to each province's population and elected by popular
vote. Representatives are elected for four-year staggered terms
so that one-half of the Chamber is subject to elections every two
years.

The judicial system comprises federal and provincial
trial courts, courts of appeal and supreme courts. The supreme
judicial power of the Republic is vested in the Supreme Court of

<PAGE>

Justice, which has nine members who are appointed for life by the
President (subject to ratification by the Senate).

Each province has its own constitution, and elects its
own governor, legislators and judges, without the intervention of
the federal government.

Politics

The two largest political parties in Argentina are the
Partido Justicialista or Peronist Party ("PJ"), which evolved out
of Juan Peron's efforts to expand the role of labor in the
political process in the 1940s, and the Union Civica Radical or
Radical Civic Union ("UCR"), founded at the end of the nineteenth
century. Traditionally, the UCR has had more urban middle-class
support and the PJ more labor support. At present, support for
both parties is broadly based, with the PJ having substantial
support from the business community. Smaller parties occupy
varied political positions on both sides of the political
spectrum and some are active only in certain provinces.

Since the 1930's, Argentina's political parties have had
difficulty in resolving the inter-group conflicts arising out of
the Great Depression, the deepening social divisions that
occurred under the Peron Government and the economic stagnation
of the past several decades. As a result, the military
intervened in the political process on several occasions and
ruled the country for 22 of the past 62 years. Poor economic
management by the military in the early 1960's and 1970's and the
loss of a brief war with the United Kingdom over the Malvinas
(Falkland Islands) led in 1983 to the end of the most recent
military government, which had ruled the country since 1976.

Four military uprisings have occurred since 1983, the
most recent in December 1990. The uprisings, which were led by a
small group of officers failed due to a lack of support from the
public and the military as a whole.

Since 1983, Argentina has had two successive elected
civilian presidents. Raul Alfonsin, elected in 1983, was the
first civilian president in six decades to stay in office until
the scheduled election of a successor. His UCR Government
reestablished civilian rule, including a functioning Congress.
The current president, Carlos Menem, won the presidential
election in May 1989 and took office in July 1989, several months
ahead of the scheduled inauguration, in the midst of an economic

<PAGE>

crisis.

President Menem, the leader of the PJ, was elected with
the backing of organized labor and business interests that
traditionally supported a closed economy and a large public
sector. Shortly after taking office, however, President Menem
adopted market-oriented and reformist policies, including a large
privatization program, a reduction in the size of the public
sector and an opening of the economy to international
competition. The next presidential election is scheduled for May
1995.

Monetary and Banking System

The central bank of Argentina is the Banco Central de la
Republica Argentina ("Central Bank of Argentina"). Its primary
functions include the administration of the financial sector,
note issue, credit control and regulation of foreign exchange
markets. The currency unit of Argentina is the Peso. There is a
unified foreign exchange market free of government intervention
and regulations. The unified floating exchange rate is
determined by supply and demand.

Economic Information Regarding Argentina

The Argentina economy has many strengths including a
well balanced natural resource base and a high literacy rate.
Since World War II, however, it has had a record of erratic
growth, declining investment rates and rapid inflation. Since
the implementation of the current reform program in March 1991,
significant progress has been made in reducing inflation and
increasing real GDP growth.

DEREGULATION OF THE ECONOMY AND PRIVATIZATIONS.
Deregulation of the domestic economy, liberalization of trade and
reforms of investment regulations are prominent features of
Argentina's structural adjustment program. In order to achieve
the free functioning of markets, the Government has undertaken an
extensive program for the removal of economic restrictions and

<PAGE>

regulations and the promotion of competition.

In 1989 and 1990, the initial steps were taken to
liberalize industrial and consumer prices previously subject to
various restrictions as a consequence of hyperinflation, and to
encourage international trade by the elimination of controls.
Restrictions were removed in order to allow the private sector to
provide certain public services, such as telephone, electricity
and natural gas, subject to governmental regulation.

In the fall of 1991, the Argentine government
promulgated its principal deregulation legislation which
deregulated the domestic market for goods, services and
transportation, abolished restrictions on imports and exports,
abolished or simplified a number of regulatory agencies and
allowed free wage bargaining in the private sector. In the
financial sector, this legislation abolished all stamp taxes
relating to publicly offered securities, all capital gains taxes
on stocks and bonds held by non-resident investors and fixed
commissions on the stock exchanges.

In addition, Argentina has eliminated restrictions on
foreign direct investment and capital repatriation. In late 1993,
legislation was adopted abolishing previous requirements of a
three-year waiting period for capital repatriation. Under the new
legislation, foreign investors will be permitted to remit profits
at any time and to organize their companies and make use of
domestic credit under the same rights and under the same
conditions as local firms. The process of deregulation and
liberalization is continuing through the privatization process,
the proposed reform of the social security system, regional
integration and further labor law reforms.

In 1989, the State Reform Law declared certain
enterprises eligible for privatization. In addition to increasing
the efficiency of services provided by public sector enterprises,
the privatizations have also served to reduce outstanding debt
(by applying cash proceeds and through the selective use of debt-
to-equity conversions), increase reserves and increase tax
revenues from the new owners of the enterprises. The
privatization program has also served as an important conduit for
direct foreign investment into Argentina attracting interested

<PAGE>

investors from Asia, Europe, North America and Latin America.

The following provides certain statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Argentine Peso, information concerning
inflation rates, historical information concerning the Argentine
gross domestic product ("GDP") and information concerning
interest rates on certain Argentine Government Securities.
Historical figures are not necessarily indicative of future
fluctuations.

CURRENCY EXCHANGE RATES. The Argentine foreign exchange
market was highly controlled until December 1989, when a free
exchange rate was established for all foreign transactions.
Since the institution of the Convertibility Law on April 1, 1991,
the Argentine currency has been tied to the U.S. Dollar. From
April 1, 1991 through the end of 1991, the exchange rate was
approximately 10,000 Australes (the predecessor to the Argentine
Peso) per U.S. Dollar. On January 1, 1992 the Argentine Peso
equal to 10,000 Australes was introduced. Since January 1, 1992,
the rate of exchange from Argentine Peso to U.S. Dollar has been
approximately one to one. However, the historic range is not
necessarily indicative of fluctuations that may occur in the
exchange rate over time which may be wider or more confined than
recorded previously over a comparable period. Future rates of
exchange cannot be predicted, of course, particularly over
extended periods of time.

The following table sets forth, for each year indicated,
the nominal exchange rates of Argentine Peso to U.S. Dollar as of
the last day of the period indicated.

Official Rate

1986 . . . . . . . . . . . . .00013
1987 . . . . . . . . . . . . .00038
1988 . . . . . . . . . . . . .00134
1989 . . . . . . . . . . . . .17950
1990 . . . . . . . . . . . . .55850
1991 . . . . . . . . . . . . .99850
1992 . . . . . . . . . . . . .99050
1993 . . . . . . . . . . . . .99850
1994 . . . . . . . . . . . . .99850

Source: Banco Central de la Republica Argentina

<PAGE>

WAGES AND PRICES. Prior to the appointment of Economy
Minister Domingo F. Cavallo and the announcement of his new
economic plan in March 1991, the Argentine economy was
characterized by low and erratic growth, declining investment
rates and rapid inflation. Argentina's high inflation rates and
balance of payments imbalances during the period from 1975 to
1990 resulted mainly from a lack of control over fiscal policy
and the money supply. Large subsidies to state-owned enterprises
and an inefficient tax collection system led to large persistent
public-sector deficits which were financed in large part through
increases in the money supply and external financings. Due to
the lag which typically occurs between the accrual and receipt of
taxes, inflation tended to reduce the value of tax collections
and increase the size of the deficit, further fueling the
inflationary cycle. Inflation accelerated on several occasions
and turned into hyperinflation in 1989 and the end of 1990, with
prices rising at an annual rate of 1,000% or more.

During the 1980's and in 1990, the Argentine government
instituted several economic plans to stabilize the economy and
foster real growth, all of which failed after achieving initial
success mainly because the government was unable to sustain
reductions in the public deficit. The government's initial
stabilization efforts included a devaluation of the Austral, a
fixed exchange rate, wage and price controls and a sharp rise in
public utility rates.

The government's efforts proved inadequate, however, and
foreign exchange markets declined sharply in anticipation of a
new bout of hyperinflation. The government adopted a new set of
stabilization measures in December 1989 which abandoned attempts
to control wages, prices and the exchange rate and sought to
restrain the public deficit which was believed to be the
principal cause of Argentina's chronic inflation. The new
stabilization plan (called the Bonex Plan) featured, among other
things, tax reforms, a tighter rein on public enterprises and
restrictions on lending activities of the public sector banks
(which had been financing provincial government deficits through
loans which were in turn financed with discounts from the Central
Bank), government personnel cuts and a reliance on cash income
generated by privatizations to reduce the public sector deficit.
The plan also eliminated all restrictions on foreign exchange
transactions. In addition, the plan froze fixed-rate short-term
bank deposits pursuant to which holders of 7- to 30-day deposits
were permitted to withdraw no more than the equivalent of
approximately U.S. $1000 from their accounts, and the balance was

<PAGE>

made payable only in 10-year U.S. Dollar denominated government
bonds (Bonex 89). The plan also provided for the compulsory
exchange of certain domestic currency denominated bonds for Bonex
89.

The stabilization effort succeeded in ending temporarily
the period of hyperinflation, but not in ending the Argentine
economy's susceptibility to inflation. In late 1990, a
deterioration in the finances of the social security system and
provincial governments led to an expansion of Central Bank
credit. The Central Bank loaned funds to the social security
system to allow it to meet year-end payments and also funded
provincial banks suffering deposit runs. The provincial banks
continued to lend to finance provincial government deficits. The
credit expansion led to downward market pressure on the Austral,
and a resurgence of price inflation. During 1990, the CPI rose
1,343.9%, which was significantly less than the 4,923.6% increase
in 1989, but was still an unacceptably high inflation rate. The
government responded by installing a new economic team headed by
Economy Minister Cavallo, which acted to reduce the public sector
deficit by increasing public utility rates and taxes and by
developing a new stabilization program.

The Argentine government's current stabilization program
is built around the plan announced by Economy Minister Cavallo on
March 20, 1991 (the "Convertibility Plan", as amended and
supplemented), and approved by Congress through passage of the
Convertibility Law. The Convertibility Plan has sought to reduce
inflation and restore economic growth by addressing underlying
structural problems that had distorted fiscal and monetary policy
through reforms relating to the tax system, privatizations and
the opening of the economy.

The Convertibility Plan is centered on the two following
fundamental principles:

(1) Full international reserve backing for the monetary
base. The monetary base (consisting of currency in circulation
and Peso deposits of financial entities with the Central Bank) is
not to exceed the Central Bank's gross international assets as a
fixed rate of one Argentine Peso per U.S. Dollar. This
effectively means that the money supply can be increased only
when backed by increases in the level of international reserves,
and not whenever the public sector deficit or the financial
sector needs to be financed. Gross international assets include
the Central Bank's holdings of gold, foreign exchange (including
short-term investments), U.S. Dollar denominated Argentine
government bonds (in an amount not to exceed 30% of total assets)
and its net Asociacion Latinoamericana de Integraction ("ALADI")

<PAGE>

claims (except overdue claims) all freely available and valued at
market prices. Under this arrangement, in which the Argentine
Peso is fully convertible into the U.S. Dollar, no increase in
the domestic monetary base can occur without an equivalent
increase in gross international assets at the one Argentine Peso
per U.S. Dollar rate; and

(2) the elimination of the fiscal deficit and the
achievement of a surplus in the primary balance to provide funds
for the government to service its debt and thereby eliminate the
need for further borrowings.

The International Monetary Fund ("IMF") has supported
the implementation of the Convertibility Plan and designed a
financial program for the Argentine public sector. Argentina has
attained or surpassed the targets set by the IMF with respect to
primary balances for 1992, the first half of 1993 and met targets
for the third quarter of 1993. In the event of any noncompliance
with the program, Argentina is required to consult in the first
instance with the IMF in order to obtain a waiver and, if
required, revise the program to remedy the situation.

The Convertibility Plan has simplified fiscal and market
regulations and reallocated state activities to the private
sector, thereby reducing state expenditures, increasing the
amount of federal revenues and at the same time encouraging
domestic private sector initiative and foreign investment. Since
the Convertibility Plan was introduced in March 1991, inflation
as measured by the consumer price index declined from a 27.0%
monthly rate in February 1991 to a 0.3% monthly rate in December
1992 and resulted in a 17.5% annual rate for 1992. Inflation has
continued to decrease to 7.2% in 1993 and 3.9% in 1994.
There is no assurance, however, that in the future, the
Convertibility Plan will not be modified or abandoned.

CONSUMER PRICE INDEX. The following table sets forth
for each year indicated the change in Argentine Consumer Prices
for the twelve months ended December 31, of such year.

<PAGE>

1985 . . . . . . . . . . . . 385.4%
1986 . . . . . . . . . . . . 81.9
1987 . . . . . . . . . . . . 174.8
1988 . . . . . . . . . . . . 387.7
1989 . . . . . . . . . . . . 4,923.6
1990 . . . . . . . . . . . . 1,343.9
1991 . . . . . . . . . . . . 84.0
1992 . . . . . . . . . . . . 17.5
1993 . . . . . . . . . . . . 7.2
1994 . . . . . . . . . . . . 3.9

___________________

Source: Banco Central de la Republica Argentina

ARGENTINE GROSS DOMESTIC PRODUCT. The following table
sets forth Argentina's gross domestic product for the years 1980
through 1993 at historical and constant prices.

Gross Change from Prior
Gross Domestic Product Year at
Domestic Product at 1986 Prices Constant Prices
________________ _______________ _______________

(thousands of Argentine Pesos) (percent)

1980 . . . . 3,840 10,331.2 -
1981 . . . . 7,474 9,737.8 (5.7)
1982 . . . . 21,852 9,431.2 (3.1)
1983 . . . . 109,500 9,783.3 3.7
1984 . . . . 790,920 9,962.2 1.8
1985 . . . . 5,305,000 9,303.3 (6.6)
1986 . . . . 9,984,100 9,984.1 7.3
1987 . . . . 23,332,000 10,241.8 2.6
1988 . . . . 111,062,000 10,049.1 (1.9)
1989 . . . . 3,244,045,000 9,424.3 (6.2)
1990 . . . . 68,922,274,000 9,430.4 .1
1991 . . . . 180,897,972,000 10,270.0 8.9
1992 . . . . 226,637,398,000 11,158.7 8.7
1993 . . . . 255,326,365,000 11,832.0 6.0

Source: Banco Central de la Republica Argentina

<PAGE>

INTEREST RATES. The following table sets forth the
average price for BICs and Bocrexs for the periods listed below.

(In Pesos)

1994 BOCREX BIC

January 180.8 100.3
February 181.7 96.5
March 181.1 86.9
April 182.0 78.7
May 183.5 83.4
June 185.7 80.0
July 187.2 78.0
August 188.9 79.6
September 190.4 79.1
October --- 77.1
November --- 70.6
December --- 68.5*

*Through December 16, 1994

Source: Banco Central de la Republica Argentina

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

GENERAL. The primary objective of the Global Dollar
Government Portfolio is to seek a high level of current income
through investing substantially all of its assets in U.S. and
non-U.S. fixed-income securities denominated only in U.S.
Dollars. As a secondary objective, the Portfolio seeks capital
appreciation. In seeking to achieve these objectives, the
Portfolio will invest at least 65% of its total assets in fixed
income securities issued or guaranteed by foreign governments,
including participations in loans between foreign governments and
financial institutions, and interests in entities organized and
operated for the purpose of restructuring the investment
characteristics of instruments issued or guaranteed by foreign
governments ("Sovereign Debt Obligations"). The Portfolio's
investments in Sovereign Debt Obligations will emphasize
obligations of a type customarily referred to as "Brady Bonds,"
that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero
coupon obligations issued by the U.S. Government, its agencies or
instrumentalities. The Portfolio may also invest up to 35% of
its total assets in U.S. corporate fixed-income securities and
non-U.S. corporate fixed income securities. The Portfolio will

<PAGE>

limit its investments in Sovereign Debt Obligations, U.S. and
non-U.S. corporate fixed-income securities to U.S. dollar
denominated securities.

The Portfolio may invest up to 30% of its total assets
in the Sovereign Debt Obligations and corporate fixed income
securities of issuers in any one of Argentina, Brazil, Mexico,
Morocco, the Philippines or Venezuela, and the Portfolio will
limit investments in the Sovereign Debt Obligations of each such
country (or of any other single foreign country) to less than 25%
of its total assets. The Portfolio expects that it will not
invest more than 10% of its total assets in the Sovereign Debt
Obligations and corporate fixed income securities of issuers in
any other single foreign country. At present, each of the above-
named countries is an "emerging market country."

In selecting and allocating assets among countries, the
Adviser will develop a long-term view of those countries and will
analyze sovereign risk by focusing on factors such as a country's
public finances, monetary policy, external accounts, financial
markets, stability of exchange rate policy and labor conditions.
In selecting and allocating assets among corporate issuers within
a given country, the Adviser will consider the relative financial
strength of issuers and expects to emphasize investments in
securities of issuers that, in the Adviser's opinion, are
undervalued within each market sector. The Portfolio is not
required to invest any specified minimum amount of its total
assets in the securities or obligations of issuers located in any
particular country.

Substantially all of the Portfolio's assets will be
invested in high yield, high risk debt securities that are low-
rated (i.e., rated below Baa by Moody's or below BBB by S&P), or
of comparable quality as determined by the Adviser and unrated,
and that are considered to be predominantly speculative as
regards the issuer's capacity to pay interest and repay
principal.

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INVESTMENT POLICIES

BRADY BONDS. As noted above, a significant portion of
the Portfolio's portfolio will consist of debt obligations
customarily referred to as "Brady Bonds" which are created
through the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary
of the Treasury, Nicholas F. Brady (the "Brady Plan").

Brady Bonds have been issued only recently, and,
accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various
currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market.

Dollar-denominated, Collateralized Brady Bonds, which
may be fixed rate par bonds or floating rate discount bonds, are
generally collateralized in full as to principal due at maturity
by U.S. Treasury zero coupon obligations which have the same
maturity as the Brady Bonds. Interest payments on these Brady
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 based on the
applicable interest rate at that time and is adjusted at regular
intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or
four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and (iv)
any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the
event of a default with respect to Collateralized Brady Bonds as
a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed
to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent
to the scheduled maturity of the defaulted Brady Bonds which will
continue to be outstanding at which time the face amount of the
collateral will equal the principal payments which would have
then been due on the Brady Bonds in the normal course. In
addition, in light of the residual risk of Brady Bonds and, among
other factors, the history of defaults with respect to commercial
bank loans by public and private entities of countries issuing
Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.

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Brady Plan debt restructurings totaling more than $80
billion have been implemented to date in Argentina, Bolivia,
Costa Rica, Mexico, Nigeria, the Philippines, Uruguay and
Venezuela with the largest proportion of Brady Bonds having been
issued to date by Argentina, Mexico and Venezuela. Brazil has
announced plans to issue Brady Bonds in respect of approximately
$44 billion of bank debt. On the basis of current information,
the Adviser anticipates that Brady Bonds may be issued by Brazil
in early 1994. There can be no assurance that the circumstances
regarding the issuance of Brady Bonds by Brazil will not change.

Most Argentine and Mexican Brady Bonds and a significant
portion of the Venezuelan Brady Bonds issued to date are
Collateralized Brady Bonds with interest coupon payments
collateralized on a rolling-forward basis by funds or securities
held in escrow by an agent for the bondholders. Of the other
issuers of Brady Bonds, Bolivia, Nigeria, the Philippines and
Uruguay have to date issued Collateralized Brady Bonds. While
the Adviser anticipates that Collateralized Brady Bonds will be
issued by Brazil, there can be no assurance that any such
obligations will be issued or, if so, when. Thus, at the present
time Argentina, Bolivia, Mexico, Nigeria, the Philippines,
Uruguay and Venezuela are the only countries which have issued
Collateralized Brady Bonds.

STRUCTURED SECURITIES. The Portfolio may invest up to
25% of its total assets in interests in entities organized and
operated solely for the purpose of restructuring the investment
characteristics of Sovereign Debt Obligations. This type of
restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as
commercial bank loans or Brady Bonds) and the issuance by that
entity of one or more classes of securities ("Structured
Securities") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued Structured
Securities to create securities with different investment
characteristics such as varying maturities, payment priorities
and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent
of the cash flow on the underlying instruments. Because
Structured Securities of the type in which the Portfolio
anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to
that of the underlying instruments.

The Portfolio is permitted to invest in a class of
Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields

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and present greater risks than unsubordinated Structured
Securities.

Certain issuers of Structured Securities may be deemed
to be "investment companies" as defined in the 1940 Act. As a
result, the Portfolio's investment in these Structured Securities
may be limited by the restrictions contained in the 1940 Act
described in the Prospectus under "Investment in Other Investment
Companies."

LOAN PARTICIPATIONS AND ASSIGNMENTS. The Portfolio may
invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between an issuer of Sovereign Debt
Obligations and one or more financial institutions ("Lenders").
The Portfolio's investments in Loans are expected in most
instances to be in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans
("Assignments") from third parties. The Portfolio may invest up
to 25% of its total assets in Participations and Assignments.
The government that is the borrower on the Loan will be
considered by the Portfolio to be the Issuer of a Participation
or Assignment for purposes of the Portfolio's fundamental
investment policy that it will not invest 25% or more of its
total assets in securities of issuers conducting their principal
business activities in the same industry (i.e., foreign
government). The Portfolio's investment in Participations
typically will result in the Portfolio having a contractual
relationship only with the Lender and not with 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 may be subject to
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. Certain Participations
may be structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender
with respect to the Participation, but even under such a
structure, in the event of the Lender's insolvency, the Lender's
servicing of the Participation may be delayed and the
assignability of the Participation impaired. The Portfolio will
acquire Participations only the Lender interpositioned between
the Portfolio and the borrower in a Lender having total assets of

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more than $25 billion and whose senior unsecured debt is rated
investment grade or higher (i.e. Baa or higher by Moody's or BBB
or higher by S&P).

When the Portfolio purchases Assignments from Lenders it
will acquire direct rights against the borrower on the Loan.
Because Assignments are arranged through private negotiations
between potential assignees and potential assignors, however, 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 assignability of certain
Sovereign Debt Obligations is restricted by the governing
documentation as to the nature of the assignee such that the only
way in which the Portfolio may acquire an interest in a Loan is
through a Participation and not an Assignment. The Portfolio may
have difficulty disposing of Assignments and Participations
because to do so it will have to assign such securities to a
third party. Because there is no liquid market for such
securities, the Portfolio anticipates that such securities could
be sold only to a limited number of institutional investors. The
lack of a liquid secondary market may have an adverse impact on
the value of such securities and the Portfolio's ability to
dispose of particular Assignments or Participations when
necessary to meet the Portfolio's liquidity needs 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 these securities
for purposes of valuing the Portfolio's portfolio and calculating
its asset value.

U.S. AND NON-U.S. CORPORATE FIXED INCOME SECURITIES.
U.S. and non-U.S. corporate fixed income securities include debt
securities, convertible securities and preferred stocks of
corporate issuers. Differing yields on fixed income securities
of the same maturity are a function of several factors, including
the relative financial strength of the issuers. Higher yields
are generally available from securities in the lower rating
categories. When the spread between the yields of lower rated
obligations and those of more highly rated issues is relatively
narrow, the Portfolio may invest in the latter since they may
provide attractive returns with somewhat less risk. The
Portfolio expects to invest in investment grade securities (i.e.
securities rated Baa or better by Moody's or BBB or better by
S&P) and in high yield, high risk lower rated securities (i.e.,
securities rated lower than Baa by Moody's or BBB by S&P) and in
unrated securities of comparable credit quality. Unrated
securities will be considered for investment by the Portfolio
when the Adviser believes that the financial condition of the
issuers of such obligations and the protection afforded by the

<PAGE>

terms of the obligations themselves limit the risk to the
Portfolio to a degree comparable to that of rated securities
which are consistent with the Portfolio's investment objectives
and policies. See "Certain Risk Considerations" for a discussion
of the risks associated with the Portfolio's investments in U.S.
and non-U.S. corporate fixed income securities.

INTEREST RATE TRANSACTIONS. The Portfolio may enter
into interest rate swaps and may purchase or sell interest rate
caps and floors. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its
forecasts of market values, interest rates and other applicable
factors, the investment performance of the Portfolio would
diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the
Adviser is correct in its forecasts, there is a risk that the
swap position may correlate imperfectly with the price of the
asset or liability being hedged.

There is no limit on the amount of interest rate swap
transactions that may be entered into by the Portfolio. These
transactions do not involve the delivery of securities or other
underlying assets of principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount
of interest payments that the Portfolio is contractually
obligated to make. If the other party to an interest rate swap
defaults, the Portfolio's risk of loss consists of the net amount
of interests payments that the Portfolio contractually is
entitled to receive. The Portfolio may purchase and sell (i.e.,
write) caps and floors without limitation, subject to the
segregated account requirement described in the Prospectus under
"-- Other Investment Policies and Techniques -- Interest Rate
Transactions."

FORWARD COMMITMENTS. The Portfolio may enter into
forward commitments for the purchase or sale of securities. Such
transactions may include purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as
and if issued" trade).

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call options for cross-hedging purposes. There are no specific
limitations on the Fund's writing and purchasing of options.

The Portfolio may purchase or write options on
securities of the types in which it is permitted to invest in
privately negotiated (i.e., over-the-counter) transactions. 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 by
the Adviser, and the Adviser has adopted procedures for
monitoring the creditworthiness of such entities. Options
purchased or written by the Portfolio in negotiated transactions
are illiquid and it may not be possible for the Portfolio to
effect a closing transaction at a time when the Adviser believes
it would be advantageous to do so. See "Description of the Fund
- -- Additional Investment Policies and Practices -- Illiquid
Securities" in the Fund's Prospectus.

OPTIONS ON SECURITIES INDICES. The Portfolio may
purchase and sell exchange-traded index options on any securities
index composed of the types of securities in which it may invest.
An option on a securities index is similar to an option on a
security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of
the chosen index is greater than (in the case of a call) or less
than (in the case of a put) the exercise price of the option.
There are no specific limitations on the Portfolio's purchasing
and selling of options on securities indices.

Through the purchase of listed index options, the
Portfolio could achieve many of the same objectives as through
the use of options on individual securities. Price movements in
the Portfolio's portfolio securities probably will not correlate
perfectly with movements in the level of the index and,
therefore, the Portfolio would bear a risk of loss on index
options purchased by it if favorable price movements of the
hedged portfolio securities do not equal or exceed losses on the
options or if adverse price movements of the hedged portfolio
securities are greater than gains realized from the options.

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REPURCHASE AGREEMENTS. For information regarding
repurchase agreements, see "Other Investment Policies -
Repurchase Agreements," below.

ILLIQUID SECURITIES. the fund has adopted the following
investment policy which may be changed by the vote of the Board
of Directors.

The Portfolio will not invest in illiquid
securities if immediately after such investment more
than 15% of the Portfolio's net assets (taken at market
value) would be invested in such securities. For this
purpose, illiquid securities include, among others,
securities that are illiquid by virtue of the absence of
a readily available market or legal or contractual
restriction on resale.

For additional information regarding illiquid
securities, see "Other Investment Policies -- Illiquid
Securities," below.

INVESTMENT IN CLOSED-END INVESTMENT COMPANIES. The
Portfolio may invest in other investment companies whose
investment objectives and policies are consistent with those of
the Portfolio. In accordance with the 1940 Act, the Portfolio
may invest up to 10% of its assets in securities of other
investment companies. In addition, under the 1940 Act, the
Portfolio may not own more than 3% of the total outstanding
voting stock of any investment company and not more than 5% of
the Portfolio's total assets may be invested in the securities of
any investment company. If the Portfolio acquires shares in
investment companies, shareholders would bear both their
proportionate share of expenses in the Portfolio (including
advisory fees) and, indirectly, the expenses of such investment
companies (including management and advisory fees).

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of portfolio turnover involves correspondingly greater expenses
than a lower rate, which expenses must be borne by the Fund and
its shareholders. High portfolio turnover also may result in the
realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" and "Portfolio
Transactions."

CERTAIN RISK CONSIDERATIONS

RISKS OF FOREIGN INVESTMENTS. Foreign issuers are
subject to accounting and financial standards and requirements
that differ, in some cases significantly, from those applicable
to U.S. issuers. In particular, the assets and profits appearing
on the financial statements of a foreign issuer may not reflect
its financial position or results of operations in the way they
would be reflected had the financial statement been prepared in
accordance with U.S. generally accepted accounting principles.
In addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules in some of the countries in
which the Portfolio will invest require, for both tax and
accounting purposes, that certain assets and liabilities be
restated on the issuer's balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits.
Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the
real condition of those issuers and securities markets.
Substantially less information is publicly available abut certain
non-U.S. issuers than is available about U.S. issuers.

Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar
developments, such as military coups, have occurred in the past
in countries in which the Portfolio will invest and could
adversely affect the Portfolio's assets should these conditions
or events recur.

Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities and increase the costs and expenses of
the Portfolio. Certain countries in which the Portfolio will
invest require governmental approval prior to investments by
foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign
persons only to a specific class of securities of an issuer that
may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors.

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Certain countries other than those on which the
Portfolio will focus it investments may require governmental
approval for the repatriation of investment income, capital or
the proceeds of sales of securities by foreign investors. In
addition, if a deterioration occurs in a country's balance of
payments, the country could impose temporary restrictions on
foreign capital remittances. The Portfolio could be adversely
affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by
the application to the Portfolio of any restrictions on
investments. Investing in local markets may require the
portfolio to adopt special procedures, seek local governmental
approvals or take other actions, each of which may involve
additional costs to the Portfolio.

Income from certain investments held by the Portfolio
could be reduced by foreign income taxes, including withholding
taxes. It is impossible to determine the effective rate of
foreign tax in advance. The Portfolio's net asset value may also
be affected by changes in the rates or methods of taxation
applicable to the Portfolio or to entities in which the Portfolio
has invested. The Adviser generally will consider the cost of
any taxes in determining whether to acquire any particular
investments, but can provide no assurance that the tax treatment
of investments held by the Portfolio will not be subject to
change.

SOVEREIGN DEBT OBLIGATIONS. No established secondary
markets may exist for many of the Sovereign Debt Obligations in
which the Portfolio will invest. Reduced secondary market
liquidity may have an adverse effect on the market price and the
Portfolio's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to
specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market
liquidity for certain Sovereign Debt Obligations may also make it
more difficult for the Portfolio to obtain accurate market
quotations for purpose of valuing its portfolio. Market
quotations are generally available on many Sovereign Debt
Obligations only from a limited number of dealers and may not
necessarily represent firm bids of those dealers or prices for
actual sales.

By investing in Sovereign Debt Obligations, the
Portfolio will be exposed to the direct or indirect consequences
of political, social and economic changes in various countries.
Political changes in a country may affect the willingness of a
foreign government to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among
other things, in its inflation rate, the amount of its external

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debt and its gross domestic product, will also affect the
government's ability to honor its obligations.

Many countries providing investment opportunities for
the Portfolio have 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 adverse effects on the economies and securities markets
of certain of these countries. In an attempt to control
inflation, wage and price controls have been imposed in certain
countries.

Investing in Sovereign Debt Obligations involves
economic and political risks. The Sovereign Debt Obligations in
which the Portfolio will invest in most cases pertain to
countries that are among the world's largest debtors to
commercial banks, foreign governments, international financial
organizations and other financial institutions. In recent years,
the governments of some of these countries have encountered
difficulties in servicing their external debt obligations, which
led to defaults on certain obligations and the restructuring of
certain indebtedness. Restructuring arrangements have included,
among other things, reducing and rescheduling interest and
principal payments by negotiating new or amended credit
agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance
interest payments. Certain governments have not been able to
make payments of interest on or principal of Sovereign Debt
Obligations as those payments have come due. Obligations arising
from past restructuring agreements may affect the economic
performance and political and social stability of those issuers.

Central banks and other governmental authorities which
control the servicing of Sovereign Debt Obligations may not be
willing or able to permit the payment of the principal or
interest when due in accordance with the terms of the
obligations. As a result, the issuers of Sovereign Debt
Obligations may default on their obligations. Defaults on
certain Sovereign Debt Obligations have occurred in the past.
Holders of certain Sovereign Debt Obligations may be requested to
participate in the restructuring and rescheduling of these
obligations and to extend further loans to the issuers. The
interests of holders of Sovereign Debt Obligations could be
adversely affected in the course of restructuring arrangements or
by certain other factors referred to below. Furthermore, some of
the participants in the secondary market for Sovereign Debt
Obligations may also be directly involved in negotiating the
terms of these arrangements and may therefore have access to
information not available to other market participants.

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The ability of governments to make timely payments on
their obligations is likely to be influenced strongly by the
issuer's balance of payments, and its access to international
credits and investments. 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 those
commodities. Increased protectionism on the part of a country's
trading partners could also adversely affect the country's
exports and diminish its trade account surplus, if any. To the
extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected.

To the extent that a country develops a trade deficit,
it will need to depend on continuing loans from foreign
governments, multilateral organizations or private commercial
banks, aid payments from foreign governments and on inflows of
foreign investment. The access of a country to these forms of
external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of a government to
make payments on its obligations. In addition, the cost of
servicing debt obligations can be affected by a change in
international interest rates since the majority of these
obligations carry interest rates that are adjusted periodically
based upon international rates.

Another factor bearing on the ability of a country to
repay Sovereign Debt Obligations is the level of the country's
international reserves. Fluctuations in the level of these
reserves can affect the amount of foreign exchange readily
available for external debt payments and, thus, could have a
bearing on the capacity of the country to make payments in its
Sovereign Debt Obligations.

The Portfolio is permitted to invest in Sovereign Debt
Obligations that are not current in the payment of interest or
principal or are in default, so long as the Adviser believes it
to be consistent with the Portfolio's investment objectives. The
Portfolio may have limited legal recourse in the event of a
default with respect to certain Sovereign Debt Obligations it
holds. For example, remedies from defaults on certain Sovereign
Debt Obligations, unlike those on private debt, must, in some
cases, be pursued in the courts of the defaulting party itself.
Legal recourse therefore may be significantly diminished.
Bankruptcy, moratorium and other similar laws applicable to
issuers of Sovereign Debt Obligations may be substantially
different from those applicable to issuers of private debt
obligations. The political context, expressed as the willingness
of an issuer of Sovereign Debt Obligations to meet the terms of
the debt obligation, for example, is of considerable importance.
In addition, no assurance can be given that the holders of

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commercial bank debt will not contest payments to the holders of
securities issued by foreign governments in the event of default
under commercial bank loan agreements.

U.S. CORPORATE FIXED INCOME SECURITIES. The U.S.
corporate fixed income securities in which the Portfolio will
invest may include securities issued in connection with corporate
restructurings such as takeovers or leveraged buyouts, which may
pose particular risks. Securities issued to finance corporate
restructuring may have special credit risks due to the highly
leveraged conditions of the issuer. In addition, such issuers
may lose experienced management as a result of the restructuring.
Finally, the market price of such securities may be more volatile
to the extent that expected benefits from the restructuring do
not materialize. The Portfolio may also invest in U.S. corporate
fixed income securities that are not current in the payment of
interest or principal or are in default, so long as the Adviser
believes such investment is consistent with the Portfolio's
investment objectives. The Portfolio's rights with respect to
defaults on such securities will be subject to applicable U.S.
bankruptcy, moratorium and other similar laws.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Global Dollar Government Portfolio,
supplement those set forth above and in the Prospectus, and may
not be changed without Shareholder Approval, as defined under the
caption "General Information," below.

The Portfolio may not:

2. Invest in companies for the purpose of
exercising control;

3. Make short sales of securities or maintain a
short position, unless at all times when a short
position is open it owns an equal amount of such
securities or securities convertible into or
exchangeable for, without payment of any further
consideration, securities of the same issue as, and
equal in amount to, the securities sold short ("short
sales against the box"), and unless not more than 10% of
the Portfolio's net assets (taken at market value) is
held as collateral for such sales at any one time (it
being the Portfolio's present intention to make such
sales only for the purpose of deferring realization of
gain or loss for federal income tax purposes); or

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4. (i) Purchase or sell real estate, except that
it may purchase and sell securities of companies which
deal in real estate or interests therein and securities
that are secured by real estate, provided such
securities are securities of the type in which the
Portfolio may invest; (ii) purchase or sell commodities
or commodity contracts, including futures contracts
(except forward commitment contracts or contracts for
the future acquisition or delivery of debt securities);
(iii) invest in interests in oil, gas, or other mineral
exploration or development programs; (iv) purchase
securities on margin, except for such short-term credits
as may be necessary for the clearance of transactions;
and (v) act as an underwriter of securities, except that
the Portfolio may acquire restricted securities under
circumstances in which, if such securities were sold,
the Portfolio might be deemed to be an underwriter for
purposes of the Securities Act.

UTILITY INCOME PORTFOLIO

GENERAL. The objective of the Utility Income Portfolio
is to seek current income and capital appreciation by investing
primarily in equity and fixed-income securities of companies in
the utilities industry. The Portfolio may invest in securities
of both United States and foreign issuers, although no more than
15% of the Portfolio's total assets will be invested in issuers
of any one foreign country. The utilities industry consists of
companies engaged in (i) the manufacture, production, generation,
provision, transmission, sale and distribution of gas and
electric energy, and communications equipment and services,
including telephone, telegraph, satellite, microwave and other
companies providing communication facilities for the public, or
(ii) the provision of other utility or utility related goods and
services, including, but not limited to, entities engaged in
water provision, cogeneration, waste disposal system provision,
solid waste electric generation, independent power producers and
non-utility generators. As a matter of fundamental policy, the
Portfolio will, under normal circumstances, invest at least 65%
of the value of its total assets in securities of companies in
the utilities industry. The Portfolio considers a company to be
in the utilities industry if, during the most recent twelve month
period, at least 50% of the company's gross revenues, on a
consolidated basis, is derived from the utilities industry. At
least 65% of the Portfolio's total assets are to be invested in
income-producing securities.

The Portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical
performance of securities of utilities companies. Many of these
companies have established a reputation for paying regular

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quarterly dividends and for increasing their common stock
dividends over time. In evaluating particular issuers, the
Adviser will consider a number of factors, including historical
growth rates and rates of return on capital, financial condition
and resources, management skills and such industry factors as
regulatory environment and energy sources. With respect to
investments in equity securities, the Adviser will consider the
prospective growth in earnings and dividends in relation to
price/earnings ratios, yield and risk. The Adviser believes that
above-average dividend returns and below-average price/earnings
ratios are factors that not only provide current income but also
generally tend to moderate risk and to afford opportunity for
appreciation of securities owned by the Portfolio.

The Portfolio will invest in equity securities, such as
common stocks, securities convertible into common stocks and
rights and warrants to subscribe for the purchase of common
stocks and in fixed-income securities, such as bonds and
preferred stocks. The Portfolio may vary the percentage of
assets invested in any one type of security based upon the
Adviser's evaluation as to the appropriate portfolio structure
for achieving the Portfolio's investment objective under
prevailing market, economic and financial conditions. Certain
securities (such as fixed-income securities) will be selected on
the basis of their current yield, while other securities may be
purchased for their growth potential.

INVESTMENT POLICIES

CONVERTIBLE SECURITIES. Convertible securities include
bonds, debentures, corporate notes and preferred stocks that are
convertible at a stated exchange rate into common stock. Prior
to their conversion, convertible securities have the same general
characteristics as non-convertible debt securities which provide
a stable stream of income with generally higher yields than those
of equity securities of the same or similar issuers. As with all
debt securities, the market value of convertible securities tends
to decline as interest rates increase and, conversely, to
increase as interest rates decline. While convertible securities
generally offer lower interest or dividend yields than non-
convertible debt securities of similar quality, they do enable
the investor to benefit from increases in the market price of the
underlying common stock. When the market price of the common
stock underlying a convertible security increases, the price of
the convertible security increasingly reflects the value of the
underlying common stock and may rise accordingly. As the market
price of the underlying common stock declines, the convertible
security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common
stock. Convertible securities rank senior to common stocks on an
issuer's capital structure. They are consequently of higher

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quality and entail less risk than the issuer's common stock,
although the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security
sells above its value as a fixed income security. The Portfolio
may invest up to 30% of its net assets in the convertible
securities of companies whose common stocks are eligible for
purchase by the Portfolio under the investment policies described
above and in the Prospectus.

RIGHTS OR WARRANTS. The Portfolio may invest up to 5%
of its net assets in rights or warrants which entitle the holder
to buy equity securities at a specific price for a specific
period of time, but will do so only if the equity securities
themselves are deemed appropriate by the Adviser for inclusion in
the Portfolio's investment portfolio. Rights and warrants may be
considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or
voting rights with respect to the securities which may be
purchased nor do they represent any rights in the assets of the
issuing company. Also, the value of a right or warrant does not
necessarily change with the value of the underlying securities
and a right or warrant ceases to have value if it is not
exercised prior to the expiration date.

U.S. GOVERNMENT SECURITIES. For a general description
of obligations issued or guaranteed by U.S. Government agencies
or instrumentalities, see Appendix B.

OPTIONS. For additional information on the use, risks
and costs of options, see Appendix D.

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hedged portfolio securities do not equal or exceed losses on the
options or if adverse price movements of the hedged portfolio
securities are greater than gains realized from the options.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. For
a discussion regarding futures contracts and options on futures
contracts, see "North American Government Income Portfolio --
Futures Contracts and Options on Futures Contracts," above.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix C.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix C.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The
Portfolio may purchase or sell forward foreign currency exchange
contracts ("forward contracts"). For a discussion regarding
forward foreign currency exchange contracts, see "North American
Government Income Portfolio -- Forward Foreign Currency Exchange
Contracts," above.

ILLIQUID SECURITIES. The Fund has adopted the following
investment policy on behalf of the Portfolio which may be changed
by the vote of the Board of Directors. The Portfolio will not
invest in illiquid securities if immediately after such
investment more than 15% of the Portfolio's net assets (taken at
market value) would be invested in such securities. For this
purpose, illiquid securities include, among others, securities
that are illiquid by virtue of the absence of a readily available
market or legal or contractual restriction on resale. See "Other
Investment Policies -- Illiquid Securities," below, for a more
detailed discussion of the Portfolio's investment policy on
restricted securities and securities with legal or contractual
restrictions on resale.

INVESTMENT IN CLOSED-END INVESTMENT COMPANIES. The
Portfolio may invest in closed-end companies whose investment
objectives and policies are consistent with those of the
Portfolio. The Portfolio may invest up to 5% of its net assets in
securities of closed-end investment companies. However, the
Portfolio may not own more than 3% of the total outstanding
voting stock of any closed-end investment company. If the

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Portfolio acquires shares in closed-end investment companies,
shareholders would bear both their proportionate share of
expenses in the Portfolio (including advisory fees) and,
indirectly, the expenses of such investment companies (including
management and advisory fees).

PORTFOLIO TURNOVER. The Portfolio may engage in active
short-term trading in connection with its investment in shorter-
term fixed-income securities in order to benefit from yield
disparities among different issues of securities, to seek short-
term profits during periods of fluctuating interest rates, or for
other reasons. Such trading will increase the Portfolio's rate
of turnover and the incidence of short-term capital gain taxable
as ordinary income. It is anticipated that the Portfolio's
annual turnover rate will not exceed 200%. The portfolio
turnover rate of the securities of the Portfolio for the fiscal
period ended December 31, 1994 was 31%. An annual turnover rate
of 200% occurs, for example, when all of the securities in the
Portfolio's portfolio are replaced twice in a period of one year.
A portfolio turnover rate approximating 200% involves
correspondingly greater brokerage commissions than would a lower
rate, which expenses must be borne by the Portfolio and its
shareholders and may result in the Portfolio realizing most
short-term capital gains or losses than would a lower rate. See
"Dividends, Distributions and Taxes."

CERTAIN RISK CONSIDERATIONS

UTILITY COMPANY RISKS. Utility companies may be subject
to a variety of risks depending, in part, on such factors as the
type of utility involved and its geographic location. The
revenues of domestic and foreign utilities companies generally
reflect the economic growth and development in the geographic
areas in which they do business. The Adviser will take into
account anticipated economic growth rates and other economic
developments when selecting securities of utility companies. Some
of the risks involved in investing in the principal sectors of
the utilities industry are discussed below.

Telecommunications regulation typically limits rates
charged, returns earned, providers of services, types of
services, ownership, areas served and terms for dealing with
competitors and customers. Telecommunications regulation
generally has tended to be less stringent for newer services,
such as mobile services, than for traditional telephone service,
although there can be no assurances that such newer services will
not be heavily regulated in the future. Regulation may limit
rates based on an authorized level of earnings, a price index, or
some other formula. Telephone rate regulation may include

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government-mandated cross-subsidies that limit the flexibility of
existing service providers to respond to competition. Regulation
may also limit the use of new technologies and hamper efficient
depreciation of existing assets. If regulation limits the use of
new technologies by established carriers or forces cross-
subsidies, large private networks may emerge.

Many gas utilities generally have been adversely
affected by oversupply conditions, and by increased competition
from other providers of utility services. In addition, some gas
utilities entered into long-term contracts with respect to the
purchase or sale of gas at fixed prices, which prices have since
changed significantly in the open market. In many cases, such
price changes have been to the disadvantage of the gas utility.
Gas utilities are particularly susceptible to supply and demand
imbalances due to unpredictable climate conditions and other
factors and are subject to regulatory risks as well.

Electric utilities that utilize coal in connection with
the production of electric power are particularly susceptible to
environmental regulation, including the requirements of the
federal Clean Air Act and of similar state laws. Such regulation
may necessitate large capital expenditures in order for the
utility to achieve compliance. Due to the public, regulatory and
governmental concern with the cost and safety of nuclear power
facilities in general, certain electric utilities with
uncompleted nuclear power facilities may have problems completing
and licensing such facilities. Regulatory changes with respect
to nuclear and conventionally fueled generating facilities could
increase costs or impair the ability of such electric utilities
to operate such facilities, thus reducing their ability to
service dividend payments with respect to the securities they
issue. Electric utilities that utilize nuclear power facilities
must apply for recommissioning from the Nuclear Regulatory
Commission after 40 years. Failure to obtain recommissioning
could result in an interruption of service or the need to
purchase more expensive power from other entities and could
subject the utility to significant capital construction costs in
connection with building new nuclear or alternative-fuel power
facilities, upgrading existing facilities or converting such
facilities to alternative fuels.

INVESTMENTS IN LOWER-RATED FIXED-INCOME SECURITIES.
Adverse publicity and investor perceptions about lower-rated
securities, whether or not based on fundamental analysis, may
tend to decrease the market value and liquidity of such lower-
rated securities. The Adviser will try to reduce the risk
inherent in investment in lower-rated securities through credit
analysis, diversification and attention to current developments
and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will

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not occur. Since the risk of default is higher for lower-rated
securities, the Adviser's research and credit analysis are a
correspondingly important aspect of its program for managing the
Portfolio's securities than would be the case if the Portfolio
did not invest in lower-rated securities. In considering
investments for the Portfolio, the Adviser will attempt to
identify those high-risk, high-yield securities whose financial
condition is adequate to meet future obligations, has improved or
is expected to improve in the future. The Adviser's analysis
focuses on relative values based on such factors as interest or
dividend coverage, asset coverage earnings prospects, and the
experience and managerial strength of the issuer.

Non-rated securities will also be considered for
investment by the Portfolio when the Adviser believes that the
financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves,
limits the risk to the Portfolio to a degree comparable to that
of rated securities which are consistent with the Portfolio's
objective and policies.

In seeking to achieve the Portfolio's objective, there
will be times, such as during periods of rising interest rates,
when depreciation and realization of capital losses on securities
in the portfolio will be unavoidable. Moreover, medium- and
lower- rated securities and non-rated securities of comparable
quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do
not affect the cash income received from that security but are
reflected in the net asset value of the Portfolio.

INVESTMENT RESTRICTIONS. The following restrictions
which are applicable to the Utility Income Portfolio, supplement
those set forth above and in the Prospectus, may not be changed
without Shareholder Approval, as defined under the caption
"General Information," below. The Portfolio may not:

(1) Make loans except through (i) the purchase of
debt obligations in accordance with its investment
objectives and policies; (ii) the lending of portfolio
securities; or (iii) the use of repurchase agreements;

(2) Participate on a joint or joint and several
basis in any securities trading account;

(3) Invest in companies for the purpose of
exercising control;

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(4) Issue any senior security within the meaning
of the Act except that the Portfolio may write put and
call options;

(5) Make short sales of securities or maintain a
short position, unless at all times when a short
position is open it owns an equal amount of such
securities or securities convertible into or
exchangeable for, without payment of any further
consideration, securities of the same issue as, and
equal in amount to, the securities sold short ("short
sales against the box"), and unless not more than 10% of
the Portfolio's net assets (taken at market value) is
held as collateral for such sales at any one time (it is
the Portfolio's present intention to make such sales
only for the purpose of deferring realization of gain or
loss for Federal income tax purposes); or

(6)(i) Purchase or sell real estate, except that it
may purchase and sell securities of companies which deal
in real estate or interests therein; (ii) purchase or
sell commodities or commodity contracts (except
currencies, futures contracts on currencies and related
options, forward contracts or contracts for the future
acquisition or delivery of securities and related
options, futures contracts and options on futures
contracts and options on futures contracts and other
similar contracts); (iii) invest in interests in oil,
gas, or other mineral exploration or development
programs; (iv) purchase securities on margin, except for
such short-term credits as may be necessary for the
clearance of transactions; and (v) act as an underwriter
of securities, except that the Portfolio may acquire
restricted securities under circumstances in which, if
such securities were sold, the Portfolio might be deemed
to be an underwriter for purposes of the Securities Act.

CONSERVATIVE INVESTORS PORTFOLIO
GROWTH INVESTORS PORTFOLIO
GROWTH PORTFOLIO

For a general description of the Portfolios' investment
policies, see the Fund's Prospectus.

REPURCHASE AGREEMENTS. Repurchase agreements are
agreements by which a Portfolio purchases a security and obtains
a simultaneous commitment from the seller to repurchase the
security at an agreed upon price and date. The resale price is
in excess of the purchase price and reflects an agreed upon

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market rate unrelated to the coupon rate on the purchased
security. The purchased security serves as collateral for the
obligation of the seller to repurchase the security and the value
of the purchased security is initially greater than or equal to
the amount of the repurchase obligation and the seller is
required to furnish additional collateral on a daily basis in
order to maintain with the purchaser securities with a value
greater than or equal to the amount of the repurchase obligation.
Such transactions afford the Portfolios the opportunity to earn a
return on temporarily available cash. While at times the
underlying security may be a bill, certificate of indebtedness,
note, or bond issued by an agency, authority or instrumentality
of the United States Government, the obligation of the seller is
not guaranteed by the U.S. Government and there is a risk that
the seller may fail to repurchase the underlying security,
whether because of the seller's bankruptcy or otherwise. In such
event, the Portfolios would attempt to exercise their rights with
respect to the underlying security, including possible
disposition in the market. However, the Portfolios may be
subject to various delays and risks of loss, including (a)
possible declines in the value of the underlying security during
the period while the Portfolios seek to enforce their rights
thereto, (b) possible reduced levels of income and lack of access
to income during this period and (c) inability to enforce rights
and the expenses involved in the attempted enforcement. The
Portfolios have established standards for the creditworthiness of
parties with which they may enter into repurchase agreements, and
those standards, as modified from time to time, will be
implemented and monitored by the Adviser.

NON-PUBLICLY TRADED SECURITIES. Each of the Portfolios
may invest in securities which are not publicly traded, including
securities sold pursuant to Rule 144A under the Securities Act of
1933 ("Rule 144A Securities"). The sale of these securities is
usually restricted under Federal securities laws, and market
quotations may not be readily available. As a result, a
Portfolio may not be able to sell these securities (other than
Rule 144A Securities) unless they are registered under applicable
Federal and state securities laws, or may have to sell such
securities at less than fair market value. Investment in these
securities is restricted to 5% of a Portfolio's total assets
(excluding, to the extent permitted by applicable law, Rule 144A
Securities) and is also subject to the restriction against
investing more than 15% of total 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 the liquidity
guidelines established by the Fund's Board of Directors.
Pursuant to these guidelines, the Adviser will monitor the
liquidity of a Portfolio's investment in Rule 144A Securities
and, in reaching liquidity decisions, will consider: (1) the

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frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to
make a market in the security; and (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and
the mechanics of the transfer).

Texas regulatory authorities have informed the Fund
that, as of the date of this Statement of Additional Information,
Texas securities laws preclude each of the Portfolios from
investing more than 15% of the value of its total assets in
illiquid securities which, under Texas law and/or regulatory
positions, include Rule 144A Securities; as a consequence, each
Portfolio will so limit its investments in Rule 144A Securities
until such time as Texas regulatory authorities permit additional
investments in Rule 144A Securities or there is a change in Texas
law.

FOREIGN SECURITIES. Each of the Portfolios, may invest
without limit in securities of foreign issuers which are not
publicly traded in the United States, although each of these
Portfolios generally will not invest more than 15% of its total
assets (30% in the case of the Growth Investors Portfolio) in
such securities. Investment in foreign issuers or securities
principally outside the United States may involve certain special
risks due to foreign economic, political, diplomatic and legal
developments, including favorable or unfavorable changes in
currency exchange rates, exchange control regulations (including
currency blockage), expropriation of assets or nationalization,
confiscatory taxation, imposition of withholding taxes on
dividend or interest payments, and possible difficulty in
obtaining and enforcing judgments against foreign entities.
Furthermore, issuers of foreign securities are subject to
different, often less comprehensive, accounting, reporting and
disclosure requirements than domestic issuers. The securities of
some foreign companies and foreign securities markets are less
liquid and at times more volatile than securities of comparable
U.S. companies and U.S. securities markets. Foreign brokerage
commissions and other fees are also generally higher than in the
United States. There are also special tax considerations which
apply to securities of foreign issuers and securities principally
traded overseas.

DESCRIPTION OF CERTAIN MONEY MARKET SECURITIES
IN WHICH THE PORTFOLIOS MAY INVEST

CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND BANK
TIME DEPOSITS. Certificates of deposit are receipts issued by a
bank in exchange for the deposit of funds. The issuer agrees to
pay the amount deposited plus interest to the bearer of the

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receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior
to maturity.

Bankers' acceptances typically arise from short-term
credit arrangements designed to enable businesses to obtain funds
to finance commercial transactions. Generally, an acceptance is
a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise.
The draft is then "accepted" by another bank that, in effect,
unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held
by the accepting bank as an earning asset or it may be sold in
the secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as
270 days, most maturities are six months or less.

Bank time deposits are funds kept on deposit with a bank
for a stated period of time in an interest bearing account. At
present, bank time deposits maturing in more than seven days are
not considered by the Adviser to be readily marketable.

COMMERCIAL PAPER. Commercial paper consists of short-
term (usually from 1 to 270 days) unsecured promissory notes
issued by entities in order to finance their current operations.

VARIABLE NOTES. Variable amounts master demand notes
and variable amount floating rate notes are obligations that
permit the investment of fluctuating amounts by a Portfolio at
varying rates of interest pursuant to direct arrangements between
a Portfolio, as lender, and the borrower. Master demand notes
permit daily fluctuations in the interest rate while the interest
rate under variable amount floating rate notes fluctuate on a
weekly basis. These notes permit daily changes in the amounts
borrowed. The Portfolios have the right to increase the amount
under these notes at any time up to the full amount provided by
the note agreement, or to decrease the amount, and the borrower
may repay up to the full amount of the notes without penalty.
Because these types of notes are direct lending arrangements
between the lender and the borrower, it is not generally
contemplated that such instruments will be traded and there is no
secondary market for these notes. Master demand notes are
redeemable (and, thus, immediately repayable by the borrower) at
face value, plus accrued interest, at any time. Variable amount
floating rate notes are subject to next-day redemption for 14
days after the initial investment therein. With both types of
notes, therefore, the Portfolios' right to redeem depends on the
ability of the borrower to pay principal and interest on demand.
In connection with both types of note arrangements, the
Portfolios consider earning power, cash flow and other liquidity
ratios of the issuer. These notes, as such, are not typically

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rated by credit rating agencies. Unless they are so rated, a
Portfolio may invest in them only if at the time of an investment
the issuer has an outstanding issue of unsecured debt rated Aa or
better by Moody's or AA or better by S&P.

A description of Moody's and S&P's short-term note
ratings is included as Appendix A to this Statement of Additional
Information.

ASSET-BACKED SECURITIES. The Conservative Investors
Portfolio and the Growth Investors Portfolio may invest in asset-
backed securities (unrelated to first mortgage loans) which
represent fractional interests in pools of retail installment
loans, leases or revolving credit receivables, both secured (such
as Certificates for Automobiles Receivables or "CARS") and
unsecured (such as Credit Care Receivables Securities or
"CARDS"). These assets are generally held by a trust and
payments of principal and interest or interest only are passed
through monthly or quarterly to certificate holders and may be
guaranteed up to certain amounts by letters of credit issued by a
financial institution affiliated or unaffiliated with the trustee
or originator of the trust.

Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card receivables
are subject to prepayment, which may reduce the overall return to
certificate holders. Nevertheless, principal repayment rates
tend not to vary too much with interest rates, and the short-term
nature of the underlying car loans or receivables tends to dampen
the impact of any change in the prepayment level. Certificate
holders may also experience delays in payment if the full amounts
due on underlying sales contracts or receivables are not realized
by the trust holding the obligations because of unanticipated
legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If
consistent with their investment objectives and policies, the
Portfolios may invest in other asset-backed securities that may
be developed in the future.

The staff of the Commission is of the view that certain
asset-backed securities may constitute investment companies under
the 1940 Act. The Portfolios intend to conduct their operations
in a manner consistent with this view, and therefore they
generally may not invest more than 10% of their total assets in
such securities without obtaining appropriate regulatory relief.

LENDING OF SECURITIES. Each Portfolio may seek to
increase its income by lending portfolio securities. Under
present regulatory policies, including those of the Board of
Governors of the Federal Reserve System and the Commission, such

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loans may be made only to member firms of the New York Stock
Exchange and would be required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Treasury Bills
maintained on a current basis at an amount at least equal to the
market value of the securities loaned. A Portfolio would have
the right to call a loan and obtain the securities loaned at any
time on five days' notice. During the existence of a loan, a
Portfolio would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned
and would also receive compensation based on investment of the
collateral. A Portfolio would not, however, have the right to
vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving
or withholding of their consent on a material matter affecting
the investment. As with other extensions of credit there are
risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the
judgment of the Adviser, the consideration which can be earned
currently from securities loans of this type justifies the
attendant risk. If the Adviser determines to make securities
loans, it is not intended that the value of the securities loaned
would exceed 25% of the value of a Portfolio's total assets.

FORWARD COMMITMENTS AND WHEN-ISSUED AND DELAYED DELIVERY
SECURITIES. Each of the Portfolios may enter into forward
commitments for the purchase of securities and may purchase
securities on a "when-issued" or "delayed delivery" basis.
Agreements for such purchases might be entered into, for example,
when a Portfolio anticipates a decline in interest rates and is
able to obtain a more advantageous yield by committing currently
to purchase securities to be issued later. When a Portfolio
purchases securities in this manner (i.e., on a forward
commitment, when-issued or delayed delivery basis), it does not
pay for the securities until they are received, and a Portfolio
is required to create a segregated account with the Portfolio's
custodian and to maintain in that account cash, U.S. Government
securities or other liquid high-grade debt obligations in an
amount equal to or greater than, on a daily basis, the amount of
the Portfolio's forward commitments and when-issued or-delayed
delivery commitments.

A Portfolio will enter into forward commitments and make
commitments to purchase securities on a when-issued or delayed
delivery basis only with the intention of actually acquiring the
securities. However, a Portfolio may sell these securities
before the settlement date if it is deemed advisable as a matter
of investment strategy.

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Although none of the Portfolios intends to make such
purchases for speculative purposes and each Portfolio intends to
adhere to the provisions of policies of the Commission, purchases
of securities on such bases may involve more risk than other
types of purchases. For example, by committing to purchase
securities in the future, a Portfolio subjects itself to a risk
of loss on such commitments as well as on its portfolio
securities. Also, a Portfolio may have to sell assets which have
been set aside in order to meet redemptions. In addition, if a
Portfolio determines it is advisable as a matter of investment
strategy to sell the forward commitment or "when-issued" or
"delayed delivery" securities before delivery, that Portfolio may
incur a gain or loss because of market fluctuations since the
time the commitment to purchase such securities was made. Any
such gain or loss would be treated as a capital gain or loss and
would be treated for tax purposes as such. When the time comes to
pay for the securities to be purchased under a forward commitment
or on a "when-issued" or "delayed delivery" basis, a Portfolio
will meet its obligations from the then available cash flow or
the sale of securities, or, although it would not normally expect
to do so, from the sale of the forward commitment or "when-
issued" or "delayed delivery" securities themselves (which may
have a value greater or less than a Portfolio's payment
obligation).

OPTIONS. As noted in the Prospectuses, each of the
Portfolios may write call and put options and may purchase call
and put options on securities. Each Portfolio intends to write
only covered options. This means that so long as a Portfolio is
obligated as the writer of a call option, it will own the
underlying securities subject to the option or securities
convertible into such securities without additional consideration
(or for additional cash consideration held in a segregated
account by the Custodian). In the case of call options on U.S.
Treasury Bills, a Portfolio might own U.S. Treasury Bills of a
different series from those underlying the call option, but with
a principal amount and value corresponding to the option contract
amount and a maturity date no later than that of the securities
deliverable under the call option. A Portfolio will be
considered "covered" with respect to a put option it writes, if,
so long as it is obligated as the writer of a put option, it
deposits and maintains with its custodian in a segregated account
cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the exercise
price of the option.

Effecting a closing transaction in the case of a written
call option will permit a Portfolio to write another call option
on the underlying security with either a different exercise price
or expiration date or both, or in the case of a written put
option will permit a Portfolio to write another put option to the

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extent that the exercise price thereof is secured by deposited
cash or short-term securities. Such transactions permit a
Portfolio to generate additional premium income, which will
partially offset declines in the value of portfolio securities or
increases in the cost of securities to be acquired. Also,
effecting a closing transaction will permit the cash or proceeds
from the concurrent sale of any securities subject to the option
to be used for other investments by a Portfolio, provided that
another option on such security is not written. If a Portfolio
desires to sell a particular security from its portfolio on which
it has written a call option, it will effect a closing
transaction in connection with the option prior to or concurrent
with the sale of the security.

A Portfolio will realize a profit from a closing
transaction if the premium paid in connection with the closing of
an option written by the Portfolio is less than the premium
received from writing the option, or if the premium received in
connection with the closing of an option purchased by the
Portfolio is more than the premium paid for the original
purchase. Conversely, a Portfolio will suffer a loss if the
premium paid or received in connection with a closing transaction
is more or less, respectively, than the premium received or paid
in establishing the option position. Because increases in the
market price of a call option will generally reflect increases in
the market price o the underlying security, any loss resulting
from the repurchase of a call option previously written by a
Portfolio is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Portfolio

A Portfolio may purchase a security and then write a
call option against that security or may purchase a security and
concurrently write an option on it. The exercise price of the
call a Portfolio determines to write will depend upon the
expected price movement of the underlying security. The exercise
price of a call option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value
of the underlying security at the time the option is written.
In-the-money call options may be used when it is expected that
the price of the underlying security will decline moderately
during the option period. Out-of-the-money call options may be
written when it is expected that the premiums received from
writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such
transactions, a Portfolio's maximum gain will be the premium
received by it for writing the option, adjusted upwards or
downwards by the difference between the Portfolio's purchase
price of the security and the exercise price. If the options are
not exercised and the price of the underlying security declines,

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the amount of such decline will be offset in part, or entirely,
by the premium received.

The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and a Portfolio's gain will be limited to the premium received.
If the market price of the underlying security declines or
otherwise is below the exercise price, a Portfolio may elect to
close the position or retain the option until it is exercised, at
which time the Portfolio will be required to take delivery of the
security at the exercise price; the Portfolio's return will be
the premium received from the put option minus the amount by
which the market price of the security is below the exercise
price, which could result in a loss. Out-of-the-money put
options may be written when it is expected that the price of the
underlying security will decline moderately during the option
period. In-the-money put options may be used when it is expected
that the premiums received from writing the put option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone.

Each of the Portfolios may also write combinations of
put and call options on the same security, known as "straddles,"
with the same exercise and expiration date. By writing a
straddle, a Portfolio undertakes a simultaneous obligation to
sell and purchase the same security in the event that one of the
options is exercised. If the price of the security subsequently
rises above the exercise price, the call will likely be exercised
and the Portfolio will be required to sell the underlying
security at a below market price. This loss may be offset,
however, in whole or part, by the premiums received on the
writing of the two options. Conversely, if the price of the
security declines by a sufficient amount, the put will likely be
exercised. The writing of straddles will likely be effective,
therefore, only where the price of the security remains stable
and neither the call nor the put is exercised. In those
instances where one of the options is exercised, the loss on the
purchase or sale of the underlying security may exceed the amount
of the premiums received.

By writing a call option, a Portfolio limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option.
By writing a put option, a Portfolio assumes the risk that it may
be required to purchase the underlying security for an exercise
price above its then current market value, resulting in a capital
loss unless the security subsequently appreciates in value.
Where options are written for hedging purposes, such transactions

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constitute only a partial hedge against declines in the value of
portfolio securities or against increases in the value of
securities to be acquired, up to the amount of the premium.

Each of the above Portfolios may purchase put options to
hedge against a decline in the value of portfolio securities. If
such decline occurs, the put options will permit the Portfolio to
sell the securities at the exercise price, or to close out the
options at a profit. By using put options in this way, a
Portfolio will reduce any profit it might otherwise have realized
in the underlying security by the amount of the premium paid for
the put option and by transaction costs.

A Portfolio may purchase call options to hedge against
an increase in the price of securities that the Portfolio
anticipates purchasing in the future. If such increase occurs,
the call option will permit the Portfolio to purchase the
securities at the exercise price, or to close out the options at
a profit. The premium paid for the call option plus any
transaction costs will reduce the benefit, if any, realized by a
Portfolio upon exercise of the option, and, unless the price of
the underlying security rises sufficiently, the option may expire
worthless to the Portfolio and the Portfolio will suffer a loss
on the transaction to the extent of the premium paid.

OPTIONS ON SECURITIES INDEXES. Each of the Portfolios
may write (sell) covered call and put options on securities
indexes and purchase call and put options on securities indexes.
A call option on a securities index is considered covered if, so
long as a Portfolio is obligated as the writer of the call, the
Portfolio holds in its portfolio securities the price changes of
which are, in the option of the Adviser, expected to replicate
substantially the movement of the index or indexes upon which the
options written by the Portfolio are based. A put on a
securities index written by a Portfolio will be considered
covered if, so long as it is obligated as the writer of the put,
the Portfolio segregates with its custodian cash, U.S. Government
securities or other liquid high-grade debt obligations having a
value equal to or greater than the exercise price of the option.

A Portfolio may also purchase put options on securities
indexes to hedge its investments against a decline in value. By
purchasing a put option on a securities index, a Portfolio will
seek to offset a decline in the value of securities it owns
through appreciation of the put option. If the value of a
Portfolio's investments does not decline as anticipated, or if
the value of the option does not increase, the Portfolio's loss
will be limited to the premium paid for the option. The success
of this strategy will largely depend on the accuracy of the
correlation between the changes in value of the index and the
changes in value of a Portfolio's security holdings.

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The purchase of call options on securities indexes may
be used by a Portfolio to attempt to reduce the risk of missing a
broad market advance, or an advance in an industry or market
segment, at a time when the Portfolio holds uninvested cash or
short-term debt securities awaiting investment. When purchasing
call options for this purpose, a Portfolio will also bear the
risk of losing all or a portion of the premium paid if the value
of the index does not rise. The purchase of call options on
stock indexes when a Portfolio is substantially fully invested is
a form of leverage, up to the amount of the premium and related
transaction costs, and involves risks of loss and of increased
volatility similar to those involved in purchasing calls on
securities the Portfolio owns.

FUTURES CONTRACTS AND OPTIONS ON FUTURE CONTRACTS. Each
of the Conservative Investors Portfolio and the Growth Investors
Portfolio may enter into interest rate futures contracts. In
addition, each of the Conservative Investors Portfolio, the
Growth Investors Portfolio and the Growth Portfolio may enter
into stock futures contracts, and each of these Portfolios may
enter into foreign currency futures contracts. (Unless otherwise
specified, interest rate futures contracts, stock index futures
contracts and foreign currency futures contracts are collectively
referred to as "Futures Contracts.") Such investment strategies
will be used as a hedge and not for speculation.

Purchases or sales of stock or bond index futures
contracts are used for hedging purposes to attempt to protect a
Portfolio's current or intended investments from broad
fluctuations in stock or bond prices. For example, a Portfolio
may sell stock or bond index futures contracts in anticipation of
or during a market decline to attempt to offset the decrease in
market value of the Portfolio's securities portfolio that might
otherwise result. If such decline occurs, the loss in value of
portfolio securities may be offset, in whole or part, by gains on
the futures position. When a Portfolio is not fully invested in
the securities market and anticipates a significant market
advance, it may purchase stock or bond index futures contracts in
order to gain rapid market exposure that may, in part or
entirely, offset increases in the cost of securities that the
Portfolio intends to purchase. As such purchases are made, the
corresponding positions in stock or bond index futures contracts
will be closed out. Each of the Conservative Investors
Portfolio, the Growth Investors Portfolio and the Growth
Portfolio generally intends to purchase such securities upon
termination of the futures position, but under unusual market
conditions a long futures position may be terminated without a
related purchase of securities.

Interest rate futures contracts are purchased or sold
for hedging purposes to attempt to protect against the effects of

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interest rate changes on a Portfolio's current or intended
investments in fixed income securities. For example, if a
Portfolio owned long-term bonds and interest rates were expected
to increase, that Portfolio might sell interest rate futures
contracts. Such a sale would have much the same effect as
selling some of the long-term bonds in that Portfolio's
portfolio. However, since the futures market is more liquid than
the cash market, the use of interest rate futures contracts as a
hedging technique allows a Portfolio to hedge its interest rate
risk without having to sell its portfolio securities. If
interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of that Portfolio's
interest rate futures contracts would be expected to increase at
approximately the same rate, thereby keeping the net asset value
of that Portfolio from declining as much as it otherwise would
have. On the other hand, if interest rates were expected to
decline, interest rate futures contracts could be purchased to
hedge in anticipation of subsequent purchases of long-term bonds
at higher prices. Because the fluctuations in the value of the
interest rate futures contracts should be similar to those of
long-term bonds, a Portfolio could protect itself against the
effects of the anticipated rise in the value of long-term bonds
without actually buying them until the necessary cash became
available or the market had stabilized. At that time, the
interest rate futures contracts could be liquidated and that
Portfolio's cash reserves could then be used to buy long-term
bonds on the cash market.

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

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

The Portfolios may also engage in currency "cross
hedging" when, in the opinion of the Adviser, the historical
relationship among foreign currencies suggests that a Portfolio
may achieve protection against fluctuations in currency exchange
rates similar to that described above at a reduced cost through
the use of a futures contract relating to a currency other than
the U.S. dollar or the currency in which the foreign security is
denominated. Such "cross hedging" is subject to the same risk as
those described above with respect to an unanticipated increase
or decline in the value of the subject currency relative to the
dollar.

Each of the Conservative Investors Portfolio and the
Growth Investors Portfolio may purchase and write options on
interest rate futures contracts. In addition, each of the
Growth Portfolio, the Conservative Investors Portfolio and the
Growth Investors Portfolio may purchase and write options on
stock index futures contracts. The Growth Portfolio, the
Conservative Investors Portfolio and the Growth Investors
Portfolio may purchase and write options on foreign currency
futures contracts. (Unless otherwise specified, options on
interest rate futures contracts, options on securities index
futures contracts and options on foreign currency futures
contracts are collectively referred to as "Options on Futures
Contracts.")

The writing of a call option on a Futures Contract
constitutes a partial hedge against declining prices of the
securities in the Portfolio's portfolio. If the futures price at
expiration of the option is below the exercise price, a Portfolio
will retain the full amount of the option premium, which provides
a partial hedge against any decline that may have occurred in the
Portfolio's portfolio holdings. The writing of a put option on a
Futures Contract constitutes a partial hedge against increasing
prices of the securities or other instruments required to be
delivered under the terms of the Futures Contract. If the
futures price at expiration of the put option is higher than the
exercise price, a Portfolio will retain the full amount of the
option premium, which provides a partial hedge against any

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increase in the price of securities which the Portfolio intends
to purchase. If a put or call option a Portfolio has written is
exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options on
futures positions, a Portfolio's losses from exercised options on
futures may to some extent be reduced or increased by changes in
the value of portfolio securities.

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

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each of
the Portfolios and the Growth Investors Portfolio may enter into
forward foreign currency exchange contracts ("Forward Contracts")
to attempt to minimize the risk to the Portfolio from adverse
changes in the relationship between the U.S. dollar and foreign
currencies. The Portfolios intend to enter into Forward
Contracts for hedging purposes similar to those described above
in connection with their transactions in foreign currency futures
contracts. In particular, a Forward Contract to sell a currency
may be entered into in lieu of the sale of a foreign currency
futures contract where a Portfolio seeks to protect against an
anticipated increase in the exchange rate for a specific currency
which could reduce the dollar value of portfolio securities
denominated in such currency. Conversely, a Portfolio may enter
into a Forward Contract to purchase a given currency to protect
against a projected increase in the dollar value of securities
denominated in such currency which the Portfolio intends to
acquire. A Portfolio also may enter into a Forward Contract in

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order to assure itself of a predetermined exchange rate in
connection with a fixed income security denominated in a foreign
currency. The Portfolios may engage in currency "cross hedging"
when, in the opinion of the Adviser, the historical relationship
among foreign currencies suggests that a Portfolio may achieve
the same protection for a foreign security at a reduced cost
through the use of a Forward Contract relating to a currency
other than the U.S. dollar or the foreign currency in which the
security is denominated.

If a hedging transaction in Forward Contracts is
successful, the decline in the value of portfolio securities or
the increase in the cost of securities to be acquired may be
offset, at least in part, by profits on the Forward Contract.
Nevertheless, by entering into such Forward Contracts, a
Portfolio may be required to forego all or a portion of the
benefits which otherwise could have been obtained from favorable
movements in exchange rates. The Portfolios do not presently
intend to hold Forward Contracts entered into until maturity, at
which time they would be required to deliver or accept delivery
of the underlying currency, but will seek in most instances to
close out positions in such contracts by entering into offsetting
transactions, which will serve to fix a Portfolio's profit or
loss based upon the value of the Contracts at the time the
offsetting transaction is executed.

Each Portfolio has established procedures consistent
with SEC policies concerning purchases of foreign currency
through Forward Contracts. Since those policies currently
recommend that an amount of a Portfolio's assets equal to the
amount of the purchase be held aside or segregated to be used to
pay for the commitment, a Portfolio will always have cash, U.S.
Government securities or other liquid equivalents or high-grade
debt securities available sufficient to cover any commitments
under these contracts or to limit any potential risk.

OPTIONS ON FOREIGN CURRENCIES. Each of the Portfolios
may purchase and write options on foreign currencies for hedging
purposes. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated
will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to
protect against such diminutions in the value of portfolio
securities, these Portfolios may purchase put options on the
foreign currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part,
the adverse effect on its portfolio which otherwise would have
resulted.

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Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, these
Portfolios may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to a Portfolio deriving
from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, a Portfolio could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.

Each of the Portfolios may write options on foreign
currencies for the same types of hedging purposes or to increase
return. For example, where the Portfolio anticipates a decline
in the dollar value of foreign-denominated securities due to
adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio
securities will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, a Portfolio could write a put option on the
relevant currency, which, if rates move in the manner projected,
will expire unexercised and allow the Portfolio to hedge such
increased cost up to the amount of the premium. As in the case
of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the
amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised
and the Portfolio will be required to purchase or sell the
underlying currency at a loss which may not be offset by the
amount of the premium. Through the writing of options on foreign
currencies, a Portfolio also may be required to forego all or a
portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.

RISK FACTORS IN OPTIONS FUTURES AND FORWARD
TRANSACTIONS. The Portfolios' abilities effectively to hedge all
or a portion of their portfolios through transactions in options,
Futures Contracts, Options on Futures Contracts, Forward
Contracts and options on foreign currencies-depend on the degree
to which price movements in the underlying index or instrument
correlate with price movements in the relevant portion of the
Portfolios' portfolios or securities the Portfolios intend to
purchase. In the case of futures and options based on an index,

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the portfolio will not duplicate the components of the index, and
in the case of futures and options on fixed income securities,
the portfolio securities which are being hedged may not be the
same type of obligation underlying such contract. As a result,
the correlation probably will not be exact. Consequently, the
Portfolios bear the risk that the price of the portfolio
securities being hedged will not move by the same amount or in
the same direction as the underlying index or obligation.

For example, if a Portfolio purchases a put option on an
index and the index decreases less than the value of the hedged
securities, the Portfolio will experience a loss that is not
completely offset by the put option. It is also possible that
there may be a negative correlation between the index or
obligation underlying an option or Futures Contract in which the
Portfolio has a position and the portfolio securities the
Portfolio is attempting to hedge, which could result in a loss on
both the portfolio and the hedging instrument.

It should be noted that stock index futures contracts or
options based upon a narrower index of securities, such as those
of a particular industry group, may present greater risk than
options or futures based on a broad market index. This is due to
the fact that a narrower index is more susceptible to rapid and
extreme fluctuations as a result of changes in the value of a
small number of securities.

The trading of futures and options entails the
additional risk of imperfect correlation between movements in the
futures or option price and the price of the underlying index or
obligation. The anticipated spread between the prices may be
distorted due to the differences in the nature of the markets,
such as differences in margin requirements, the liquidity of such
markets and the participation of speculators in the futures
market. In this regard, trading by speculators in futures and
options has in the past occasionally resulted in market
distortions, which may be difficult or impossible to predict,
particularly near the expiration of such contracts.

The trading of Options on Futures Contracts also entails
the risk that changes in the value of the underlying Futures
Contract will not be fully reflected in the value of the option.
The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the Futures Contract or
expiration date of the option approaches.

Further, with respect to options on securities, options
on foreign currencies, options on stock indexes and Options on
Futures Contracts, the Portfolios are subject to the risk of
market movements between the time that the option is exercised
and the time of performance thereunder. This could increase the

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extent of any loss suffered by a Portfolio in connection with
such transactions.

If a Portfolio purchases futures or options in order to
hedge against a possible increase in the price of securities
before the Portfolio is able to invest its cash in such
securities, the Portfolio faces the risk that the market may
instead decline. If the Portfolio does not then invest in such
securities because of concern as to possible further market
declines or for other reasons, the Portfolio may realize a loss
on the futures or option contract that is not offset by a
reduction in the price of securities purchased.

In writing a call option on a security, foreign
currency, index or futures contract, a Portfolio also incurs the
risk that changes in the value of the assets used to cover the
position will not correlate closely with changes in the value of
the option or underlying index or instrument. For example, when
a Portfolio writes a call option on a stock index, the securities
used as "cover" may not match the composition of the index, and
the Portfolio may not be fully covered. As a result, the
Portfolio could suffer a loss on the call which is not entirely
offset or offset at all by an increase in the value of the
Portfolio's portfolio securities.

The writing of options on securities, options on stock
indexes or Options on Futures Contracts constitutes only a
partial hedge against fluctuations in the value of a Portfolio's
portfolio. When a Portfolio writes an option, it will receive
premium income in return for the holder's purchase of the right
to acquire or dispose of the underlying security or future or, in
the case of index options, cash. In the event that the price of
such obligation does not rise sufficiently above the exercise
price of the option, in the case of a call, or fall below the
exercise price, in the case of a put, the option will not be
exercised and the Portfolio will retain the amount of the
premium, which will constitute a partial hedge against any
decline that may have occurred in the Portfolio's portfolio
holdings, or against the increase in the cost of the instruments
to be acquired.

When the price of the underlying obligation moves
sufficiently in favor of the holder to warrant exercise of the
option, however, and the option is exercised, the Portfolio will
incur a loss which may only be partially offset by the amount of
the premium it received. Moreover, by writing an option, a
Portfolio may be required to forego the benefits which might
otherwise have been obtained from an increase in the value of
portfolio securities or a decline in the value of securities to
be acquired.

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In the event of the occurrence of any of the foregoing
adverse market events, a Portfolio's overall return may be lower
than if it had not engaged in the transactions described above.

With respect to the writing of straddles on securities,
a Portfolio incurs the risk that the price of the underlying
security will not remain stable, that one of the options written
will be exercised and that the resulting loss will not be offset
by the amount of the premiums received. Such transactions,
therefore, while creating an opportunity for increased return by
providing a Portfolio with two simultaneous premiums on the same
security, nonetheless involve additional risk, because the
Portfolio may have an option exercised against it regardless of
whether the price of the security increases or decreases.

Prior to exercise or expiration, a futures or option
position can be terminated only by entering into a closing
purchase or sale transaction. This requires a secondary market
for such instruments on the exchange on which the initial
transaction was entered into. While the Portfolios will enter
into options or futures positions only if there appears to be a
liquid secondary market therefor, there can be no assurance that
such a market will exist for any particular contracts at any
specific time. In that event, it may not be possible to close
out a position held by a Portfolio, and the Portfolio could be
required to purchase or sell the instrument underlying an option,
make or receive a cash settlement or meet ongoing variation
margin requirements. Under such circumstances, if the Portfolio
has insufficient cash available to meet margin requirements, it
may be necessary to liquidate portfolio securities at a time when
it is disadvantageous to do so. The inability to close out
options and futures positions, therefore, could have an adverse
impact on the Portfolios' ability to effectively hedge their
portfolios, and could result in trading losses.

The liquidity of a secondary market in a Futures
Contract or option thereon may be adversely affected by "daily
price fluctuation limits," established by exchanges, which limit
the amount of fluctuation in the price of a contract during a
single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open futures or option
positions and requiring traders to make additional margin
deposits. Prices have in the past moved to the daily limit on a
number of consecutive trading days.

The trading of Futures Contracts and options (including
Options on Futures Contracts) is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm
or clearing house or other disruptions of normal trading

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activity, which could at times make it difficult or impossible to
liquidate existing positions or to recover excess variation
margin payments.

The staff of the Commission had taken the position that
over-the-counter options and the assets used as cover for over-
the-counter options are illiquid securities, unless certain
arrangements are made with the other party to the option contract
permitting the prompt liquidation of the option position. The
Portfolios will enter into those special arrangements only with
primary U.S. Government securities dealers recognized by the
Federal Reserve Bank of New York ("primary dealers"). In
connection with these special arrangements, the Fund will
establish standards for the creditworthiness of the primary
dealers with which it may enter into over-the-counter option
contracts and those standards, as modified from time to time,
will be implemented and monitored by the Adviser. Under these
special arrangements, the Fund will enter into contracts with
primary dealers which provide that each Portfolio has the
absolute right to repurchase an option it writes at any time at a
repurchase price which represents fair market value, as
determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to
a formula contained in the contract. Although the specific
details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a
multiple of the premium received by the Portfolio for writing the
option, plus the amount, if any, by which the option is "in-the-
money." The formula will also include a factor to account for
the difference between the price of the security and the strike
price of the option if the option is written out-of-the-money.
Under such circumstances the Portfolio will treat as illiquid the
securities used as cover for over-the-counter options it has
written only to the extent described in the Prospectuses.
Although each agreement will provide that the Portfolio's
repurchase price shall be determined in good faith (and that it
shall not exceed the maximum determined pursuant to the formula),
the formula price will not necessarily reflect the market value
of the option written; therefore, the Portfolio might pay more to
repurchase the option contract than the Portfolio would pay to
close out a similar exchange-traded option.

Because of low initial margin deposits made upon the
opening of a futures position and the writing of an option, such
transactions involve substantial leverage. As a result,
relatively small movements in the price of the contract can
result in substantial unrealized gains or losses. However, to
the extent the Portfolios purchase or sell Futures Contracts and
Options on Futures Contracts and purchase and write options on
securities and securities indexes for hedging purposes, any
losses incurred in connection therewith should, if the hedging

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strategy is successful, be offset, in whole or in part, by
increases in the value of securities held by the Portfolio or
decreases in the prices of securities the Portfolio intends to
acquire. When a Portfolio writes options on securities or
options on stock indexes for other than hedging purposes, the
margin requirements associated with such transactions could
expose the Portfolio to greater risk.

The exchanges on which futures and options are traded
may impose limitations governing the maximum number of positions
on the same side of the market and involving the same underlying
instrument which may be held by a single investor, whether acting
alone or in concert with others (regardless of whether such
contracts are held on the same or different exchanges or held or
written in one or more accounts or through one or more brokers).
In addition, the CFTC and the various contract markets have
established limits referred to as "speculative position limits"
on the maximum net long or net short position which any person
may hold or control in a particular futures or option contract.
An exchange may order the liquidation of positions found to be in
violation of these limits and may impose other sanctions or
restrictions. The Adviser does not believe that these trading
and position limits will have any adverse impact on the
strategies for hedging the portfolios of the Portfolios.

The amount of risk a Portfolio assumes when it purchases
an Option on a Futures Contract is the premium paid for the
option, plus related transaction costs. In order to profit from
an option purchased, however, it may be necessary to exercise the
option and to liquidate the underlying Futures Contract, subject
to the risks of the availability of a liquid offset market
described herein. The writer of an Option on a Futures Contract
is subject to the risks of commodity futures trading, including
the requirement of initial and variation margin payments, as well
as the additional risk that movements in the price of the option
may not correlate with movements in the price of the underlying
security, index, currency or Futures Contract.

Transactions in Forward Contracts, as well as futures
and options on foreign currencies, are subject to all of the
correlation, liquidity and other risks outlined above. In
addition, however, such transactions are subject to the risk of
governmental actions affecting trading in or the prices of
currencies underlying such contracts, which could restrict or
eliminate trading and could have a substantial adverse effect on
the value of positions held by a Portfolio. In addition, the
value of such positions could be adversely affected by a number
of other complex political and economic factors applicable to the
countries issuing the underlying currencies.

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Further, unlike trading in most other types of
instruments, there is no systematic reporting of last sale
information with respect to the foreign currencies underlying
contracts thereon. As a result, the available information on
which trading decisions will be based may not be as complete as
the comparable data on which a Portfolio makes investment and
trading decisions in connection with other transactions.
Moreover, because the foreign currency market is a global,
twenty-four hour market, events could occur on that market which
will not be reflected in the forward, futures or options markets
until the following day, thereby preventing the Portfolios from
responding to such events in a timely manner.

Settlements of exercises of over-the-counter Forward
Contracts or foreign currency options generally must occur within
the country issuing the underlying currency, which in turn
requires traders to accept or make delivery of such currencies in
conformity with any United Sates or foreign restrictions and
regulations regarding the maintenance of foreign banking
relationships and fees, taxes or other charges.

Unlike transactions entered into by the Portfolios in
Futures Contracts and exchange-traded options, options on foreign
currencies, Forward Contracts and over-the-counter options on
securities are not traded on contract markets regulated by the
CFTC or (with the exception of certain foreign currency options)
the Commission. Such instruments are instead traded through
financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to regulation by the
Commission. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer could lose amounts
substantially in excess of the initial investment, due to the
margin and collateral requirements associated with such
positions.

In addition, over-the-counter transactions can be
entered into only with a financial institution willing to take
the opposite side, as principal, of a Portfolio's position unless
the institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the
Portfolio. Where no such counterparty is available, it will not
be possible to enter into a desired transaction. There also may
be no liquid secondary market in the trading of over-the-counter

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contracts, and a Portfolio could be required to retain options
purchased or written, or Forward Contracts entered into, until
exercise, expiration or maturity. This in turn could limit the
Portfolio's ability to profit from open positions or to reduce
losses experienced, and could result in greater losses.

Further, over-the-counter transactions are not subject
to the guarantee of an exchange clearing house, and a Portfolio
will therefore be subject to the risk of default by, or the
bankruptcy of, the financial institution serving as its
counterparty. One or more such institutions also may decide to
discontinue their role as market-makers in a particular currency
or security, thereby restricting the Portfolio's ability to enter
into desired hedging transactions. A Portfolio will enter into
an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by the
Adviser.

Transactions in over-the-counter options on foreign
currencies are subject to a number of conditions regarding the
commercial purpose of the purchaser of such option. The
Portfolios are not able to determine at this time whether or to
what extent additional restrictions on the trading of over-the-
counter options on foreign currencies may be imposed at some
point in the future, or the effect that any such restrictions may
have on the hedging strategies to be implemented by them.

As discussed below, CFTC regulations require that a
Portfolio not enter into transactions in commodity futures
contracts or commodity option contracts for which the aggregate
initial margin and premiums exceed 5% of the fair market value of
the Portfolio's assets. Premiums paid to purchase over-the-
counter options on foreign currencies, and margins paid in
connection with the writing of such options, are required to be
included in determining compliance with this requirement, which
could, depending upon the existing positions in Futures Contracts
and Options on Futures Contracts already entered into by a
Portfolio, limit the Portfolio's ability to purchase or write
options on foreign currencies. Conversely, the existence of open
positions in options on foreign currencies could limit the
ability of the Portfolio to enter into desired transactions in
other options or futures contracts.

While Forward Contracts are not presently subject to
regulation by the CFTC, the CFTC may in the future assert or be
granted authority to regulate such instruments. In such event,
the Portfolio's ability to utilize Forward Contracts in the
manner set forth above could be restricted.

Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the

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Commission, as are other securities traded on such exchanges. As
a result, many of the protections provided to traders on
organized exchanges will be available with respect to such
transactions. In particular, all foreign currency option
positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation
("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a
national securities exchange may be more readily available than
in the over-the-counter market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of
adverse market movements.

The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, the
margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the
effects of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain
risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, if
it determines that foreign governmental restrictions or taxes
would prevent the orderly settlement of foreign currency option
exercises, or would result in undue burdens on the OCC or its
clearing member, the OCC may impose special procedures on
exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.

RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS.
Under applicable regulations of the CFTC, when a Portfolio enters
into transactions in Futures Contracts and Options on Futures
Contracts other than for bona fide hedging purposes, that
Portfolio maintains with its custodian in a segregated account
cash, short-term U.S. Government securities or high quality
United States dollar denominated money market instruments, which,
together with any initial margin deposits, are equal to the
aggregate market value of the Futures Contracts and Options on
Futures Contracts that it purchases. In addition, a Portfolio
may not purchase or sell such instruments if, immediately
thereafter, the sum of the amount of initial margin deposits on
the Portfolio's existing futures and options positions and
premiums paid for options purchased would exceed 5% of the market
value of the Portfolio's total assets.

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Each Portfolio has adopted the additional restriction
that it will not enter into a Futures Contract if, immediately
thereafter, the value of securities and other obligations
underlying all such Futures Contracts would exceed 50% of the
value of such Portfolio's total assets. Moreover, a Portfolio
will not purchase put and call options if as a result more than
10% of its total assets would be invested in such options.

When a Portfolio purchases a Futures Contract, an amount
of cash and cash equivalents will be deposited in a segregated
account with the Fund's Custodian so that the amount so
segregated will at all times equal the value of the Futures
Contract, thereby insuring that the use of such futures is
unleveraged.

ECONOMIC EFFECTS AND LIMITATIONS. Income earned by a
Portfolio from its hedging activities will be treated as capital
gain and, if not offset by net realized capital losses incurred
by a Portfolio, will be distributed to shareholders in taxable
distributions. Although gain from futures and options
transactions may hedge against a decline in the value of a
Portfolio's portfolio securities, that gain, to the extent not
offset by losses, will be distributed in light of certain tax
considerations and will constitute a distribution of that portion
of the value preserved against decline.

No Portfolio will "over-hedge," that is, a Portfolio
will not maintain open short positions in futures or options
contracts if, in the aggregate, the market value of its open
positions exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on such open
positions, adjusted for the historical volatility relationship
between the portfolio and futures and options contracts

Each Portfolio's ability to employ the options and
futures strategies described above will depend on the
availability of liquid markets in such instruments. Markets in
financial futures and related options are still developing. It
is impossible to predict the amount of trading interest that may
hereafter exist in various types of options or futures.
Therefore no assurance can be given that a Portfolio will be able
to use these instruments effectively for the purposes set forth
above. In addition, a Portfolio's ability to engage in options
and futures transactions may be materially limited by tax
considerations.

The Portfolios' ability to use options, futures and
forward contracts may be limited by tax considerations. In
particular, tax rules might affect the length of time for which
the Portfolios can hold such contracts and the character of the
income earned on such contracts. In addition, differences

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between each Portfolio's book income (upon the basis of which
distributions are generally made) and taxable income arising from
its hedging activities may result in return of capital
distributions, and in some circumstances, distributions in excess
of the Portfolio's book income may be required in order to meet
tax requirements.

FUTURE DEVELOPMENTS. The above discussion relates to
each Portfolio's proposed use of futures contracts, options and
options on futures contracts currently available. As noted
above, the relevant markets and related regulations are still in
the developing stage. In the event of future regulatory or
market developments, each Portfolio may also use additional types
of futures contracts or options and other investment techniques
for the purposes set forth above.

PORTFOLIO TURNOVER. The Adviser manages each
Portfolio's portfolio by buying and selling securities to help
attain its investment objective. The portfolio turnover rate for
each Portfolio for their respective fiscal periods ended
December 31, 1994 was 2% for Conservative Investors Portfolio, 3%
for Growth Investors Portfolio and 25% for Growth Portfolio. A
high portfolio turnover rate will involve greater costs to a
Portfolio (including brokerage commissions and transaction costs)
and may also result in the realization of taxable capital gains,
including short-term capital gains taxable at ordinary income
rates. See "Dividends, Distributions and Taxes" and "Portfolio
Transactions" below.

INVESTMENT RESTRICTIONS. Except as described below and
except as otherwise specifically stated in the Prospectus or this
Statement of Additional Information, the investment policies of
each Portfolio set forth in the Prospectus and in this Statement
of Additional Information are not fundamental and may be changed
without shareholder approval.

The following is a description of restrictions on the
investments to be made by the Portfolios, which restrictions may
not be changed without the approval of a majority of the
outstanding voting securities of the relevant Portfolio.

None of the Portfolios will:

(1) Borrow money in excess of lot of the value
(taken at the lower of cost or current value) of its
total assets (not including the amount borrowed) at the
time the borrowing is made, and then only from banks as
a temporary measure to facilitate the meeting of
redemption requests (not for leverage) which might

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otherwise require the untimely disposition of portfolio
investments or pending settlement of securities
transactions or for extraordinary or emergency purposes.

(2) Underwrite securities issued by other persons
except to the extent that, in connection with the
disposition of its portfolio investments, it may be
deemed to be an underwriter under certain federal
securities laws.

(3) Purchase or retain real estate or interests in
real estate, although each Portfolio may purchase
securities which are secured by real estate and
securities of companies which invest in or deal in real
estate.

(4) Make loans to other persons except by the
purchase of obligations in which such Portfolio may
invest consistent with its investment policies and by
entering into repurchase agreements, or by lending its
portfolio securities representing not more than 25% of
its total assets.

(5) Issue any senior security (as that term is
defined in the 1940 Act), if such issuance is
specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder. For the purposes of
this restriction, collateral arrangements with respect
to options, Futures Contracts and Options on Futures
Contracts and collateral arrangements with respect to
initial and variation margins are not deemed to be the
issuance of a senior security. (There is no intention
to issue senior securities except as set forth in
paragraph 1 above.)

It is also a fundamental policy of each Portfolio that
it may purchase and sell futures contracts and related options.

In addition, the following is a description of operating
policies which the Fund has adopted on behalf of the Portfolios
but which are not fundamental and are subject to change without
shareholder approval.

None of the Portfolios will:

(a) Pledge, mortgage, hypothecate or otherwise
encumber an amount of its assets taken at current value
in excess of 15% of its total assets (taken at the lower
of cost or current value) and then only to secure
borrowings permitted by restriction (1) above. For the
purpose of this restriction, the deposit of securities

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and other collateral arrangements with respect to
reverse repurchase agreements, options, Futures
Contracts, Forward Contracts and options on foreign
currencies, and payments of initial and variation margin
in connection therewith are not considered pledges or
other encumbrances.

(b) Purchase securities on margin, except that
each Portfolio may obtain such short-term credits as may
be necessary for the clearance of purchases and sales of
securities, and except that each Portfolio may make
margin payments in connection with Futures Contracts,
Options on Futures Contracts, options, Forward Contracts
or options on foreign currencies.

(c) Make short sales of securities or maintain a
short position for the account of such Portfolio unless
at all times when a short position is open it owns an
equal amount of such securities or unless by virtue of
its ownership of other securities it has at all such
times a right to obtain securities (without payment of
further consideration) equivalent in kind and amount to
the securities sold, provided that if such right is
conditional the sale is made upon equivalent conditions
and further provided that no Portfolio will make such
short sales with respect to securities having a value in
excess of 5% of its total assets.

(d) Write, purchase or sell any put or call option
or any combination thereof, provided that this shall not
prevent a Portfolio from writing, purchasing and selling
puts, calls or combinations thereof with respect to
securities, indexes of securities or foreign currencies,
and with respect to Futures Contracts.

(e) Purchase voting securities of any issuer if
such purchase, at the time thereof, would cause more
than 10% of the outstanding voting securities of such
issuer to be held by such Portfolio; or purchase
securities of any issuer if such purchase at the time
thereof would cause more than 10% of any class of
securities of such issuer to be held by such Portfolio.
For this purpose all indebtedness of an issuer shall be
deemed a single class and all preferred stock of an
issuer shall be deemed a single class.

(f) Invest in securities of any issuer if, to the
knowledge of the Fund, officers and Directors of such
Fund and officers and directors of the Adviser who
beneficially own more than 0.5% of the shares of
securities of that issuer together own more than 5%.

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(g) Purchase securities issued by any other
registered investment company or investment trust except
(A) by purchase in the open market where no commission
or profit to a sponsor or dealer results from such
purchase other than the customary broker's commission,
or (B) where no commission or profit to a sponsor or
dealer results from such purchase, or (C) when such
purchase, though not made in the open market, is part of
a plan of merger or consolidation; provided, however,
that a Portfolio will not purchase such securities if
such purchase at the time thereof would cause more than
5% of its total assets (taken at market value) to be
invested in the securities of such issuers; and,
provided further, that a Portfolio's purchases of
securities issued by an open-end investment company will
be consistent with the provisions of the 1940 Act.

(h) Make investments for the purpose of exercising
control or management.

(i) Participate on a joint or joint and several
basis in any trading account in securities.

(j) Invest in interests in oil, gas, or other
mineral exploration or development programs, although
each Portfolio may purchase securities which are secured
by such interests and may purchase securities of issuers
which invest in or deal in oil, gas or other mineral
exploration or development programs.

(k) Purchase warrants, if, as a result, a
Portfolio would have more than 5% of its total assets
invested in warrants or more than 28 of its total assets
invested in warrants which are not listed on the New
York Stock Exchange or the American Stock Exchange.

(l) Purchase commodities or commodity contracts,
provided that this shall not prevent a Portfolio from
entering into interest rate futures contracts,
securities index futures contracts, foreign currency
futures contracts, forward foreign currency exchange
contracts and options (including options on any of the
foregoing) to the extent such action is consistent with
such Portfolio's investment objective and policies.

(m) Purchase additional securities in excess of 5%
of the value of its total assets until all of a
Portfolio's outstanding borrowings (as permitted and
described in Restriction No. 1 above) have been repaid.

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Whenever any investment restriction-states a maximum
percentage of a Portfolio's assets which may be invested in any
security or other asset, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of such Portfolio's acquisition of such securities or
other assets. Accordingly, any later increase or decrease beyond
the specified limitation resulting from a change in value or net
asset value will not be considered a violation of such percentage
limitation.

WORLDWIDE PRIVATIZATION PORTFOLIO

Worldwide Privatization Portfolio seeks long term
capital appreciation. In seeking to achieve its investment
objective, as a fundamental policy, the Portfolio will invest at
least 65% of its total assets in equity securities that are
issued by enterprises that are undergoing, or that have
undergone, privatization as described below, although normally,
significantly more of the Portfolio's total assets will be
invested in such securities. The balance of the Portfolio's
investment portfolio will include securities of companies that
are believed by the Adviser to be beneficiaries of the
privatization process. Equity securities include common stock,
preferred stock, rights or warrants to subscribe for or purchase
common or preferred stock, securities (including debt securities)
convertible into common or preferred stock and securities that
give the holder the right to acquire common or preferred stock.

The Portfolio is designed for individual investors
desiring to take advantage of investment opportunities,
historically inaccessible to U.S. investors, that are created by
privatizations of state enterprises in both established and
developing economies, including those in Western Europe and
Scandinavia, Australia, New Zealand, Latin America, Asia and
Eastern and Central Europe and, to a lesser degree, Canada and
the United States. In the opinion of the Adviser, substantial
potential for appreciation in the value of equity securities of
an enterprise undergoing or following privatization exists as the
enterprise rationalizes its management structure, operations and
business strategy to position itself to compete efficiently in a
market economy, and the Portfolio will seek to emphasize
investments in the equity securities of such enterprises.

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transition to private sector ownership. In addition, these
enterprises generally tend to enjoy dominant market positions in
their local markets. Because of the relaxation of government
controls upon privatization, these enterprises typically have the
potential for significant managerial and operational efficiency
gains, which, among other factors, can increase their earnings
due to the restructuring that accompanies privatization and the
incentives management frequently receives.

The following investment policies and restrictions
supplement, and should be read in conjunction with the
information set forth in the Prospectus of the Portfolio under
the heading "Description of the Portfolio." Except as otherwise
noted, the Portfolio's investment policies described below are
not designated "fundamental policies" within the meaning of the
Investment Company Act of 1940 (the "1940 Act") and, therefore,
may be changed by the Directors of the Portfolio without a
shareholder vote. However, the Portfolio will not change its
investment policies without contemporaneous written notice to
shareholders.

INVESTMENT POLICIES

DEBT SECURITIES AND CONVERTIBLE DEBT SECURITIES. The
Portfolio may invest up to 35% of its total assets in debt
securities and convertible debt securities of issuers whose
common stocks are eligible for purchase by the Portfolio under
the investment policies described above. Debt securities include
bonds, debentures, corporate notes and preferred stocks.
Convertible debt securities are such instruments that are
convertible at a stated exchange rate into common stock. Prior
to their conversion, convertible securities have the same general
characteristics as non-convertible debt securities which provide
a stable stream of income with generally higher yields than those
of equity securities of the same or similar issuers. The market
value of debt securities and convertible debt securities tends to
decline as interest rates increase and, conversely, to increase
as interest rates decline. While convertible securities
generally offer lower interest yields than non-convertible debt
securities of similar quality, they do enable the investor to
benefit from increases in the market price of the underlying
common stock.

When the market price of the common stock underlying a
convertible security increases, the price of the convertible
security increasingly reflects the value of the underlying common
stock and may rise accordingly. As the market price of the
underlying common stock declines, the convertible security tends
to trade increasingly on a yield basis, and thus may not
depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an

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issuer's capital structure. They are consequently of higher
quality and entail less risk than the issuer's common stock,
although the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security
sells above its value as a fixed income security.

The Portfolio may maintain not more than 5% of its net
assets in debt securities rated below Baa by Moody's and BBB by
S&P, or, if not rated, determined by the Adviser to be of
equivalent quality. The Portfolio will not purchase a debt
security that, at the time of purchase, is rated below B by
Moody's and S&P, or determined by the Adviser to be of equivalent
quality, but may retain a debt security the rating of which drops
below B. See "Special Risk Considerations" below.

OPTIONS. The Portfolio may write covered put and call
options and purchase put and call options on securities of the
types in which it is permitted to invest that are traded on U.S.
and foreign securities exchanges and over-the-counter, including
options on market indices. The Portfolio will only write
"covered" put and call options, unless such options are written
for cross-hedging purposes. There are no specific limitations on
the Portfolio's writing and purchasing of options.

The Portfolio may purchase or write options on
securities of the types in which it is permitted to invest in
privately negotiated (i.e., over-the-counter) transactions. 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 by
the Adviser, and the Adviser has adopted procedures for
monitoring the creditworthiness of such entities. Options
purchased or written by the Portfolio in negotiated transactions
are illiquid and it may not be possible for the Portfolio to
effect a closing transaction at a time when the Adviser believes
it would be advantageous to do so. See "Description of the
Portfolio -- Additional Investment Policies and Practices --
Illiquid Securities" in the Portfolio's Prospectus.

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For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix C.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix C.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. For a
discussion regarding forward foreign currency exchange contracts,
see "North American Government Income Portfolio -- Forward
Foreign Currency Exchange Contracts," above.

FORWARD COMMITMENTS. No forward commitments will be
made by the Portfolio if, as a result, the Portfolio's aggregate
commitments under such transactions would be more than 30% of the
then current value of the Portfolio's total assets. For a
discussion regarding forward commitments, see "Other Investment
Policies -- Forward Commitments," below.

SECURITIES NOT READILY MARKETABLE. The Portfolio may
invest up to 15% of its net assets in illiquid securities which
include, among others, securities for which there is no readily
available market. The Portfolio may therefore not be able to
readily sell such securities. Such securities are unlike
securities which are traded in the open market and which can be
expected to be sold immediately if the market is adequate. The
sale price of securities not readily marketable may be lower or
higher than the Adviser's most recent estimate of their fair
value. Generally, less public information is available with
respect to the issuers of such securities than with respect to
companies whose securities are traded on an exchange. Securities
not readily marketable are more likely to be issued by small
businesses and therefore subject to greater economic, business
and market risks than the listed securities of more well-
established companies. Adverse conditions in the public
securities markets may at certain times preclude a public
offering of an issuer's securities. To the extent that the
Portfolio makes any privately negotiated investments in state
enterprises, such investments are likely to be in securities that
are not readily marketable. It is the intention of the Portfolio
to make such investments when the Adviser believes there is a
reasonable expectation that the Portfolio would be able to
dispose of its investment within three years. There is no law in
a number of the countries in which the Portfolio may invest
similar to the U.S. Securities Act of 1933 (the "1933 Act")
requiring an issuer to register the public sale of securities
with a governmental agency or imposing legal restrictions on
resales of securities, either as to length of time the securities
may be held or manner of resale. However, there may be
contractual restrictions on resale of securities. In addition,

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many countries do not have informational disclosure requirements
similar in scope to those required under the U.S. Securities
Exchange Act of 1934.

REPURCHASE AGREEMENTS. The Portfolio may invest in
repurchase agreements pertaining to U.S. Government Securities.
For additional information regarding repurchase agreements, see
"Other Investment Policies -- Repurchase Agreements," below.

PORTFOLIO TURNOVER. Generally, the Portfolio's policy
with respect to portfolio turnover is to purchase securities with
a view to holding them for periods of time sufficient to assure
that the Portfolio will realize less than 30% of its gross income
from the sale or other disposition of securities held for less
than three months (see "Dividends, Distributions and Taxes") and
to hold its securities for six months or longer. However, it is
also the Portfolio's policy to sell any security whenever, in the
judgment of the Adviser, its appreciation possibilities have been
substantially realized or the business or market prospects for
such security have deteriorated, irrespective of the length of
time that such security has been held. The Adviser anticipates
that the Portfolio's annual rate of portfolio turnover will not
exceed 200%. A 200% annual turnover rate would occur if all the
securities in the Portfolio's portfolio were replaced twice
within a period of one year. The turnover rate has a direct
effect on the transaction costs to be borne by the Portfolio, and
as portfolio turnover increases it is more likely that the
Portfolio will realize short-term capital gains. The portfolio
turnover rate for the fiscal period ended December 31, 1994 was
0%.

SPECIAL RISK CONSIDERATIONS

Investment in the Portfolio involves the special risk
considerations described below.

RISKS OF FOREIGN INVESTMENT

Participation in Privatizations. The governments of
certain foreign countries have, to varying degrees, embarked on
privatization programs contemplating the sale of all or part of
their interests in state enterprises. In certain jurisdictions,
the ability of foreign entities, such as the Portfolio, to
participate in privatizations may be limited by local law, or the
price or terms on which the Portfolio may be able to participate
may be less advantageous than for local investors. Moreover,
there can be no assurance that governments that have embarked on
privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be

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successful or that governments will not re-nationalize
enterprises that have been privatized.

RISK OF SALE OR CONTROL BY MAJOR STOCKHOLDERS. In the
case of the enterprises in which the Portfolio may invest, large
blocks of the stock of those enterprises may be held by a small
group of stockholders, even after the initial equity offerings by
those enterprises. The sale of some portion or all of those
blocks could have an adverse effect on the price of the stock of
any such enterprise.

RECENT MANAGEMENT REORGANIZATION. Prior to making an
initial equity offering, most state enterprises or former state
enterprises go through an internal reorganization of management.
Such reorganizations are made in an attempt to better enable
these enterprises to compete in the private sector. However,
certain reorganizations could result in a management team that
does not function as well as the enterprise's prior management
and may have a negative effect on such enterprise. In addition,
the privatization of an enterprise by its government may occur
over a number of years, with the government continuing to hold a
controlling position in the enterprise even after the initial
equity offering for the enterprise.

LOSS OF GOVERNMENT SUPPORT. Prior to privatization,
most of the state enterprises in which the Portfolio may invest
enjoy the protection of and receive preferential treatment from
the respective sovereigns that own or control them. After making
an initial equity offering these enterprises may no longer have
such protection or receive such preferential treatment and may
become subject to market competition from which they were
previously protected. Some of these enterprises may not be able
to effectively operate in a competitive market and may suffer
losses or experience bankruptcy due to such competition.

CURRENCY CONSIDERATIONS. Because substantially all of
the Portfolio's assets will be invested in securities denominated
in foreign currencies and a corresponding portion of the
Portfolio's revenues will be received in such currencies, the
dollar equivalent of the Portfolio's net assets and distributions
will be adversely affected by reductions in the value of certain
foreign currencies relative to the U.S. dollar. Such changes
will also affect the Portfolio's income. The Portfolio will,
however, have the ability to protect itself against adverse
changes in the values of foreign currencies by engaging in
certain of the investment practices listed above. If the value
of the foreign currencies in which the Portfolio receives its
income falls relative to the U.S. dollar between receipt of the
income and the making of Portfolio distributions, the Portfolio
may be required to liquidate securities in order to make
distributions if the Portfolio has insufficient cash in U.S.

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dollars to meet distribution requirements. Similarly, if an
exchange rate declines between the time the Portfolio incurs
expenses in U.S. dollars and the time cash expenses are paid, the
amount of the currency required to be converted into U.S. dollars
in order to pay expenses in U.S. dollars could be greater than
the equivalent amount of such expenses in the currency at the
time they were incurred.

MARKET CHARACTERISTICS. The securities markets of many
foreign countries are relatively small, with the majority of
market capitalization and trading volume concentrated in a
limited number of companies representing a small number of
industries. Consequently, the Portfolio's investment portfolio
may experience greater price volatility and significantly lower
liquidity than a portfolio invested in equity securities of U.S.
companies. These markets may be subject to greater influence by
adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual
in the United States. Securities settlements may in some
instances be subject to delays and related administrative
uncertainties.

INVESTMENT AND REPATRIATION RESTRICTIONS. Foreign
investment in the securities markets of certain foreign countries
is restricted or controlled to varying degrees. These
restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and
expenses of the Portfolio. As illustrations, certain countries
require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in
a particular company, or limit the investment by foreign persons
to only a specific class of securities of a company which may
have less advantageous terms than securities of the company
available for purchase by nationals or impose additional taxes on
foreign investors. The national policies of certain countries
may restrict investment opportunities in issuers deemed sensitive
to national interests. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities
from certain of the countries is controlled under regulations,
including in some cases the need for certain advance government
notification or authority. In addition, if a deterioration
occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
The Portfolio could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investment. The liquidity of the Portfolio's
investments in any country in which any of these factors exist
could be affected and the Adviser will monitor the affect of any
such factor or factors on the Portfolio's investments. Investing
in local markets may require the Portfolio to adopt special

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procedures, seek local governmental approvals or other actions,
any of which may involve additional costs to the Portfolio.

CORPORATE DISCLOSURE STANDARDS. Issues of securities in
foreign jurisdictions are generally not subject to the same
degree of regulation as are U.S. issuers with respect to such
matters as insider trading rules, restrictions on market
manipulation, shareholder proxy requirements and timely
disclosure of information. The reporting, accounting and
auditing standards of foreign countries may differ from U.S.
standards in important respects and less information may be
available to investors in foreign securities than to investors in
U.S. securities.

Foreign issuers are subject to accounting, auditing and
financial standards and requirements that differ, in some cases
significantly, from those applicable to U.S. issuers. In
particular, the assets and profits appearing on the financial
statements of a foreign issuer may not reflect its financial
position or results of operations in the way they would be
reflected had the financial statements been prepared in
accordance with U.S. generally accepted accounting principles.
In addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules in some of the countries in
which the Portfolio will invest require, for both tax and
accounting purposes, that certain assets and liabilities be
restated on the issuer's balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits.
Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the
real condition of those issuers and securities markets.
Substantially less information is publicly available about
certain non-U.S. issuers than is available about U.S. issuers.

TRANSACTION COSTS. Transaction costs including
brokerage commissions for transactions both on and off the
securities exchanges in many foreign countries are generally
higher than in the United States.

U.S. AND FOREIGN TAXES. Foreign taxes paid by the
Portfolio may be creditable or deductible by U.S. shareholders
for U.S. income tax purposes. No assurance can be given that
applicable tax laws and interpretations will not change in the
future. Moreover, non-U.S. investors may not be able to credit
or deduct such foreign taxes. Investors should review carefully
the information discussed under the heading "Dividends,
Distributions and Taxes" and should discuss with their tax
advisers the specific tax consequences of investing in the
Portfolio.

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ECONOMIC POLITICAL AND LEGAL RISKS. The economies of
individual foreign countries may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross
domestic product or gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of
payments position. Nationalization, expropriation or
confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or
diplomatic developments could affect adversely the economy of a
foreign country or the Portfolio's investments in such country.
In the event of expropriation, nationalization or other
confiscation, the Portfolio could lose its entire investment in
the country involved. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may
provide less protection to security holders such as the Portfolio
than that provided by U.S. laws. The Portfolio intends to spread
its portfolio investments among the capital markets of a number
of countries and, under normal market conditions, will invest in
the equity securities of issuers based in at least four, and
normally considerably more, countries. There is no restriction,
however, on the percentage of the Portfolio's assets that may be
invested in countries within any one region of the world. To the
extent that the Portfolio's assets are invested within any one
region, the Portfolio may be subject to any special risks that
may be associated with that region.

NON-DIVERSIFIED STATUS. The Portfolio is a "non-
diversified" investment company, which means the Portfolio is not
limited in the proportion of its assets that may be invested in
the securities of a single issuer. However, the Portfolio
intends to conduct its operations so as to qualify to be taxed as
a "regulated investment company" for purposes of the Internal
Revenue Code, as amended, which will relieve the Portfolio of any
liability for federal income tax to the extent its earnings are
distributed to shareholders. See "Dividends, Distribution and
Taxes--United States Federal Income Taxes--General." To so
qualify, among other requirements, the Portfolio will limit its
investments so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the market value of the
Portfolio's total assets will be invested in the securities of a
single issuer, and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its
total assets will be invested in the securities of a single
issuer and the Portfolio will not own more than 10% of the
outstanding voting securities of a single issuer. Investments in
U.S. Government Securities are not subject to these limitations.
Because the Portfolio, as a non-diversified investment company,
may invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Portfolio
may, under certain circumstances, present greater risk to an
investor than an investment in a diversified investment company.

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Securities issued or guaranteed by foreign governments
are not treated like U.S. Government Securities for purposes of
the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the
securities of non-governmental issuers.

INVESTMENTS IN LOWER-RATED DEBT SECURITIES. Debt
securities rated below investment grade, i.e., Ba and lower by
Moody's or BB and lower by S&P ("lower-rated securities"), or, if
not rated, determined by the Adviser to be of equivalent quality,
are subject to greater risk of loss of principal and interest
than higher-rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal, which may in any case
decline during sustained periods of deteriorating economic
conditions or rising interest rates. They are also generally
considered to be subject to greater market risk than higher-rated
securities in times of deteriorating economic conditions. In
addition, lower-rated securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions
than investment grade securities, although the market values of
securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate
levels than do those of higher-rated securities. Debt securities
rated Ba by Moody's or BB by S&P are judged to have speculative
characteristics or to be predominantly speculative with respect
to the issuer's ability to pay interest and repay principal.
Debt securities rated B by Moody's and S&P are judged to have
highly speculative characteristics or to be predominantly
speculative. Such securities may have small assurance of
interest and principal payments. Debt securities having the
lowest ratings for non-subordinated debt instruments assigned by
Moody's or S&P (i.e., rated C by Moody's or CCC and lower by S&P)
are considered to have extremely poor prospects of ever attaining
any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to
pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal.

Ratings of fixed-income securities by Moody's and S&P
are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's
standpoint. the rating of a security is heavily weighted by past
developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may
be varying degrees of difference in the credit risk of securities
within each rating category. See Appendix C for a description of
Moody's and S&P's bond and commercial paper ratings.

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Adverse publicity and investor perceptions about lower-
rated securities, whether or not based on fundamental analysis,
may tend to decrease the market value and liquidity of such
lower-rated securities. The Adviser will try to reduce the risk
inherent in investment in lower-rated securities through credit
analysis, diversification and attention to current developments
and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will
not occur. Since the risk of default is higher for lower-rated
securities, the Adviser's research and credit analysis are a
correspondingly important aspect of its program for managing the
Portfolio's securities than would be the case if the Portfolio
did not invest in lower-rated securities. In considering
investments for the Portfolio, the Adviser will attempt to
identify those high-risk, high-yield securities whose financial
condition is adequate to meet future obligations, has improved or
is expected to improve in the future. The Adviser's analysis
focuses on relative values based on such factors as interest or
dividend coverage, asset coverage earnings prospects, and the
experience and managerial strength of the issuer.

INVESTMENT RESTRICTIONS

The following restrictions, which supplement those set
forth in the Portfolio's Prospectus, may not be changed without
approval by the vote of a majority of the Portfolio's outstanding
voting securities, which means the affirmative vote of the
holders of (i) 67% or more or the shares represented at a meeting
at which more than 50% of the outstanding shares are represented,
or (ii) more than 50% of the outstanding shares, whichever is
less. The Portfolio may not:

(2) Participate on a joint or joint and several
basis in any securities trading account;

(3) Invest in companies for the purpose of
exercising control;

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(4) Issue any senior security within the meaning
of the Act except that the Portfolio may write put and
call options;

(5) Make short sales of securities or maintain a
short position, unless at all times when a short
position is open it on an equal amount of such
securities or securities convertible into or
exchangeable for, without payment of any further
consideration, securities of the same issue as, and
equal in amount to, the securities sold short ("short
sales against the box"), and unless not more than 10% of
the Portfolio's net assets (taken at market value) is
held as collateral for such sales at any one time (it is
the Portfolio's present intention to make such sales
only for the purpose of deferring realization of gain or
loss for Federal income tax purposes); or

(6)(i) Purchase or sell real estate, except that
it may purchase and sell securities of companies which
deal in real estate or interests therein; (ii) purchase
or sell commodities or commodity contracts including
futures contracts (except foreign currencies, foreign
currency options and futures, options and futures on
securities and securities indices and forward contracts
or contracts for the future acquisition or delivery of
securities and foreign currencies and related options on
futures contracts and similar contracts); (iii) invest
in interests in oil, gas, or other mineral exploration
or development programs; (iv) purchase securities on
margin, except for such short-term credits as may be
necessary for the clearance of transactions; and (v) act
as an underwriter of securities, except that the
Portfolio may acquire restricted securities under
circumstances in which, if such securities were sold,
the Portfolio might be deemed to be an underwriter for
purposes of the Securities Act.

OTHER INVESTMENT POLICIES

REPURCHASE AGREEMENTS. Each Portfolio, except the Total
Return Portfolio, may invest in repurchase agreements pertaining
to the types of securities in which it invests. A repurchase
agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vender at an agreed-
upon future date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an
agreed-upon market rate which is effective for the period of time
the buyer's money is invested in the security and which is not
related to the coupon rate on the purchased security. Such
agreements permit a Portfolio to keep all of its assets at work

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while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. Each Portfolio requires continual
maintenance of collateral held by the Fund's Custodian in an
amount equal to, or in excess of, the market value of the
securities which are the subject of the agreement. In the event
that a vendor defaulted on its repurchase obligation, the
Portfolio might suffer a loss to the extent that the proceeds
from the sale of the collateral were less than the repurchase
price. If the vendor became bankrupt, the Portfolio might be
delayed in, or prevented from, selling the collateral.
Repurchase agreements may be entered into with member banks of
the Federal Reserve System or "primary dealers" (as designated by
the Federal Reserve Bank of New York) in U.S. Government
securities. Repurchase agreements often are for short periods
such as one day or a week, but may be longer.

ILLIQUID SECURITIES. The following investment policy,
which is not fundamental and may be changed by the vote of the
Board of Directors, is applicable to each of the Fund's
Portfolios.

A Portfolio will not invest in illiquid securities if
immediately after such investment more than 10% or, in the case
of the North American Government Income Portfolio, Global Dollar
Government Portfolio and the Utility Income Portfolio, 15%, of
the Portfolio's total assets (taken at market value) would be
invested in such securities. For this purpose, illiquid
securities include, among others, (a) securities that are
illiquid by virtue of the absence of a readily available market
or legal or contractual restriction or resale, (b) options
purchased by the Portfolio over-the-counter and the cover for
options written by the Portfolio over-the-counter and (c)
repurchase agreements not terminable within seven days.

Securities that have legal or contractual restrictions
on resale but have a readily available market are not deemed
illiquid for purposes of this limitation. The Adviser will
monitor the liquidity of such restricted securities under the
supervision of the Board of Directors.

Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act,
securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and

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uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.

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

During the coming year, each Portfolio may invest up to
5% of its total assets in restricted securities issued under
Section 4(2) of the Securities Act, which exempts from
registration "transactions by an issuer not involving any public
offering." Section 4(2) instruments are restricted in the sense
that they can only be resold through the issuing dealer and only
to institutional investors; they cannot be resold to the general
public without registration.

Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by a Portfolio, however, could affect adversely
the marketability of such portfolio securities and the Portfolio
might be unable to dispose of such securities promptly or at
reasonable prices. Rule 144A has already produced enhanced
liquidity for many restricted securities, and market liquidity
for such securities may continue to expand as a result of this
regulation and the consequent inception of the PORTAL System
sponsored by the National Association of Securities Dealers,
Inc., an automated system for the trading, clearance and
settlement of unregistered securities of domestic and foreign
issuers.

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The Adviser, acting under the supervision of the Board
of Directors, will monitor the liquidity of restricted securities
in each of the Fund's Portfolios that are eligible for resale
pursuant to Rule 144A. In reaching liquidity decisions, the
Adviser will consider, INTER ALIA, the following factors: (i)
the frequency of trades and quotes for the security; (ii) the
number of dealers making quotations to purchase or sell the
security; (iii) the number of other potential purchasers of the
security; (iv) the number of dealers undertaking to make a market
in the security; (v) the nature of the security and the nature of
the marketplace for the security (e.g., the time needed to
dispose of the security, the method of soliciting offers and the
mechanics of the transfer); and (vi) any applicable Commission
interpretation or position with respect to such type of
securities.

FORWARD COMMITMENTS. The use of forward commitments
enables the Fund's Portfolios to protect against anticipated
changes in interest rates and prices. For instance, in periods
of rising interest rates and falling bond prices, the Portfolio
might sell securities in its portfolio on a forward commitment
basis to limit its exposure to falling prices. In periods of
falling interest rates and rising bond prices, the Portfolio
might sell a security in its portfolio and purchase the same or a
similar security on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields.
However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Portfolio might be
required to complete such when-issued or forward transactions at
prices inferior to then current market values.

The Portfolio's right to receive or deliver a security
under a forward commitment may be sold prior to the settlement
date, but the Portfolio will enter into forward commitments only
with the intention of actually receiving or delivering the
securities, as the case may be. To facilitate such transactions,
the Portfolio's Custodian will maintain, in the separate account
of the Portfolio, cash or liquid high-grade Government Securities
having value equal to, or greater than, any commitments to
purchase securities on a forward commitment basis and, with
respect to forward commitments to sell portfolio securities of
the Portfolio, the portfolio securities themselves.

GENERAL. Whenever any investment policy or restriction
states a minimum or maximum percentage of a Portfolio's assets
which may be invested in any security or other asset, it is
intended that such minimum or maximum percentage limitation be
determined immediately after and as a result of the Portfolio's
acquisition of such security or other asset. Accordingly, any

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later increase or decrease in percentage beyond the specified
limitations resulting from a change in values or net assets will
not be considered a violation.

The Fund has voluntarily agreed that each Portfolio with
the ability to invest in foreign issuers will adhere to the
foreign security diversification guidelines promulgated by
certain State Insurance Departments. Pursuant to these
guidelines, each such Portfolio will invest in issuers from a
minimum of five different foreign countries. This minimum will
be reduced to four different foreign countries when foreign
securities comprise less than 80% of the Portfolio's net asset
value, three different foreign countries when foreign securities
comprise less than 60% of the Portfolio's net asset value, two
different foreign countries when foreign securities comprise less
than 40% of the Portfolio's net asset value and one foreign
country when foreign securities comprise less than 20% of the
Portfolio's net asset value. The Fund has also voluntarily
agreed that each Portfolio which may invest in foreign securities
will limit its investment in the securities of issuers located in
any one country to 20% of the Portfolio's net asset value, except
that the Portfolio may have an additional 15% of its net asset
value invested in securities of issuers located in Australia,
Canada, France, Japan, the United Kingdom or West Germany.

_________________________________________________________________

MANAGEMENT OF THE FUND
_________________________________________________________________

DIRECTORS AND OFFICERS

The Directors and principal officers of the Fund, their
ages and their primary occupations during the past five years are
set forth below. Each such Director and officer is also a
trustee, director or officer of other registered investment
companies sponsored by the Adviser. Unless otherwise specified,
the address of each such persons is 1345 Avenue of the Americas,
New York, New York 10105.

DIRECTORS

JOHN D. CARIFA*, 49, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), the sole general partner
of the Adviser, with which he has been associated since prior to
1990.

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RUTH BLOCK, 64, was formerly Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and Amoco Corporation (oil and
gas). Her address is Box 4653, Stamford, Connecticut 06905.

DAVID H. DIEVLER, 65, was formerly Chairman and
President of the Fund and a Senior Vice President of ACMC with
which he had been associated since prior to 1990. He is
currently an independent consultant. His address is P.O. Box
167, Spring Lake, New Jersey 07762.

JOHN H. DOBKIN, 51, is the President of Historic Hudson
Valley (historic preservation) since 1990. Previously, he was
Director of the National Academy of Design. From 1988 to 1992,
he was a Director of ACMC. His address is 105 West 55th Street,
Chairman of the Board and President, is a Senior Vice President
of Alliance Capital Management Corporation ("ACMC"), New York,
New York 10019.

WILLIAM H. FOULK, JR., 62, is Senior Manager of Barrett
Associates, Inc., a registered investment adviser, since prior to
1990. His address is 521 Fifth Avenue, New York, New York 10175.

DR. JAMES M. HESTER, 70, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide
Corporation. He was formerly President of New York University,
The New York Botanical Garden and Rector of the United Nations
University. His address is 525 East 72nd Street, New York, New
York 10021.

CLIFFORD L. MICHEL, 55, is a member of the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1990. He is Chief Executive Officer of Wenonah
Development Company (investments) and a Director of Placer Dome,
Inc. (mining) and Faber-Castell Corporation (writing products).
His address is St. Bernard's Road, Gladstone, New Jersey 07934.

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ROBERT C. WHITE, 74, is a Vice President and Chief
Financial Officer of the Howard Hughes Medical Institute with
which he has been associated since prior to 1990. He is also a
Trustee of St. Clair Fixed Income Fund, St. Clair Tax-Free Fund
and St. Clair Equity Fund (registered investment companies) and a
Director of MEDSTAAT Systems, Inc. (health care information).
His address is 8101 Connecticut Avenue, Apartment S501, Chevy
Chase, Maryland, 20815.

OFFICERS

ALFRED L. HARRISON, SENIOR VICE PRESIDENT, 57, is a Vice
Chairman of ACMC with which he has been associated with since
prior to 1990.

WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 53, is an
Executive Vice President of ACMC with which he has been
associated with since prior to 1990.

ROBERT M. SINCHE, SENIOR VICE PRESIDENT, 42, is a Senior
Vice President of ACMC with which he has been associated since
prior to 1990. Previously he was Managing Director-Fixed Income
of Simms Capital Management.

EDMUND P. BERGAN, JR., SECRETARY, 44, is a Vice
President and Assistant General Counsel of ACMC with which he has
been associated since prior to 1990.

MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER,
44, is a Senior Vice President of Alliance Fund Services, Inc.
("AFS") with which he has been associated since prior to 1990.

ANDREW GANGOLF, ASSISTANT SECRETARY, 40, has been a Vice
President and Assistant General Counsel of AFD since December
1994. Prior thereto he was a Vice President and Assistant
Secretary of Delaware Management Company, Inc. since October 1992
and a Vice President and Counsel to Equitable Life Assurance

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Society of the United States since prior to 1990.

LAURA MAH, CONTROLLER, 39, has been a Vice President of
ACMC since July 1992. Previously she was associated with
Equitable Capital Management Corporation ("ECMC") since prior to
1990.

THOMAS R. MANLEY, ASSISTANT CONTROLLER, 43, has been an
Assistant Vice President of ACMC since July 1993. Previously he
was associated with ECMC since 1990.

STEVEN YU, ASSISTANT CONTROLLER, 35, has been an
Assistant Vice President of ACMC since 1993. Previously he was
associated with ECMC since prior to 1990.

The Fund does not pay any fees to, or reimburse
expenses of, its Directors who are considered "interested
persons" of the Fund. The aggregate compensation paid by the
Fund to each of the Directors during its fiscal year ended
December 31, 1994 and the aggregate compensation paid to each of
the Directors during calendar year 1994 by all of the registered
investment companies to which the Adviser provides investment
advisory services (collectively, the "Alliance Fund Complex"),
are set forth below. Each of the Directors is a director or
trustee of one or more other registered investment companies in
the Alliance Fund Complex.

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Total
Compensation
Pension or Estimated from the
Retirement Annual Alliance Fund
Aggregate Benefits Benefits Complex,
Name of Director Compensation as part of upon Including the
of the Fund from the Fund Fund Expenses Retirement Fund*
_______________ _____________ _____________ __________ ______________

Ruth Block $3,688 $ -0- $ -0- $ 157,000
John D. Carifa $-0- -0- -0- $-0-
John H. Dobkin $4,653 -0- -0- $ 110,750
William H. Foulk, Jr. $4,706 -0- -0- $ 141,500
Dr. James M. Hester $4,188 -0- -0- $ 154,500
Clifford L. Michel $3,938 -0- -0- $ 120,500
Robert C. White $3,721 -0- -0- $ 133,500

___________________________

* The information in this column represents amounts actually paid during
calendar year 1994.

As of March 24, 1995, the Directors and officers of the Fund as a
group owned less than 1% of the shares of the Fund.

ADVISER

The Adviser is a leading international investment
manager supervising client accounts with assets as of December
31, 1994 of more than $121 billion (of which more than $36
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds and included, as of December 31,
1994, 29 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,450
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 51
registered investment companies comprising 103 separate
investment portfolios managed by the Adviser currently have more

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than one million shareholders.

Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of December 31,
1994, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
owned in the aggregate approximately 59% of the issued and
outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser
("Units"). As of December 31, 1994, approximately 32% and 9% of
the Units were owned by the public and employees of the Adviser
and its subsidiaries, respectively, including employees of the
Adviser who serve as Directors of the Fund.

AXA owns approximately 60% of the outstanding voting
shares of common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of
activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation
("Generali") (one of which, Belgica Insurance Holding S.A., a
Belgian corporation, owned 34.1%). As of January 1, 1995, 62.1%
of the issued shares (representing 75.7% of the voting power) of
Finaxa were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 31.8% of the issued shares) (representing 39.0% of the
voting power), and 26.5% of the issued shares (representing 16.6%
of the voting power) of Finaxa were owned by Banque Paribas, a
French bank ("Paribas"). Including the shares owned by Midi
Participations, as of January 1, 1995, the Mutuelles AXA directly

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or indirectly owned 51.3% of the issued shares (representing
65.8% of the voting power) of AXA. In addition, certain
subsidiaries of AXA own 0.4% of the shares of AXA which are not
entitled to be voted. Acting as a group, the Mutuelles AXA
control AXA, Midi Participations and Finaxa.

The Investment Advisory Agreement became effective on
July 22, 1992. The Investment Advisory Agreement replaced an
earlier substantially identical agreement (the "First Investment
Advisory Agreement") that terminated because of its technical
assignment as a result of AXA's acquisition of control over
Equitable. In anticipation of the assignment of the First
Investment Advisory Agreement, the Investment Advisory Agreement
was approved by the unanimous vote, cast in person, of the Fund's
Directors including the Directors who are not parties to the
Investment Advisory Agreement or "interested persons" as defined
in the Act, of any such party, at a meeting called for the
purpose and held on September 10, 1991. At a meeting held on
June 11, 1992, a majority of the outstanding voting securities of
the Fund approved the Investment Advisory Agreement. The
Investment Advisory Agreement was amended as of June 2, 1994 to
provide for the addition of the North American Government Income
Portfolio, the Global Dollar Government Portfolio and the Utility
Income Portfolio. The amendment to the Investment Advisory
Agreement was approved by the unanimous vote, cast in person, of
the disinterested Directors at a meeting called for that purpose
and held on December 7, 1993. The Investment Advisory Agreement
was amended as of October 24, 1994 to provide for the addition of
the Growth Portfolio, Worldwide Privatization Portfolio,
Conservative Investors Portfolio and Growth Investors Portfolio.
The amendment to the Investment Advisory Agreement was approved
by the unanimous vote, cast in person of the disinterested
Directors at a meeting called for the purpose and held on June
14, 1994.

The Adviser provides investment advisory services and
order placement facilities for each of the Fund's Portfolios and
pays all compensation of Directors and officers of the Fund who
are affiliated persons of the Adviser. The Adviser or its
affiliates also furnish the Fund, without charge, management
supervision and assistance and office facilities and provide
persons satisfactory to the Fund's Board of Directors to serve as
the Fund's officers. Each of the Portfolios pays the Adviser at
the following annual percentage rate of its average daily net
asset value:

Money Market Portfolio .500%

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Growth Portfolio 1.000%
Growth and Income Portfolio .625%
U.S. Government/High-Grade
Securities Portfolio .600%
High-Yield Portfolio .625%
Total Return Portfolio .625%
International Portfolio 1.000%
Short-Term Multi-Market Portfolio .550%
Global Bond Portfolio .650%
North American Government
Income Portfolio .650%
Global Dollar Government
Portfolio .750%
Utility Income Portfolio .750%
Conservative Investors
Portfolio .750%
Growth Investors Portfolio .750%
Growth Portfolio .750%
Worldwide Privatization
Portfolio 1.000%

For each of the period December 30, 1992 (commencement
of operations) through December 31, 1992 and the fiscal years
ended December 31, 1993 and December 31, 1994 the advisory fee
paid by the Money Market Portfolio to the Adviser was $-0-; for
the period June 26, 1992 (commencement of operations) through
December 31, 1992 and for the fiscal years ended December 31,
1993 and December 31, 1994 the advisory fees paid by the Premier
Growth Portfolio to the Adviser were $-0-, $10,976 and $128,361,
respectively; for the period January 14, 1991 (commencement of
operations) through December 31, 1991 and for the fiscal years
ended December 31, 1992, December 31, 1993, and December 31, 1994
the advisory fees paid to the Adviser by the Growth and Income
Portfolio were $-0-, $-0-, $79,930, and $200,454, respectively;
for each of the period September 17, 1992, (commencement of
operations) through December 31, 1992 and the fiscal years ended
December 31, 1993 and December 31, 1994 the advisory fee paid by
the U.S. Government/High Grade Securities Portfolio to the
Adviser was $-0-; for each of the period December 28, 1992
(commencement of operations) through December 31, 1992 and the
fiscal years ended December 31, 1993 and December 31, 1994 the
advisory fee paid by the Total Return Portfolio to the Adviser
was $-0-; for the each of period December 28, 1992 (commencement
of operations) through December 31, 1992 and the fiscal years
ended December 31, 1993 and December 31, 1994 the advisory fee
paid by the International Portfolio to the Adviser was $-0-; for
the fiscal years ended December 31, 1992, December 31, 1993 and
December 31, 1994 the advisory fees paid by the Short-Term Multi
Market Portfolio to the Adviser were $-0-, $86,361 and $127,682,

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respectively; and for the period July 15, 1991 (commencement of
operations) to December 31, 1991 and for the fiscal years ended
December 31, 1992 and December 31, 1993 the advisory fees paid by
the Global Bond Portfolio to the Adviser were $3,966, $4,733 and
$-0-, respectively; for the period May 3, 1994 (commencement of
operations) through December 31, 1994 the advisory fee paid by
the North American Government Income Portfolio to the Advisor was
$-0-; for the period May 2, 1994 (commencement of operations)
through December 31,1994 the advisory fee paid by the Global
Dollar Government Portfolio to the Adviser was $-0-; for the
period May 10, 1994 (commencement of operations) through December
31, 1994 the advisory the paid by the Utility Income Portfolio to
the Advisor was $-0-; for the period October 28, 1994
(commencement of operations) through December 31, 1994 the
advisory fee paid by the Conservative Investors Portfolio to the
Adviser was $-0-; for the period October 28, 1994 (commencement
of operations) through December 31, 1994 the advisory fee paid by
the Growth Investors Portfolio to the Adviser was $-0-; for the
period September 15, 1994 (commencement of operations) through
December 31, 1994 the advisory fee paid by the Growth Portfolio
to the Adviser was $-0-; for the period September 23, 1994
(commencement of operations) through December 31, 1994 the
advisory fee paid by the Worldwide Privatizations Portfolio to
the Advisor was $-0-.

The Commission takes the position that the rates of fee
applicable to the Growth Portfolio, the International Portfolio,
the Global Dollar Government Portfolio, the Utility Income
Portfolio, the Conservative Investors Portfolio, the Growth
Portfolio and the Worldwide Privatization Portfolio are higher
than those paid by most investment companies, however, the
Adviser believes the fees are comparable to those paid by
investment companies of similar investment orientation.

Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of the particular security by its other
clients simultaneously with the Fund. If transactions on behalf
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price. It is the
policy of the Adviser to allocate advisory recommendations and
the placing of orders in a manner which is deemed equitable by
the Adviser to the accounts involved, including the Fund. When
two or more of the clients of the Adviser (including the Fund)
are purchasing or selling the same security on a given day from
the same broker or dealer, such transactions may be averaged as
to price.

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As to the obtaining of services other than those
specifically provided to the Fund by the Adviser, the Fund may
employ its own personnel. For such services, it also may utilize
personnel employed by the Adviser or by other subsidiaries of
Equitable. In such event, the services will be provided to the
Fund at cost and the payments specifically approved by the Fund's
Board of Directors.

The Investment Advisory Agreement is terminable with
respect to any Portfolio without penalty on 60 days' written
notice by a vote of a majority of the outstanding voting
securities of such Portfolio or by a vote of a majority of the
Fund's Directors, or by the Adviser on 60 days' written notice,
and will automatically terminate in the event of its assignment.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.

The Investment Advisory Agreement continues in effect
until each December 31, and thereafter for successive twelve
month periods computed from each January 1, provided that such
continuance is specifically approved at least annually by a vote
of a majority of the Fund's outstanding voting securities or by
the Fund's Board of Directors, including in either case approval
by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of such parties as
defined by the 1940 Act.

The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, The Alliance Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Counterpoint Fund, Alliance Global Dollar
Government Fund, Inc., Alliance Global Fund, Alliance Global
Small Cap Fund, Inc., Alliance Government Reserves, Alliance
Growth and Income Fund, Inc., Alliance Income Builder Fund, Inc.,
Alliance International Fund, Alliance Managed Dollar Income Fund,
Inc., Alliance Mortgage Securities Income Fund, Inc., Alliance
Mortgage Strategy Trust, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Inc., Alliance Municipal Trust,
Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Short-Term Multi-
Market Trust, Inc., Alliance Technology Fund, Inc., Alliance
Utility Income Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, The Alliance Portfolios,
Fiduciary Management Associates and The Hudson River Trust, all

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registered open-end investment companies; ACM Government Income
Fund, Inc., ACM Government Securities Fund, Inc., ACM Government
Spectrum Fund, Inc., ACM Government Opportunity Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Managed Income Fund, Inc.,
ACM Managed Multi-Market Trust, Inc., ACM Municipal Securities
Income Fund, Inc., Alliance Global Environment Fund, Inc.,
Alliance World Dollar Government Fund, Inc., Alliance World
Dollar Government Fund II, Inc., The Austria Fund, Inc., The
Global Privatization Fund, Inc., The Korean Investment Fund,
Inc., The Southern Africa Fund, Inc. and The Spain Fund, Inc.,
all registered closed-end investment companies; and Alliance
Global Bond Fund, SICAV, Alliance Global Leisure Fund, Alliance
Global Growth Trends Portfolio, Alliance Global Income Fund,
Alliance International Currency Reserves, Alliance International
Health Care Fund, SICAV, Alliance International Technology Fund,
SICAV, Alliance Worldwide Income Fund, India Liberalisation Fund,
SICAV, ML-Alliance Asset Allocation N.V. and The Spanish Smaller
Companies Fund, all foreign investment companies.

SUB-ADVISER TO THE GLOBAL BOND PORTFOLIO

The Adviser has retained under a sub-advisory agreement
(the "Sub-Advisory Agreement") a sub-adviser, AIGAM International
Limited (the "Sub-Adviser"), an indirect, majority owned
subsidiary of American International Group, Inc., a major
international financial service company, to provide research and
management services to the Global Bond Portfolio. The Sub-
Adviser may, from time to time, direct transactions for its
investment accounts which result in the purchase or sale of a
particular security by its investment accounts simultaneously
with the recommendation by the Sub-Adviser to the Global Bond
Portfolio to purchase or sell such security. If transactions on
behalf of such investment accounts increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price for the Portfolio.
In 1994 the Sub-Advisor changed its name from Dempsey & Company
International Limited, which was founded in 1988. For its
services as Sub-Adviser to the Global Bond Portfolio, the Sub-
Adviser receives from the Adviser a monthly fee at the annual
rate of .40 of 1% of the Portfolio's average daily net asset
value. The fee is accrued daily and payable in arrears for
services performed during each calendar month within fifteen days
following the end of such month.

For the period from July 15, 1991 (commencement of
operations) until December 31, 1991, the Sub-Adviser for the
Global Bond Portfolio agreed to waive its sub-advisory fee and
for the fiscal years ended December 31, 1992, December 31, 1993

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and December 31, 1994 the Sub-Adviser received sub-advisory fees
in the amount of $6,346, $7,573 and $27,175, respectively, from
the Adviser.

The Sub-Advisory Agreement is terminable without penalty
on 60 days' written notice to the Sub-Adviser by a vote of the
holders of a majority of the Global Bond Portfolio's outstanding
voting securities or by the Directors or by the Adviser, or by
the Sub-Adviser on 60 days' written notice to the Adviser and the
Portfolio, and will automatically terminate in the event of its
assignment or of the assignment of the Investment Advisory
Agreement. The Sub-Advisory Agreement provides that in the
absence of willful misfeasance, bad faith or gross negligence on
the part of the Sub-Adviser, or reckless disregard of the Sub-
Adviser's obligations thereunder, the Sub-Adviser shall not be
liable for any action or failure to act in accordance with its
duties thereunder.

The Sub-Advisory Agreement became effective on July 22,
1992. At a meeting held on June 11, 1992, a majority of the
outstanding voting securities of the Portfolio approved the Sub-
Advisory Agreement. The Sub-Advisory Agreement replaced an
earlier substantially identical agreement (the "First Sub-
Advisory Agreement") that provided for its automatic termination
in the event of an assignment of the Fund's First Investment
Advisory Agreement. Since AXA's acquisition over the Equitable
resulted in the technical assignment of the First Advisory
Agreement, the First Sub-Advisory Agreement was terminated
pursuant to its terms.

The Sub-Advisory Agreement provides that it shall remain
in effect from year to year provided that such continuance is
specifically approved at least annually by the Board of Directors
of the Fund, or by vote of a majority of the outstanding voting
securities of the Global Bond Portfolio, and, in either case, by
a majority of the Directors who are not parties to the Investment
Advisory Agreement or Sub-Advisory Agreement or interested
persons as defined by the 1940 Act.

_________________________________________________________________

PURCHASE AND REDEMPTION OF SHARES
_________________________________________________________________

The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Redemption
of Shares."

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REDEMPTION OF SHARES

The value of a shareholder's shares on redemption or
repurchase may be more or less than the cost of such shares to
the shareholder, depending upon the market value of the
Portfolio's securities at the time of such redemption or
repurchase. Payment either in cash or in portfolio securities
received by a shareholder upon redemption or repurchase of his
shares, assuming the shares constitute capital assets in his
hands, will result in long-term or short-term capital gains (or
loss) depending upon the shareholder's holding period and basis
in respect of the shares redeemed.

_________________________________________________________________

NET ASSET VALUE
_________________________________________________________________

The net asset value of shares of any of the Fund's
Portfolios on which the subscription and redemption prices are
based is computed in accordance with the Articles of
Incorporation and By-Laws of the Fund at the next close of
regular trading on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. New York time) following receipt of a
purchase or redemption order by the Fund, on each Fund business
day on which such an order is received and trading in the types
of securities in which a Portfolio invests might materially
affect the value of such Portfolio's shares, by dividing the
value of the Portfolio's assets less its liabilities, by the
total number of shares then outstanding. For this purpose, a
Fund business day is any weekday exclusive of national holidays
on which the New York Stock Exchange is closed and Good Friday.

Portfolio securities that are actively traded in the
over-the-counter market, including listed securities for which
the primary market is believed to be over-the-counter, are valued
at the mean between the most recently quoted bid and asked prices
provided by the principal market makers. Any security for which
the primary market is on an exchange is valued at the last sale
price on such exchange on the day of valuation or, if there was
no sale on such day, the last bid price quoted on such day.
Options will be valued at market value or fair market value if no
market exists. Futures contracts will be valued in a like
manner, except that open futures contracts sales will be valued
using the closing settlement price or, in the absence of such a
price, the most recently quoted asked price. Securities and
assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund. However,
readily marketable fixed-income securities may be valued on the

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basis of prices provided by a pricing service when such prices
are believed by the Adviser to reflect the fair market value of
such securities. The prices provided by a pricing service take
into account institutional size trading in similar groups of
securities and any developments related to specific securities.
U.S. Government Securities and other debt instruments having 60
days or less remaining until maturity are stated at amortized
cost if their original maturity was 60 days or less, or by
amortizing their fair value as of the 61st day prior to maturity
if their original term to maturity exceeded 60 days (unless in
either case the Fund's Board of Directors determines that this
method does not represent fair value). The Money Market
Portfolio uses amortized cost for all of its portfolio
securities. All other assets of the Fund, including restricted
and not readily marketable securities, are valued in such manner
as the Board of Directors of the Fund in good faith deems
appropriate to reflect their fair market value.

Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each business day
in New York. In addition, European or Far Eastern securities
trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore,
trading takes place in Japanese markets on certain Saturdays and
in various foreign markets on days which are not business days in
New York and on which the Fund's net asset value is not
calculated. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the
close of the New York Stock Exchange will not be reflected in the
Portfolio's calculation of net asset value unless the Board of
Directors of the Fund deems that the particular event would
materially affect net asset value, in which case an adjustment
will be made.

For purposes of determining the net asset value per
share of the International Portfolio, the Short-Term Multi-Market
Portfolio, the North American Government Income Portfolio and the
Utility Income Portfolio, all assets and liabilities initially
expressed in foreign currencies will be converted into United
States dollars at the mean of the bid and asked prices of such
currencies against the United States dollar last quoted by a
major bank which is a regular participant in the institutional
foreign exchange markets or on the basis of a pricing service
which takes into account the quotes provided by a number of such
major banks.

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_________________________________________________________________

PORTFOLIO TRANSACTIONS
_________________________________________________________________

Neither the Fund nor the Adviser has entered into
agreements or understandings with any brokers or dealers
regarding the placement of securities transactions because of
research or statistical services they provide. To the extent
that such persons or firms supply investment information to the
Adviser for use in rendering investment advice to the Fund, such
information may be supplied at no cost to the Adviser and,
therefore, may have the effect of reducing the expenses of the
Adviser in rendering advice to the Fund. While it is impossible
to place an actual dollar value on such investment information,
its receipt by the Adviser probably does not reduce the overall
expenses of the Adviser to any material extent.

The investment information provided to the Adviser is of
the types described in Section 28(e)(3) of the Securities
Exchange Act of 1934 and is designed to augment the Adviser's own
internal research and investment strategy capabilities. Research
and statistical services furnished by brokers through which the
Fund effects securities transactions are used by the Adviser in
carrying out its investment management responsibilities with
respect to all its client accounts but not all such services may
be utilized by the Adviser in connection with the Fund.

The Fund will deal in some instances in equity
securities which are not listed on a national stock exchange but
are traded in the over-the-counter market. In addition, most
transactions for the U.S. Government/High-Grade Securities
Portfolio and the Money Market Portfolio are executed in the
over-the-counter market. Where transactions are executed in the
over-the-counter market, the Fund will seek to deal with the
primary market makers, but when necessary in order to obtain the
best price and execution, it will utilize the services of others.
In all cases, the Fund will attempt to negotiate best execution.

The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
an affiliate of the Adviser, the Fund's distributor, and with
brokers which may have their transactions cleared or settled, or
both, by the Pershing Division of DLJ for which DLJ may receive a
portion of the brokerage commission. With respect to orders
placed with DLJ for execution on a national securities exchange,
commissions received must conform to Section 17(e)(2)(A) of the
1940 Act and Rule 17e-1 thereunder, which permit an affiliated
person of a registered investment company (such as the Fund), or
any affiliated person of such person, to receive a brokerage

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commission from such registered investment company provided that
such commission is reasonable and fair compared to the
commissions received by other brokers in connection with
comparable transactions involving similar securities during a
comparable period of time.

No brokerage commissions were incurred by any Portfolio
of the Fund for the fiscal years ended December 31, 1991 and 1992
and no brokerage commissions were incurred by the Money Market
Portfolio, U.S. Government/High Grade Securities Portfolio,
Short-Term Multi-Market Portfolio and Global Bond Portfolio for
the fiscal year ended December 31, 1993.

Brokerage commissions paid for the period ended December
31, 1994 on securities transactions amounted to $54,827,
$102,852, $28,278, $1,043, $3,214, $10,634, $105 and $175 on the
Premier Growth Portfolio, the Growth and Income Portfolio, the
International Portfolio, the Total Return Portfolio, the Utility
Income Portfolio, the Growth Portfolio, the Conservative
Investors Portfolio and the Growth Investors Portfolio,
respectively. During the fiscal years ended December 31, 1992,
1993 and 1994, no brokerage commissions were paid to Donaldson,
Lufkin & Jenrette Securities Corporation and no brokerage
commissions were paid to brokers utilizing the Pershing Division
of Donaldson, Lufkin & Jenrette Securities Corporation.

_________________________________________________________________

DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________

Each Portfolio of the Fund qualified and intends to
continue to qualify to be taxed as a "regulated investment
company" under the Internal Revenue Code of 1986 (the "Code").
If so qualified, each Portfolio will not be subject to federal
income and excise taxes on its investment company taxable income
and net capital gains to the extent such investment company
taxable income and net capital gains are distributed to the
separate accounts of insurance companies which hold its shares.
Under current tax law, capital gains or dividends from any
Portfolio are not currently taxable when left to accumulate
within a variable annuity or variable life insurance contract.
Distributions of net investment income and net short-term capital
gains will be treated as ordinary income and distributions of net
long-term capital gains will be treated as long-term capital gain

174

<PAGE>

in the hands of the insurance companies.

Investment income received by a Portfolio from sources
within foreign countries may be subject to foreign income taxes
withheld at the source. If more than 50% of the value of the
Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations (which
for this purpose should include obligations issued by foreign
governments), the Portfolio will be eligible to file an election
with the Internal Revenue Service to pass through to its
shareholders the amount of foreign taxes paid by the Portfolio.
If eligible, each such Portfolio intends to file such an
election, although there can be no assurance that such Portfolio
will be able to do so.

Section 817(h) of the Code requires that the investments
of a segregated asset account of an insurance company be
"adequately diversified", in accordance with Treasury Regulations
promulgated thereunder, in order for the holders of the variable
annuity contracts or variable life insurance policies underlying
the account to receive the tax-deferred or tax-free treatment
generally afforded holders of annuities or life insurance
policies under the Code. The Department of the Treasury has
issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account
will treat investments in a regulated investment company for
purposes of the applicable diversification requirements. Under
the Regulations, if a regulated investment company satisfies
certain conditions, a segregated asset account owning shares of
the regulated investment company will not be treated as a single
investment for these purposes, but rather the account will be
treated as owning its proportionate share of each of the assets
of the regulated investment company. Each Portfolio plans to
satisfy these conditions at all times so that the shares of such
Portfolio owned by a segregated asset account of a life insurance
company will be subject to this treatment under the Code.

For information concerning the federal income tax
consequences for the holders of variable annuity contracts and
variable rate insurance policies, such holders should consult the
prospectus used in connection with the issuance of their
particular contracts or policies.

175

<PAGE>

________________________________________________________________

GENERAL INFORMATION
________________________________________________________________

CAPITALIZATION

The Fund's shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they choose to do so, and in such election of
Directors will not be able to elect any person or persons to the
Board of Directors.

All shares of the Fund when duly issued will be fully
paid and nonassessable. The Board of Directors is authorized to
reclassify and issue any unissued shares to any number of
additional series without shareholder approval. Accordingly, the
Board of Directors in the future, for reasons such as the desire
to establish one or more additional Portfolios with different
investment objectives, policies or restrictions, may create
additional series of shares. Any issuance of shares of such
additional series would be governed by the 1940 Act and the law
of the State of Maryland.

If shares of another series were issued in connection
with the creation of the new portfolio, each share of any of the
Fund's Portfolios would normally be entitled to one vote for all
purposes. Generally, shares of each Portfolio would vote as a
single series for the election of directors and on any other
matter that affected each portfolios in substantially the same
manner. As to matters affecting each Portfolio differently, such
as approval of the Investment Advisory Agreement and changes in
investment policy, shares of each Portfolio would vote as
separate series.

Procedures for calling shareholders meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholder of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders.

The outstanding voting shares of each outstanding
Portfolio of the Fund as of March 24, 1995 consisted of
9,720,060.020 shares of common stock of the Money Market
Portfolio, 3,525,549.932 shares of common stock of the Premier
Growth Portfolio, 3,712,091.558 shares of common stock of the
Growth and Income Portfolio, 619,388.062 shares of common stock
of the U.S. Government/High Grade Securities Portfolio,
624,517.931 shares of common stock of the International

176

<PAGE>

Portfolio, 93,130.950 shares of common stock of the Total Return
Portfolio, 1,701,776.436 shares of common stock of the Short-Term
Multi-Market Portfolio, 740,132.970 shares of common stock of the
Global Bond Portfolio, 395,698.870 shares of common stock of the
North American Government Income Portfolio, 132,220.653 shares of
common stock of the Global Dollar Government Portfolio,
168,716.666 shares of common stock the Utility Income Portfolio,
98,031.010 shares of common stock of the Conservative Investors
Portfolio, 46,617.495 shares of common stock of the Growth
Investors Portfolio, 850,499.489 shares of common stock of the
Growth Portfolio, and 171,766.832 shares of common stock of the
Worldwide Privatization Portfolio. Set forth and discussed below
is certain information as to all persons who owned of record or
beneficially 5% of more of the outstanding shares of the Fund's
Portfolios at March 24, 1995.

NUMBER OF % OF
PORTFOLIO NAME AND ADDRESS SHARES SHARES

Money Market AIG Life Insurance 5,971,638.670 61%
Company ("AIG")
One ALICO Plaza
600 Kings Street
Wilmington, DE 19801

American International 3,452,717.240 36%
Life Assurance Company
of New York ("American")
80 Pine Street
New York, NY 10005

Premier Growth American Skandia Life 3,221,110.548 91%
Assurance Corporation
("Skandia")
One Corporate Drive
Shelton, CT 06484

AIG 203,675.819 6%

Growth and Income Skandia 2,677,991.775 72%

AIG 507,346.657 14%

Bankers Life Insurance 332,307.237 9%
Society ("Bankers Life")

177

<PAGE>

4601 Fairfax Drive
Arlington, VA 22203

American 204,445.889 5%

U.S. Government/ AIG 354,246.098 57%
High Grade
American 139,794.133 23%

Skandia 125,347.821 20%

Total Return AIG 49,438.395 53%

Skandia 33,275.526 36%

American 10,417.029 11%

International AIG 423,106.897 68%

American 127,700.137 20%

Skandia 73,710.897 12%

Short-Term Skandia 1,435,147.436 84%
Multi-Market
Bankers Life 168,767.628 10%

Global Bond Skandia 624,829.363 84%

AIG 80,391.272 11%

North American AIG 305,372.785 77%
Government Income

American 78,372.672 20%

178

<PAGE>

Global Dollar AIG 80,298.380 61%
Government

Skandia 41,651.459 31%

American 10,269.814 8%

Utility Income AIG 144,590.764 86%

American 21,302.242 13%

Conservative AIG 85,533.609 87%
Investors
American 12,496.401 13%

Growth Investors AIG 37,978.277 81%

American 8,638.218 19%

Growth AIG 700,569.361 82%

American 149,471.378 18%

Worldwide AIG 152,166.085 89%
Privatization
American 19,599.747 11%

CUSTODIAN

State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, acts as Custodian for the
securities and cash of the Fund but plays no part in deciding the
purchase or sale of portfolio securities.

PRINCIPAL UNDERWRITER

Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the

179

<PAGE>

public to purchase shares of the Fund. Under the Distribution
Services Agreement between the Fund and the Principal
Underwriter, the Fund has agreed to indemnify the distributor, in
the absence of its willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations thereunder,
against certain civil liabilities, including liabilities under
the Securities Act.

COUNSEL

Legal matters in connection with the issuance of the
shares of the Fund offered hereby will be passed upon by Seward &
Kissel, One Battery Park Plaza, New York, New York 10004.

INDEPENDENT AUDITORS

Ernst & Young LLP, 787 Seventh Avenue, New York, New
York 10019, have been appointed as independent auditors for the
Fund.

SHAREHOLDER APPROVAL

The capitalized term "Shareholder Approval" as used in
this Statement of Additional Information means (1) the vote of
67% or more of the shares of that Portfolio represented at a
meeting at which more than 50% of the outstanding shares are
represented or (2) more than 50% of the outstanding shares of
that Portfolio, whichever is less.

YIELD AND TOTAL RETURN QUOTATIONS

From time to time a Portfolio of the Fund states its
"yield", "actual distribution rate" and "total return." A
Portfolio's yield for any 30-day (or one-month) period is
computed by dividing the net investment income per share earned
during such period by the maximum public offering price per share
on the last day of the period, and then annualizing such 30-day
(or one-month) yield in accordance with a formula prescribed by
the Commission which provides for compounding on a semi-annual
basis. The Portfolio's "actual distribution rate," which may be
advertised in items of sales literature, is computed in the same
manner as yield except that actual income dividends declared per
share during the period in question are substituted for net
investment income per share. Advertisements of a Portfolio's
total return disclose the Portfolio's average annual compounded
total return for the period since the Portfolio's inception. The
Portfolio's total return for each such period is computed by
finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the

180

<PAGE>

period that would equate an assumed initial amount invested to
the value of such investment at the end of the period. For
purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Portfolio are assumed
to have been reinvested when received and the maximum sales
charge applicable to purchases of Portfolio shares is assumed to
have been paid. The past performance of each Portfolio is not
intended to indicate future performance.

The Money Market Portfolio's yield for the seven days
ended December 31, 1994 was 4.81%. The U.S. Government/High
Grade Securities Portfolio's yield for the month ended December
31, 1994 was .50%. The Short-Term Multi-Market Portfolio's yield
for the month ended December 31, 1994 was 0%. The Global Bond
Portfolio's yield for the month ended December 31, 1994 was
0.10%. The North American Government Income Portfolio's yield
for the month ended December 31, 1994 was -10.49%. The Global
Dollar Government Portfolio's yield for the month ended
December 31, 1994 was -2.00%. The actual distribution rate for
such period for the Money Market Portfolio was .40%, for the U.S.
Government/High Grade Security Portfolio was 0%, for the Short-
Term Multi-Market Portfolio was 0%, for the Global Bond Portfolio
was 0%, for the North American Government Income Portfolio was 0%
and for the Global Dollar Government Portfolio was 0%.

The Money Market Portfolio's average annual total
returns for the period December 30, 1992 (commencement of
operations) through December 31, 1994 and for the fiscal year
ended December 31, 1994 were 2.76% and 3.27%, respectively. The
Premier Growth Portfolio's average annual total returns for the
period June 26, 1992 (commencement of operations) through
December 31, 1994 and for the fiscal year ended December 31, 1994
were 9.08% and -2.96%, respectively. The Growth and Income
Portfolio's average annual total returns for the period January
14, 1991 (commencement of operations) through December 31, 1994
and for the fiscal year ended December 31, 1994 were 6.04% and
- -0.35%, respectively. The U.S. Government/High Grade Securities
Portfolio's average annual total returns for the period September
17, 1992 (commencement of operations) through December 31, 1994
and for the fiscal year ended December 31, 1994 were 2.37% and
- -4.03%, respectively. The Total Return Portfolio's average
annual total returns for the period December 28, 1992
(commencement of operations) through December 31, 1994 and for
the fiscal year ended December 31, 1994 were 2.75% and -3.77%,
respectively. The International Portfolio's average annual total
returns for the period December 28, 1992 (commencement of
operations) through December 31, 1994 and for the fiscal year
ended December 31, 1994 were 13.91% and 6.70%, respectively. The

181

<PAGE>

Short-Term Multi-Market Portfolio's average annual total returns
for the period November 28, 1990 (commencement of operations)
through December 31, 1994 and for the fiscal year ended December
31, 1994 were -0.16% and -6.51%, respectively. The Global Bond
Portfolio's average annual total returns for the period July 15,
1991 (commencement of operations) through December 31, 1994 and
for the fiscal year ended December 31, 1994 were 6.10% and
- -5.16%, respectively. The North American Government Income
Portfolio's average annual total return for the period May 3,
1994 (commencement of operations) through December 31, 1994 was
- -12.10%. The Global Dollar Government Portfolio's average annual
total return for the period May 2, 1994 (commencement of
operations) through December 31, 1994 was -1.60%. The Utility
Income Portfolio's average annual total return for the period
May 10, 1994 (commencement of operations) through December 31,
1994 was -0.40%. The Conservative Investors Portfolio's average
annual total return for the period October 28, 1994 (commencement
of operations) through December 31, 1994 was 0.70%. The Growth
Investors Portfolio's average annual total return for the period
October 28, 1994 (commencement of operations) through
December 31, 1994 was -1.40%. The Growth Portfolio's average
annual total return for the period September 15, 1994
(commencement of operations) through December 31, 1994 was 5.30%.
The Worldwide Privatization Portfolio's average annual total
return for the period September 23, 1994 (commencement of
operations) through December 31, 1994 was 1.00%.

182
00250292.AM8

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
PREMIER GROWTH PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994

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

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS AND
OTHER INVESTMENTS - 94.8%
BASIC INDUSTRIES - 5.9%
CHEMICALS - 2.1%
Hercules, Inc....................... 2,500 $ 288,437
Monsanto Co......................... 4,400 310,200
Morton International, Inc........... 6,500 185,250
------------
783,887
------------
METALS & MINING - 2.9%
Bethlehem Steel, Corp.* 41,000 738,000
LTV Corp.* 9,500 154,375
USX-United States Steel Group 6,200 220,100
------------
1,112,475
------------
PAPER & FOREST PRODUCTS - 0.9%
Georgia-Pacific Corp. 4,800 343,200
------------
2,239,562
------------
CAPITAL GOODS - 1.9%
ELECTRICAL EQUIPMENT - 1.9%
Caterpillar, Inc. 6,800 374,850
Deere & Co. 2,000 132,500
General Electric Co. 4,000 204,000
------------
711,350
------------
CONSUMER
MANUFACTURING - 8.6%
AUTO & RELATED - 8.6%
Chrysler Corp. 28,200 1,381,800
Ford Motor Co. 16,800 470,400
General Motors Corp. 24,500 1,035,125
Goodyear Tire & Rubber Co. 10,600 356,425
------------
3,243,750
------------
CONSUMER SERVICES - 24.5%
AIRLINES - 4.2%
AMR Corp.* 6,400 340,800
Southwest Airlines Co. 27,700 463,975
UAL Corp.* 8,900 777,638
------------
1,582,413
------------
BROADCASTING & CABLE - 8.4%
AirTouch Communications, Inc.* 21,400 623,275
Comcast Corp. Cl.A SPL 39,000 611,812
Tele-Communications, Inc. Cl.A* 45,300 988,106
Viacom, Inc. Cl.A 1,448 60,273
Cl. B 20,168 819,325
rights 50,700 57,038
------------
3,159,829
------------
ENTERTAINMENT & LEISURE - 4.2%
Mirage Resorts, Inc.* 14,950 306,475
Time Warner, Inc. 13,700 481,212
Walt Disney Co. 17,800 821,025
------------
1,608,712
------------
RESTAURANTS & LODGING - 1.0%
McDonald's Corp. 13,000 $ 380,250
------------
RETAILING - 6.7%
Best Buy Co., Inc.* 12,800 400,000
Home Depot, Inc. 16,133 742,118
Kohls Corp.* 6,300 250,425
May Department Stores Co. 12,800 432,000
Wal-Mart Stores, Inc. 32,400 688,500
------------
2,513,043
------------
9,244,247
<PAGE>

------------
CONSUMER STAPLES - 1.7%
TOBACCO - 1.7%
Philip Morris Cos., Inc............. 11,400 655,500
------------

FINANCE - 21.8%
BANKING & CREDIT - 8.9%
Chemical Banking Corp............... 7,000 251,125
Citicorp............................ 15,200 628,900
First Bank System, Inc.............. 13,300 442,225
NationsBank Corp.................... 12,100 546,012
Norwest Corp........................ 64,400 1,505,350
------------
3,373,612
------------
BROKERAGE & MONEY
MANAGEMENT - 6.0%
Merrill Lynch & Co., Inc............ 47,200 1,687,400
Morgan Stanley Group, Inc........... 9,500 560,500
------------
2,247,900
------------
INSURANCE - 2.2%
Progressive Corp.................... 7,600 266,000
Travelers, Inc...................... 17,055 554,288
------------
820,288
------------
MORTGAGE BANKING - 4.0%
Federal National Mortgage Assn...... 20,800 1,515,800
------------

OTHER - 0.7%
MBNA Corp........................... 10,800 252,450
------------
8,210,050
------------
HEALTH CARE - 6.6%
HOSPITAL SERVICES - 6.6%
Columbia HCA Healthcare Corp........ 12,000 438,000
United Healthcare Corp.............. 38,500 1,737,312
U.S. Healthcare, Inc................ 7,500 308,438
------------
2,483,750
------------
TECHNOLOGY - 19.9%
COMMUNICATIONS EQUIPMENT - 7.2%
Cisco Systems, Inc.*................ 15,800 553,988
General Instrument Corp.*........... 11,200 336,000
Motorola, Inc....................... 31,200 1,805,700
------------
2,695,688
------------

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
PREMIER GROWTH PORTFOLIO

PORTFOLIO OF INVESTMENTS (CONT'D)
- -------------------------------------------------------------------------------

SHARES U.S.$ VALUE
------ -----------
COMPUTER HARDWARE - 3.1%
Compaq Computer Corp.*.............. 29,900 $ 1,181,050
------------

COMPUTER SOFTWARE &
SERVICES - 2.4%
Microsoft Corp.* 10,500 643,125
Oracle System Corp.* 6,000 265,500
------------
908,625
------------
SEMI-CONDUCTORS &
RELATED - 7.2%
Intel Corp. 21,600 1,377,000
warrants expiring 3/14/98* 59,700 832,069
Texas Instruments, Inc. 6,500 486,687
------------
2,695,756
------------
7,481,119
------------
TRANSPORTATION - 2.7%
RAILROAD - 2.7%
Conrail, Inc. 15,600 787,800
Southern Pacific Rail Corp.* 12,000 217,500
1,005,300
UTILITIES - 1.2%
TELEPHONE - 1.2%
MCI Communications Corp. 24,200 446,188
------------

Total Common Stocks and
Other Investments
(cost $35,457,521) 35,720,816
------------

Principal
Amount
(000) U.S.$ VALUE
COMMERCIAL PAPER - 2.9%
American Express Co.
5.80%, 1/03/95
(amortized cost $1,104,644) $ 1,105 $ 1,104,644
------------

TIME DEPOSIT - 8.7%
State Street Bank and Trust Co.
5.4375%, 1/03/95
(amortized cost $3,260,000) 3,260 3,260,000
------------

TOTAL INVESTMENTS - 106.4%
(cost $39,822,165) 40,085,460
Other assets less liabilities - (6.4%) (2,416,366)
------------

NET ASSETS - 100.0% $37,669,094
============

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

* Non-income producing security.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GLOBAL BOND PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
AUSTRIA - 4.7%
GOVERNMENT/AGENCY - 4.7%
Republic of Austria
7.625%, 10/18/04
(cost $347,327) ATS 3,800 $ 346,729
------------

DENMARK - 5.3%
GOVERNMENT/AGENCY - 5.3%
Kingdom of Denmark
8.00%, 5/15/03 (a) DKK 1,000 154,421
9.00%, 11/15/00 (a) 1,400 230,112
------------

Total Danish Securities
(cost $412,880) 384,533
------------

GERMANY - 14.9%
GOVERNMENT/AGENCY - 11.9%
Federal Republic of Germany
8.00%, 7/22/02 DEM 510 334,691
Kingdom of Belgium
6.25%, 10/06/03 (a) 520 300,987
Treuhandanstalt
6.625%, 7/09/03 (a) 380 228,902
------------
864,580
------------
MISCELLANEOUS - 3.0%
Baden Wurttemberg
6.00%, 5/10/99 360 220,340
------------

Total German Securities
(cost $1,100,317) 1,084,920
------------

IRELAND - 4.2%
GOVERNMENT/AGENCY - 4.2%
Republic of Ireland
6.25%, 10/18/04
(cost $307,619) IEP 240 306,860
------------

ITALY - 5.5%
GOVERNMENT/AGENCY - 3.0%
Republic of Italy
12.00%, 9/01/01 (a) LIRA 360,000 222,051
------------

CORPORATE OBLIGATIONS - 2.5%
Nordic Investment Bank
11.30%, 3/04/02 (a) 300,000 183,423
------------

Total Italian Securities
(cost $425,345) $ 405,474
------------

JAPAN - 27.0%
CORPORATE OBLIGATIONS - 14.0%
Asian Development Bank
5.00%, 2/05/03 JPY 28,000 288,153
European Investment Bank
4.625%, 2/26/03 38,000 382,003
International Bank for
Reconstruction & Development
4.50%, 3/20/03 35,000 350,088
------------
1,020,244
------------
GOVERNMENT/AGENCY - 13.0%
Japan Development Bank
6.50%, 9/20/01 60,000 671,310
Republic of Austria
6.25%, 10/16/03 25,000 279,556
------------
<PAGE>

950,866
------------
Total Japanese Securities
(cost $1,948,277) 1,971,110
------------

UNITED KINGDOM - 4.3%
CORPORATE OBLIGATIONS - 4.3%
British Telecommunications, Plc
7.125%, 9/15/03
(cost $322,073) GBP 225 311,791
------------

UNITED STATES - 31.7%
GOVERNMENT/AGENCY - 28.8%
United States Treasury Notes
5.125%, 3/31/96 US$ 650 631,820
6.375%, 8/15/02 500 457,810
8.25%, 7/15/98 1,000 1,012,340
------------
2,101,970
------------
TIME DEPOSIT - 2.9%
State Street Bank and Trust Co.
5.4375%, 1/04/95 212 212,000
------------

Total United States Securities
(amortized cost $2,382,621) 2,313,970
------------
TOTAL INVESTMENTS - 97.6%
(cost $7,246,459) 7,125,387
Other assets less liabilities - 2.4% 172,682
------------

NET ASSETS - 100.0%.......... $ 7,298,069
============
- -------------------------------------------------------------------------------

(a) Securities segregated to collateralize forward exchange currency contracts
with an aggregate market value of approximately $1,319,896.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GROWTH AND INCOME PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994

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

SHARES U.S.$ VALUE
------ -----------
COMMON AND PREFERRED STOCKS - 82.4%
BASIC INDUSTRIES - 4.7%
CHEMICALS - 2.9%
Lubrizol Corp....................... 8,000 $ 271,000
Monsanto Co......................... 7,000 493,500
Rohm & Haas Co...................... 8,000 457,000
------------
1,221,500
------------
METALS & MINING - 0.7%
Alcan Aluminum Ltd. 12,000 304,500
------------

PAPER & FOREST PRODUCTS - 1.1%
International Paper Co. 6,000 452,250
------------
1,978,250
------------
CAPITAL GOODS - 5.7%
ELECTRICAL EQUIPMENT - 3.5%
Emerson Electric Co. 7,000 437,500
General Electric Co. 20,000 1,020,000
------------
1,457,500
------------
MACHINERY - 2.2%
Allied-Signal, Inc. 14,000 476,000
Coltec Industries, Inc.* 26,100 446,962
------------
922,962
------------
2,380,462
------------
CONSUMER
MANUFACTURING - 2.8%
AUTO & RELATED - 2.8%
General Motors Corp. 10,000 422,500
cv. pfd. Series C 5,000 286,875
Magna International, Inc. Cl.A 12,000 460,500
------------
1,169,875
------------
CONSUMER SERVICES - 12.0%
BROADCASTING & CABLE - 3.2%
Comcast Corp. Cl.A SPL 37,200 583,575
Viacom, Inc. Cl. B* 8,486 344,744
rights* 14,000 15,750
Vodafone Plc (ADR) 12,200 410,225
------------
1,354,294
------------
ENTERTAINMENT & LEISURE - 2.8%
Eastman Kodak Co. 7,000 334,250
Walt Disney Co. 18,000 830,250
------------
1,164,500
------------
PRINTING & PUBLISHING - 0.3%
American Greetings Corp. Cl.A 4,000 107,750
------------

RETAILING - 5.7%
Federated Department Stores, Inc.* 15,500 298,375
Gap, Inc. 10,000 305,000
Kohls Corp.* 10,000 397,500
May Department Stores Co. 18,000 607,500
Toys R Us, Inc.* 14,000 427,000
Wal-Mart Stores, Inc. 16,000 340,000
------------
2,375,375
------------
5,001,919
------------

CONSUMER STAPLES - 10.4%
CONSUMER PRODUCTS &
SERVICES - 1.9%
Perrigo Co.* 12,000 $ 149,250
<PAGE>

Procter and Gamble Co. 10,000 620,000
------------
769,250
------------
COSMETICS - 3.1%
Avon Products, Inc 6,000 358,500
Colgate-Palmolive Co 6,400 405,600
Gillette Co 7,000 523,250
------------
1,287,350
------------
FOOD - 2.3%
Campbell Soup Co 12,000 529,500
Heinz (HJ) Co 12,000 441,000
------------
970,500
------------
TOBACCO - 3.1%
Philip Morris Cos., Inc 22,600 1,299,500
------------
4,326,600
------------
ENERGY - 10.4%
DOMESTIC PRODUCERS - 2.2%
Apache Corp 14,000 350,000
Renaissance Energy Ltd.* 18,000 348,054
Snyder Oil Corp. 5,000 74,375
4.00% cv. pfd 2,000 164,012
------------
936,441
------------
INTERNATIONAL
PRODUCERS - 3.2%
YPF Sociedad Anonima (ADR) 62,000 1,325,250
------------

OIL & GAS SERVICES - 3.2%
Repsol S.A. (ADR) 14,800 403,300
Western Atlas, Inc.* 24,900 936,862
------------
1,340,162
------------
PIPELINES - 1.8%
Enron Corp 24,000 732,000
------------
4,333,853
------------
FINANCE - 11.1%
BANKING & CREDIT - 2.9%
BankAmerica Corp 9,000 355,500
First Bank Systems, Inc. pfd 12,000 399,000
cv. pfd. $3.56 Series 91-A 3,000 179,250
First Interstate Bancorp 4,000 270,500
------------
1,204,250
------------
BROKERAGE & MONEY
MANAGEMENT - 1.0%
Merrill Lynch & Co., Inc 12,000 429,000
------------

INSURANCE - 4.1%
American International Group, Inc 8,000 784,000
Travelers, Inc 28,000 910,000
------------
1,694,000
------------

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

GROWTH AND INCOME PORTFOLIO

PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES U.S.$ VALUE
------ -----------
MORTGAGE BANKING - 0.9%
Federal National Mortgage Assn 5,000 $ 364,375
------------

REAL ESTATE - 1.9%
Avalon Property, Inc 12,000 276,000
Crescent Real Estate Equities 10,000 271,250
Spieker Properties, Inc 12,000 244,500
------------
791,750
------------
OTHER - 0.3%
American Express Co. 5,000 147,500
------------
4,630,875
------------
HEALTH CARE - 12.2%
DRUGS - 11.2%
AB Astra (ADR) 16,400 423,561
AB Astra Series A 5,000 129,195
AB Astra Series B 15,000 382,540
Abbott Laboratories, Inc. 19,000 619,875
Columbia HCA Healthcare Corp. 21,300 777,450
Health Care Property Investors,
Inc. 13,100 394,638
Merck & Co., Inc. 14,000 533,750
Pfizer, Inc. 5,200 401,700
Schering-Plough Corp. 7,000 518,000
United Healthcare Corp. 11,000 496,375
------------
4,677,084
------------
MEDICAL SERVICES - 1.0%
Meditrust 13,300 402,325
------------
5,079,409
------------
MULTI INDUSTRY
COMPANIES - 0.9%
ITT Corp. 4,000 354,500
------------

TRANSPORTATION - 1.9%
RAILROAD - 1.9%
Conrail, Inc. 11,000 555,500
Southern Pacific Rail Corp.* 14,000 253,750
------------
809,250
------------
TECHNOLOGY - 4.5%
COMMUNICATIONS
EQUIPMENT - 0.5%
General Instrument Corp. 7,000 210,000
------------

COMPUTER HARDWARE - 1.3%
Compaq Computer Corp.* 14,000 553,000
------------

COMPUTER SOFTWARE &
SERVICES - 0.7%
Informix Corp.* 9,000 288,563
------------

SHARES OR
PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
SEMI-CONDUCTORS &
RELATED - 2.0%
Intel Corp. 12,600 $ 803,250
------------
1,854,813
------------
UTILITIES - 5.8%
TELEPHONE - 5.8%
MCI Communications Corp. 28,000 516,250
Sprint Corp. 69,300 1,914,412
<PAGE>

2,430,662
------------
Total Common and Preferred Stocks
(cost $34,465,621) 34,350,468
------------

CONVERTIBLE BONDS - 6.8% Comcast Corp.
3.375%, 9/09/05 $ 250 227,500
EMC Corp.
4.25%, 1/01/01 200 236,000
General Instrument Corp.
5.00%, 6/15/00 550 741,812
IRT Property Co.
7.30%, 8/15/03 200 184,000
Legg Mason, Inc.
7.00%, 6/15/11 100 105,000
Liberty Property Ltd. Partnership
8.00%, 7/01/01 200 187,500
Motorola Inc.
Zero Coupon, 9/27/13 1,100 781,000
Wendy's International, Inc.
7.00%, 4/01/06 300 376,500
------------
Total Convertible Bonds
(cost $2,862,685) 2,839,312
------------

U.S. GOVERNMENT
OBLIGATIONS- 10.8%
Federal Home Loan Mortgage Corp.
5.75%, 1/03/95 4,200 4,198,659
5.75%, 1/05/95 300 299,808
------------
Total U.S. Government Obligations
(amortized cost $4,498,467) 4,498,467
------------

TOTAL INVESTMENTS - 100.0%
(cost $41,826,773) 41,688,247
Other assets less liabilities - 0.0% 13,624
------------

NET ASSETS - 100.0% $ 41,701,871
============

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

* Non-income producing security.
See Glossary of Terms on page 37.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

SHORT-TERM MULTI-MARKET PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
AUSTRALIA - 4.5%
GOVERNMENT/AGENCY - 4.5%
New South Wales Treasury
12.10%, 4/01/95 (a) AU$ 300 $ 234,305
Queensland Treasury
5.125%, 1/15/97 (b) 1,000 706,809
------------
Total Australian Securities
(cost $931,168) 941,114
------------

CANADA - 1.2%
GOVERNMENT/AGENCY - 1.2%
Canadian Treasury Bill
Zero Coupon, 6/29/95 (a)
(cost $260,699) CA$ 375 257,645
------------
ITALY - 2.9%
GOVERNMENT/AGENCY - 2.9%
Republic of Italy
8.50%, 8/01/97 (a)
(cost $618,900) LIRA 1,045,000 597,769
------------
MEXICO - 6.5%
GOVERNMENT/AGENCY - 6.5%
Mexican Treasury Bills
Zero Coupon, 6/08/95 (a) MXP 2,368 420,297
Zero Coupon, 11/30/95 (a) 4,360 733,478
9.214%, 2/16/95 (a) 1,110 214,766
------------
Total Mexican Securities
(cost $2,114,276) 1,368,541
---------

NEW ZEALAND - 7.3%
GOVERNMENT/AGENCY - 7.3%
New Zealand Treasury Bond
8.00%, 11/15/95 (a)
(cost $1,442,245) NZ$ 2,400 1,516,881
------------
SPAIN - 2.4%
GOVERNMENT/AGENCY - 2.4%
Government of Spain
9.00%, 2/28/97 (a)
(cost $521,493) ESP 70,000 511,073
------------

UNITED KINGDOM - 2.3%
GOVERNMENT/AGENCY - 2.3%
U.K. Treasury
8.75%, 9/01/97 (a)
(cost $468,894) GBP 300 $ 473,541
------------
UNITED STATES - 73.7%
DEBT OBLIGATIONS - 16.5%
Teso Bonos
Zero Coupon, 5/04/95 US$ 685 640,544
Zero Coupon, 6/01/95 1,045 963,072
Zero Coupon, 7/13/95 1,000 902,200
Zero Coupon, 11/16/95 1,100 947,760
------------
3,453,576
------------
BANK OBLIGATIONS - 13.5%
Bankers Trust
Zero Coupon, 2/10/95 (b) 1,500 1,230,600
Bayerische Landesbank
Zero Coupon, 4/12/95 1,000 770,000
Morgan Guaranty Trust
Company Nassau
Zero Coupon, 1/19/95 1,000 831,000
------------
2,831,600
------------
TIME DEPOSIT - 43.7%
State Street Bank and Trust Co.
5.4375%, 1/03/95 9,133 9,133,000
<PAGE>

------------
Total United States Securities
(cost $16,253,390) 15,418,176
------------
TOTAL INVESTMENTS - 100.8%
(cost $22,611,065) 21,084,740
Other assets less liabilities - (0.8%) (163,881)
------------
NET ASSETS - 100.0% $20,920,859
===========
- -------------------------------------------------------------------------------

(a) Securities segregated to collateralize forward exchange currency contracts
with an aggregate market value of approximately $4,959,755.
(b) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally applied to certain qualified buyers. At December 31,
1994, the aggregate market value of these securities amounted to $1,937,029
or 9.3% of net assets.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
PREFERRED STOCK - 0.9%
FINANCE - 0.9%
Banesto Holdings Ltd. cv. pfd.
Series A 10.50% (a)
(cost $49,725)................... 1,800 $ 45,225
------------

CORPORATE OBLIGATIONS - 12.9%
FINANCE - 8.6% BankAmerica Corp.
7.20%, 4/15/06 $ 100 88,791
Chemical Banking Corp.
7.875%, 7/15/06 100 94,000
General Motors Acceptance Corp.
7.125%, 6/01/99 200 188,570
Wachovia Corp.
6.375%, 4/15/03 75 65,625
------------
436,986
------------
ASSET BACKED - 4.3%
MBNA Master Credit Card Trust
5.40%, 9/15/00 100 91,125
Navistar Finance
6.40%, 1/15/20 131 128,179
------------
219,304
------------
Total Corporate Obligations
(cost $687,750) 656,290
------------
U.S. GOVERNMENT
OBLIGATIONS- 67.0%
U.S. TREASURY SECURITIES - 35.6%
U.S. Treasury Bond
7.50%, 11/15/24 50 47,828
U.S. Treasury Notes
6.375%, 1/15/00 400 376,124
6.75%, 5/31/99 650 623,292
7.25%, 8/15/04 410 393,534
7.75%, 3/31/96 350 351,204
U.S. Treasury Strip
Zero Coupon, 2/15/13 100 23,810
------------
1,815,792
------------
FEDERAL AGENCY - MORTGAGES - 18.2%
Federal Home Loan Mortgage Corp./
Government National Mortgage Assn.
4.75%, 7/25/11 $ 400 $ 365,248
Federal National Mortgage Assn.
6.05%, 1/12/98 100 94,687
6.85%, 4/05/04 100 91,156
Government National Mortgage Assn.
7.00%, 7/15/23 93 83,663
8.00%, 1/15/24 146 139,800
9.00%, 9/15/24 153 154,098
------------
928,652
------------
FEDERAL AGENCY - 13.2%
AID - Israel
8.00%, 11/15/01 200 199,194
Federal Home Loan Bank
7.26%, 9/06/01 300 290,061
Federal Home Loan Mortgage Corp.
6.13%, 8/19/99 200 185,500
------------
674,755
------------
Total U.S. Government Obligations
(cost $3,580,257) 3,419,199
------------

TIME DEPOSIT - 14.9%
State Street Bank and Trust Co.
5.4375%, 1/03/95
<PAGE>

(amortized cost $761,000) 761 761,000
------------

TOTAL INVESTMENTS -95.7%
(cost $5,078,732) 4,881,714
Other assets less liabilities - 4.3% 219,570
------------
NET ASSETS - 100.0% $ 5,101,284
============

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

(a) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally applied to certain qualified buyers. At December 31,
1994, the aggregate market value of these securities amounted to $45,225 or
0.9% of net assets.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

TOTAL RETURN PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994

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

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS - 41.2%
BASIC INDUSTRIES - 3.0%
CHEMICALS - 2.6%
Lubrizol Corp. 120 $ 4,065
Monsanto Co. 100 7,050
Rohm & Haas Co. 100 5,712
Union Carbide Corp. 100 2,938
------------
19,765
------------
METALS & MINING - 0.4%
Bethlehem Steel, Corp.* 150 2,700
------------
22,465
------------
CAPITAL GOODS - 3.8%
ELECTRICAL EQUIPMENT - 2.2%
General Electric Co. 320 16,320
------------

MACHINERY - 1.6%
Allied-Signal, Inc. 200 6,800
Coltec Industries, Inc.* 130 2,226
Paccar, Inc. 70 3,080
------------
12,106
------------
28,426
------------
CONSUMER
MANUFACTURING - 2.4%
AUTO & RELATED - 1.8%
Chrysler Corp. 90 4,410
General Motors Corp. 70 2,958
Magna International, Inc. 150 5,756
------------
13,124
------------
OTHER - 0.6%
Eastman Kodak Co. 100 4,775
------------
17,899
------------
CONSUMER SERVICES - 6.5%
BROADCASTING & CABLE - 1.2%
Comcast Corp. Cl.A SPL 200 3,138
Tele-Communications, Inc. Cl.A 100 2,181
Viacom, Inc. Cl.B 100 4,062
------------
9,381
------------
ENTERTAINMENT & LEISURE - 1.4%
Walt Disney Co. 220 10,148
------------

RESTAURANTS & LODGING - 1.2%
McDonald's Corp. 220 6,435
Wendy's International, Inc. 190 2,731
------------
9,166
------------
RETAILING - 2.7%
Federated Department Stores Inc. 350 6,737
Kohls Corp.* 100 3,975
May Department Stores Co. 100 3,375
Toys R Us, Inc.* 200 $ 6,100
------------
20,187
------------
48,882
------------
CONSUMER STAPLES - 3.9%
COSMETICS - 0.6%
Gillette Co. 60 4,485
------------

HOUSEHOLD PRODUCTS - 1.9%
Colgate-Palmolive Co. 70 4,436
Procter & Gamble Co. 90 5,580
<PAGE>

Scott Paper Co. 60 4,148
------------
14,164
------------
TOBACCO - 1.4%
Philip Morris Cos., Inc. 180 10,350
------------
28,999
------------
ENERGY - 4.0%
DOMESTIC PRODUCERS - 0.6%
Snyder Oil Corp. 300 4,463
------------
INTERNATIONAL PRODUCERS - 1.3%
Chevron Corp. 220 9,817
------------
OIL & GAS SERVICES - 0.7%
Western Atlas, Inc.* 140 5,268
------------
PIPELINES - 1.4%
Enron Corp. 350 10,675
------------
30,223
------------
FINANCE - 7.0%
BANKING & CREDIT - 2.3%
Citicorp 70 2,896
Fleet Financial Group, Inc. 100 3,250
MBNA Corp. 150 3,506
NationsBank Corp. 110 4,964
Norwest Corp. 120 2,805
------------
17,421
------------
BROKERAGE & MONEY
MANAGEMENT - 0.5%
Morgan Stanley Group, Inc. 60 3,540
------------

INSURANCE - 2.8%
American International Group, Inc. 100 9,800
MGIC Investment Corp. 150 4,969
Travelers, Inc. 200 6,500
------------
21,269
------------
MORTGAGE BANKING - 1.4%
Federal National Mortgage Assn. 140 10,202
------------
52,432
------------

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

TOTAL RETURN PORTFOLIO

PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES U.S.$ VALUE
------ -----------
HEALTH CARE - 4.1%
DRUGS - 1.8%
Merck & Co., Inc. 230 $ 8,769
Pfizer, Inc. 60 4,635
------------
13,404
------------
MEDICAL PRODUCTS - 0.5%
Abbott Laboratories, Inc. 130 4,241
------------
MEDICAL SERVICES - 1.8%
Columbia HCA Healthcare Corp. 140 5,110
Healthsource, Inc. 70 2,861
United Healthcare Corp. 80 3,610
Value Health, Inc. 50 1,863
------------
13,444
------------
31,089
------------
TECHNOLOGY - 2.5%
COMMUNICATIONS EQUIPMENT - 1.7%
General Instrument Corp. 170 5,100
Motorola, Inc. 130 7,524
------------
12,624
------------
COMPUTER HARDWARE - 0.5%
Sun Microsystems, Inc.* 100 3,544
------------
SEMI-CONDUCTORS & RELATED - 0.3%
Intel Corp. 40 2,550
------------
18,718
------------
TRANSPORTATION - 1.0%
RAILROAD - 1.0%
Conrail, Inc. 80 4,040
Illinois Central Corp. 100 3,075
------------
7,115
------------
UTILITIES - 3.0%
ELECTRIC & GAS - 1.3%
NIPSCO Industries, Inc. 240 7,140
Peco Energy Co. 120 2,940
------------
10,080
------------
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S.$ VALUE

TELEPHONE - 1.7%
MCI Communications Corp. 250 $ 4,609
Sprint Corp. 280 7,735
------------
12,344
------------
22,424
------------
Total Common Stocks
(cost $309,666) 308,672
------------

U.S. GOVERNMENT
OBLIGATIONS- 32.7%
U.S. Treasury Notes
4.25%, 5/15/96 $ 42 40,255
4.75%, 8/31/98 37 33,404
5.125%, 12/31/98 25 22,703
7.25%, 8/15/04 155 148,775
------------
Total U.S. Government Obligations
(cost $252,764) 245,137
------------

TIME DEPOSIT - 25.2%
State Street Bank and Trust Co.
5.4375%, 1/03/95
<PAGE>

(amortized cost $189,000) 189 189,000
-------

TOTAL INVESTMENTS -99.1%
(cost $751,430) 742,809
Other assets less liabilities - 0.9% 7,091
------------
NET ASSETS - 100.0% $ 749,900
============
- -------------------------------------------------------------------------------

* Non-income producing security.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

INTERNATIONAL PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS AND OTHER
INVESTMENTS - 95.5%
ARGENTINA - 0.3%
Telecom Argentina S.A. Cl. B (b) 1,900 $ 9,309
YPF Sociedad Anonima (ADR) 600 12,825
------------
22,134
------------
AUSTRALIA - 2.7%
Australia and New Zealand
Banking Group 7,429 24,483
Boral Ltd. 8,638 22,774
Brambles Industries Ltd. 3,000 28,660
Broken Hill Proprietary Co. 3,651 55,433
Coca Cola Amatil Ltd. 3,492 22,204
Mayne Nickless Ltd. 7,891 40,385
------------
193,939
------------
BELGIUM - 0.9%
Arbed S.A.* 98 14,726
Kredietbank S.A. 243 50,953
------------
65,679
------------
CANADA - 0.2%
Alcan Aluminum Ltd. 1 31
Renaissance Energy Ltd.* (b) 600 11,548
------------
11,579
------------
DENMARK - 0.7%
Den Danske Bank 900 49,112
------------

FINLAND - 1.2%
Nokia AB Preferred 572 84,267
------------

FRANCE - 6.9%
Banque National De Paris 537 24,683
Bouygues 400 38,270
Coflexip Sponsored (ADR) 754 17,436
Compagnie De Saint Gobain 540 62,078
Compagnie Financiere De Paribas S.A. 766 50,914
Compagnie Generale Des Eaux 655 63,648
Group Danone 120 16,828
Pechiney International S.A. 500 33,702
Salomon S.A. 100 39,974
Societe Centrale Des Assurances
Generales De France 1,854 73,591
Total S.A. (ADR) 1,217 35,902
Total S.A. Cl. B 600 34,847
Union Du Credit Bail Immobil 125 11,421
------------
503,294
------------
GERMANY - 6.6%
Basf AG 400 82,468
Bayer AG 238 55,749
Bayerische Motoren Werke AG 72 35,589
Deutsche Bank AG 178 $ 82,700
KSB AG - Vorzug Preferred 20 4,194
Lufthansa AG* 562 70,717
PWA - Papierwerke Waldhof -
Aschaffenburg AG* 205 31,483
Suedzucker AG 81 40,508
Veba AG 218 75,963
------------
479,371
------------
GHANA - 0.2%
Ashanti Goldfields (ADR)* (b) 140 3,027
Ashanti Goldfields (GDS)* (b) 475 10,094
------------
13,121
------------
HONG KONG - 2.5%
Hong Kong and China Gas Co. Ltd.
<PAGE>

warrants expiring 12/31/95 200 323
Hong Kong Land Holdings Ltd. 13,000 25,370
Hutchison Whampoa 9,000 36,407
Jardine Strategic Holdings Ltd. 10,000 32,827
Sun Hung Kai Properties Ltd. 8,000 47,767
Television Broadcasts of
Hong Kong Ltd. 10,000 39,936
------------
182,630
------------
INDIA - 0.5%
Bajaj Auto Ltd. (GDR)* 230 5,520
Hindalco Industries Ltd. (GDR)* 450 15,300
Reliance Industries Ltd.* (b) 350 7,699
rights * (b) 420 8,316
------------
36,835
------------
INDONESIA - 0.5%
Astra International 9,000 17,197
Indocement Tunggal Prakarsa 4,000 11,511
Indosat* 1,500 5,374
Idr500 (alien Mkt)* 1,000 3,583
------------
37,665
------------
ITALY - 1.9%
Burgo (Cartiere) Spa* 5,600 37,132
La Rinascente Spa 6,855 38,561
Societa Italiana Per L'Eserreizio
Delle Telecommunicazioni, P.A. 23,140 60,232
------------
135,925
------------
JAPAN - 39.7%
Asahi Bank Ltd. 8,000 93,173
Asahi Glass Co. Ltd. 8,000 98,795
Bank of Tokyo 8,000 123,695
Canon, Inc. 4,000 67,871
Dai Ichi Kangyo Bank 4,000 75,502
Dai Nippon Printing Co. Ltd. 2,000 34,137
Daiwa Securities Co. Ltd. 3,000 43,373
DDI Corp. 6 51,807

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

INTERNATIONAL PORTFOLIO

PORTFOLIO OF INVESTMENTS (CONT'D)
- -------------------------------------------------------------------------------

SHARES U.S.$ VALUE
------ -----------
East Japan Railway Co. 7 $ 35,000
Fuji Photo Film Co. (ORD) 3,000 69,578
Hankyu Department Stores 5,000 64,257
Hitachi Metals Ltd. 8,000 97,992
Ito - Yokado Co. Ltd. (ADR) 225 48,037
Kajima Corp. 1,000 8,574
Kao Corp. 2,000 22,691
Komatsu Co. Ltd. 4,000 36,145
Kuraray Co. Ltd. 5,000 59,237
Long-Term Credit Bank of Japan 6,000 65,663
Matsushita Electric Works (a) 7,000 71,687
Mitsubishi Chemical 13,200 72,626
Mitsubishi Electric Corp. 10,000 70,984
Mitsubishi Heavy Industries Ltd. 4,000 30,522
NEC Corp. 7,000 80,120
Nippondenso Co. Ltd. 4,000 84,337
Nippon Electric Glass Co. Ltd. 4,000 79,518
Nippon Express Co Ltd. 4,000 40,161
Nippon Paper Industries Co. 6,000 44,096
Nippon Steel Corp. 11,000 41,416
Nippon Telegraph and Telephone Corp. 7 61,918
Nomura Securities Ltd. (ADR) 226 46,890
NTN Corp. 10,000 75,000
Sakura Bank Ltd. 7,000 94,177
Sankyo Co. Ltd. 1,000 24,900
Santen Pharmaceutical Co. 2,000 55,622
Sanyo Electric Co. Ltd. 2,000 11,506
Seven Eleven Japan 1,000 80,422
Sony Corp. 2,000 113,454
Sumitomo Bank 6,000 114,458
Sumitomo Realty and Development 4,000 23,695
Taisho Pharmaceutical Co. 3,000 57,530
Takara Shuzo Co. 6,000 47,651
Tokio Marine and Fire Co. 8,000 97,992
Tokyo Electric Power 1,000 27,912
Tokyo Gas Cos. Ltd. 10,000 43,373
Toyota Corp. (a) 4,000 84,337
Ube Industries Ltd.* 9,000 34,789
Yamazaki Baking Co. Ltd. 4,000 80,321
------------
2,886,941
------------
MALAYSIA - 1.4%
Aokam Perdana Bhd 5,400 33,413
Development & Commercial Bank 7,000 15,626
Development & Commercial Bank,
Rights* 1,750 0
Resorts World Bhd 6,000 35,246
Technology Resources Industries Bhd 6,000 19,150
------------
103,435
------------
MEXICO - 0.6%
Grupo Financiero Bancomer S.A. (b) 16,100 $ 8,738
Grupo Situr S.A. Series BCP 7,503 15,383
Telefonos de Mexico S.A. Series L
(ADR) 557 22,837
------------
46,958
------------
NETHERLANDS - 4.7%
Amev N.V. 2,209 93,786
DSM N.V. 630 50,047
Elsevier N.V. 3,400 35,451
European Vinyls Corp. International
N.V.* 400 17,720
Heineken N.V. 526 79,087
Royal Ptt Nederland N.V. 1,050 35,385
VNU - Ver Ned Uitgevers Ver Bezit 321 33,322
------------
344,798
------------
NORWAY - 0.5%
Transocean AS* 4,700 38,921
------------
PHILIPPINES - 0.5%
Manila Electric Co. 2,300 31,578
Philippine Long Distance Telephone
Company (ADR) 105 5,788
------------
37,366
------------
SINGAPORE - 1.9%
<PAGE>

Development Bank of Singapore 6,000 61,749
Keppel Corp. 7,000 59,554
Singapore Press Holdings Ltd. 1,000 18,182
------------
139,485
------------
SPAIN - 3.6%
Banco Intercontinental Espana 442 36,569
Centros Comerciale Continente S.A. 2,250 45,299
Gas Natural Sdg E 285 24,510
Iberdrola S.A. 3,495 21,561
Repsol S.A. 1,975 53,567
Tabacalera S.A. 1,200 32,091
Telefonica De Espana 3,945 46,606
------------
260,203
------------
SWEDEN - 2.8%
Astra AB 3,930 101,548
Hennes and Mauritz AB 280 14,357
Marieberg Tidnings AB 1,400 31,653
SKF AB Cl. A* 792 13,110
SKF AB Cl. B* 1,000 16,486
Stora Kopparbergs Series B 495 29,844
------------
206,998
------------

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

INTERNATIONAL PORTFOLIO

PORTFOLIO OF INVESTMENTS (CONT'D)
- -------------------------------------------------------------------------------

SHARES U.S.$ VALUE
------ -----------
SWITZERLAND - 2.0%
BBC Brown Boveri AG - Bearer 56 $ 48,214
BBC Brown Boveri AG - Regular 24 3,960
Nestle S.A. 96 91,453
------------
143,627
------------
UNITED KINGDOM - 12.7%
Argos Plc (a) 7,500 41,308
Barclays Plc 6,635 63,433
Barratt Development Plc 3,000 7,839
Bat Industries Plc 9,425 63,561
British Airways Plc 10,575 59,237
British Land Co. Plc 6,000 36,004
British Petroleum Co. Plc 5,720 38,083
Dixons Group Plc 21,600 64,215
Forte Plc (a) 24,350 91,822
General Electric Plc 6,637 28,662
Johnson Matthey Plc 7,100 60,657
Mowlem (John) & Co. Plc* 21,700 33,954
Royal Bank of Scotland Group 9,200 56,717
Smithkline Beecham Cl. A 4,700 33,351
Thorn EMI Plc 4,219 68,292
Unilever Plc (a) 2,960 53,610
Vodafone Group Plc 23,452 77,795
Wimpey (George) Plc (a) 20,905 42,196
------------
920,736
------------
Total Common Stocks and Other
Investments
(cost $7,026,388) 6,945,019
------------
TIME DEPOSIT - 9.0%
State Street Bank and Trust Co.
5.4375%, 1/03/95
(amortized cost $658,000) $ 658 $ 658,000
------------
TOTAL INVESTMENTS - 104.5%
(cost $7,684,388) 7,603,019
Other assets less liabilities - (4.5%) (326,631)
------------
NET ASSETS - 100.0% $ 7,276,388
============
- -------------------------------------------------------------------------------

* Non-income producing security.
(a) Securities segregated to collateralize forward exchange currency contracts
with an aggregate market value of approximately $384,960.
(b) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally applied to certain qualified buyers. At December 31,
1994, the aggregate market value of these securities amounted to $58,731 or
0.8% of net assets.
See Glossary of Terms on page 37.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

MONEY MARKET PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS - 98.2%
Federal Farm Credit Bank
5.70%, 1/23/95 $ 810 $ 807,178
Federal Home Loan Bank
5.65%, 1/06/95 500 499,608
5.89%, 2/21/95 300 297,497
Federal Home Loan Mortgage Corp.
5.24%, 1/04/95 300 299,869
5.63%, 1/23/95 300 298,968
5.88%, 1/12/95 400 399,281
5.94%, 1/23/95 700 697,459
Federal National Mortgage Assn.
5.64%, 2/13/95 300 297,979
5.90%, 1/06/95 800 799,344
5.91%, 1/09/95 400 399,475
United States Treasury Bill
5.36%, 3/09/95 2,000 1,980,049
------------
Total U.S. Government and
Agency Obligations
(amortized cost $6,776,707) 6,776,707
------------

TOTAL INVESTMENTS -98.2%
(amortized cost $6,776,707) $ 6,776,707
Other assets less liabilities - 1.8% 121,588
------------
NET ASSETS - 100.0% $ 6,898,295
============

- ------------------------------------------------------------------------------
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
SOVEREIGN DEBT OBLIGATIONS - 30.7%
COLLATERALIZED BRADY BONDS - 18.9%
ARGENTINA - 1.5%
Republic of Argentina
Euro Par Bond
4.25%, 3/31/23
(cost $20,856) $ 40 $ 16,950
------------
BULGARIA - 8.1%
National Republic of Bulgaria
Series A Disc.
6.0625%, 7/28/24
(cost $93,513) 200 93,500
------------
PHILIPPINE - 4.9%
Central Bank of Philippines
Par Bonds FRB
5.75%, 12/01/95
(cost $57,818) 90 55,800
------------
POLAND - 4.4%
Republic of Poland
Disc.
6.8125%, 10/27/24
(cost $51,110) 70 50,470
------------
Total Collateralized Brady Bonds
(cost $223,297) 216,720
------------
OTHER SOVEREIGN DEBT - 11.8%
ARGENTINA - 2.1%
Republic of Argentina
FRB
6.50%, 3/31/05
(cost $28,725) 38 24,320
------------
BRAZIL - 4.5%
Republic of Brazil
C-Bonds
8.00%, 4/15/14 41 19,635
Republic of Brazil
Series A IDU
6.0625%, 1/01/01 38 31,985
------------
Total Brazilian Securities
(cost $51,099) 51,620
------------
MEXICO - 0.8%
Desc Sociedad de Fomento
11.00%, 12/15/97
(cost $10,500) $ 10 $ 9,613
------------
TRINIDAD & TOBAGO - 4.3%
Republic of Trinidad & Tobago
11.75%, 10/03/04
(cost $49,692) 50 49,500
------------
Total Other Sovereign Debt Obligations
(cost $140,016) 135,053
------------

CORPORATE DEBT OBLIGATIONS - 18.5%
BROADCASTING - 3.2%
Paramount Communications, Inc.
8.25%, 8/01/22 3 2,483
Viacom, Inc.
8.00%, 7/07/06 40 34,300
------------
Total Broadcasting
(cost $35,377) 36,783
------------
ELECTRIC & GAS - 0.2%
DQU II Funding Corp.
8.70%, 6/01/16
(cost $2,873) 3 2,763
------------
FINANCIAL - 2.8%
Dine SA De CV
<PAGE>

8.125%, 10/15/98
(cost $36,177) 40 31,700
------------
INDUSTRIAL - 3.8%
Hylsa SA De CV
11.00%, 2/23/98
(cost $49,888) 50 43,125
------------
TELEPHONE - 1.4%
Telefonica De Argentina
8.375%, 10/01/00
(cost $18,587) 20 16,100
------------
YANKEES - 7.1%
Centragas
10.65%, 12/01/10 (a) 50 47,625

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

PORTFOLIO OF INVESTMENTS (CONT'D)
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
Grupo Mexicano De Desarrollo
8.25%, 2/17/01 $ 40 $ 24,750
Transportacion Maritima
Mexicana, S.A.
9.25%, 5/15/03 12 9,105
------------

Total Yankees
(cost $92,716) 81,480
------------

Total Corporate Debt Obligations
(cost $235,618) 211,951
------------

U.S. GOVERNMENT OBLIGATIONS - 41.4%
U.S. Treasury Notes
6.50%, 4/30/99 55 52,267
6.75%, 5/31/99 90 86,302
7.25%, 8/15/04 350 335,944
------------
Total U.S. Government Obligations
(cost $492,027) 474,513
------------
TIME DEPOSIT - 17.5%
State Street Bank and Trust Co.
5.4375%, 1/03/95
(amortized cost $201,000) $ 201 $ 201,000
------------
TOTAL INVESTMENTS - 108.1%
(cost $1,291,958) 1,239,237
Other assets less liabilities - (8.1%) (92,911)
------------
NET ASSETS - 100.0% $ 1,146,326
============

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

(a) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally applied to certain qualified buyers. At December 31,
1994, the aggregate market value of these securities amounted to $47,625 or
4.2% of net assets.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
ARGENTINA - 15.9%
GOVERNMENT OBLIGATIONS - 15.9%
Bonos De Inversion y Creimiento
18.75%, 5/01/01 (FRN) ARS 78 $ 69,571
Republic of Argentina
Pensioner-Bocon Series I
3.50%, 4/01/01 (FRN) 319 135,307
3.50%, 4/01/07 (FRN) 1,517 406,085
------------
Total Argentina Securities
(cost $928,928). 610,963
------------
MEXICO - 18.4%
GOVERNMENT/AGENCY - 18.4%
Mexican Treasury Bills
Zero Coupon, 1/26/95 MXP 241 47,366
Zero Coupon, 2/16/95 500 96,637
Zero Coupon, 4/12/95 180 33,702
Zero Coupon, 4/20/95 650 121,221
Zero Coupon, 5/04/95 1,103 203,954
Zero Coupon, 10/19/95 1,129 203,736
------------
Total Mexican Securities
(cost $1,056,137) 706,616
------------
UNITED STATES - 64.7%
GOVERNMENT/AGENCY - 58.6%
Federal Home Loan Bank
7.26%, 9/06/01 US$ 200 193,374

Federal Home Loan Mortgage Corp.
6.13%, 8/19/99 US$ 150 $ 139,125
Federal National Mortgage Assn.
5.05%, 11/10/98 305 275,168
Government National Mortgage Assn.
9.00%, 9/15/24 204 205,464
U.S. Treasury Notes
6.50%, 4/30/99 185 175,808
6.75%, 5/31/99 320 306,851
7.25%, 8/15/04 1,000 959,840
------------
2,255,630
------------
TIME DEPOSIT - 6.1%
State Street Bank and Trust Co.
5.4375%, 1/03/95 236 236,000
------------
Total United States Securities
(cost $2,539,885) 2,491,630
------------
TOTAL INVESTMENTS - 99.0%
(cost $4,524,950) 3,809,209
------------
Other assets less liabilities - 1.0% 38,873
------------
NET ASSETS - 100.0% $ 3,848,082
============

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

UTILITY INCOME PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

SHARES U.S.$ VALUE
------ -----------
COMMON AND PREFERRED STOCKS - 83.1%
UNITED STATES INVESTMENTS - 79.0%
ENERGY - 3.5%
OIL & GAS SERVICES - 1.8%
Western Atlas, Inc.* 600 $ 22,575
------------
PIPELINES - 1.7%
Enron Corp. 700 21,350
------------
43,925
------------
MULTI INDUSTRY COMPANIES - 5.9%
Cinergy Corp. 1,200 28,050
Penn Engineering Manufacturing
Corp. 1,100 46,338
------------
74,388
------------
PUBLIC UTILITIES - 69.1%
ELECTRIC & GAS - 59.6%
American Electric Power, Inc. 1,200 39,450
Baltimore Gas & Electric Co. 1,800 39,825
CMS Energy Corp. 950 21,731
Companhia Energetica De Minas
(ADR) (a) 400 9,455
Companhia Energetica De Sao Paulo
(ADR)* (a) 300 4,091
Compania Boliviana De Energia
Electrica S.A. (ADR) 200 4,550
Dominion Resources, Inc. 1,000 35,750
DPL, Inc. 1,500 30,750
Duke Power Co. 1,100 41,937
Eastern Utilities Assoc. 1,000 22,000
Empresa Nacional De Electricd (ADR) 100 4,050
Enersis S.A. (ADR) 100 2,775
Entergy Corp. 500 10,938
FPL Group, Inc. 1,100 38,637
Hawaiian Electric Industries, Inc. 800 25,900
IES Industries, Inc. 400 10,100
LG & E Energy Corp. 400 14,750
NIPSCO Industries, Inc. 900 26,775
Northeast Utilities 1,000 21,625
Oklahoma Gas & Electric Co. 600 19,875
Pacificorp 600 10,875
Peco Energy Capital LP
9.00% Series A pfd. 430 10,804
Peco Energy Co. 600 14,700
Pennsylvania Power & Light Co. 1,700 32,300
Portland General Corp. 1,200 23,100
Public Service Co. of Colorado 800 23,500
Public Service Company NM 2,600 33,800
Repsol SA, ADR 500 13,625
San Diego Gas & Electric Co. 2,000 38,500
Scecorp 400 5,850
Southern Co. 1,200 24,000
Texas Utilities Co. 900 $ 28,800
Unicom Corp. 1,000 24,000
Western Resources, Inc. 200 5,725
Wisconsin Energy Corp. 1,300 33,638
------------
748,181
------------
TELEPHONE - 9.5%
GTE Corp. 700 21,262
MCI Communications Corp. 1,000 18,437
Pacific Telesis Group 650 18,525
Philippine Long Distance
Telephone Co. (ADR) 100 5,513
Telecom Argentina Stet
France (ADR) (a) 200 10,350
Telecom Corp. of
New Zealand (ADR) 200 10,275
Telecomunicacoes Brasileras
S.A. (ADR) 100 4,475
Telefonica De Argentina (ADR) 100 5,300
Telefonos de Mexico, S.A.,
<PAGE>

Series L (ADR) 600 24,600
------------
118,737
------------
866,918
------------
TECHNOLOGY - 0.5%
COMPUTER PERIPHERALS - 0.5%
Indonesian Satellite Corp. (ADR) 170 6,077
------------
Total United States Investments
(cost $1,014,037) 991,308
------------
FOREIGN INVESTMENTS - 4.1%
ARGENTINA - 1.8%
Central Costanera S.A. (a) 300 7,950
Central Puerta S.A. (a) 300 7,424
Transportadora De Gas Del Sur 3,800 7,143
------------
22,517
------------
CANADA - 1.2%
Renaissance Energy Ltd.* 800 15,469
------------
MALAYSIA - 0.3%
Tenaga Nasional 1,000 3,956
------------
PHILIPPINE - 0.8%
Manila Electric Co. 680 9,336
------------
Total Foreign Investments
(cost $60,987) 51,278
------------
Total Common and Preferred Stocks
(cost $1,075,024) 1,042,586
------------

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

UTILITY INCOME PORTFOLIO

PORTFOLIO OF INVESTMENTS (CONT'D)
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
CORPORATE BONDS - 3.9%
ELECTRIC & GAS - 3.9%
Gulf States Utilities Company
8.25%, 4/01/04 $ 25 $ 24,231
Texas Utilities Electric Co.
8.25%, 4/01/04 25 24,562
------------
Total Corporate Bonds
(cost $49,317) 48,793
------------
TOTAL INVESTMENTS - 87.0%
(cost $1,124,341) 1,091,379
Other assets less liabilities - 13.0% 162,870
------------
NET ASSETS - 100.0% $ 1,254,249
============

- -------------------------------------------------------------------------------
* Non-income producing security.
(a) Securities exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration normally applied to certain qualified buyers. At December 31,
1994, the aggregate market value of these securities amounted to $39,270 or
3.1% of net assets.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

GROWTH PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS - 89.0%
BASIC INDUSTRIES - 2.2%
CHEMICALS - 1.4%
NL Industries, Inc.* 6,000 $ 75,750
------------
METALS & MINING - 0.8%
Kaiser Aluminum Corp.* 2,000 21,750
National Steel Corp.* 1,500 21,750
------------
43,500
------------
119,250
------------
CAPITAL GOODS - 1.0%
MACHINERY - 1.0%
Caterpillar, Inc. 1,000 55,125
------------

CONSUMER
MANUFACTURING - 3.2%
AUTO & RELATED - 1.9%
Chrysler Corp. 2,100 102,900
------------
OTHER - 1.3%
Americredit Corp.* 12,000 72,000
------------
174,900
------------
CONSUMER SERVICES - 12.5%
BROADCASTING & CABLE - 5.2%
AirTouch Communications, Inc.* 2,900 84,463
Tele-Communications, Inc. Cl.A* 4,300 93,794
Viacom, Inc. Cl.A* 64 2,664
Cl.B* 2,484 100,912
------------
281,833
ENTERTAINMENT & LEISURE - 0.8%
Time Warner, Inc. 1,300 45,662
------------

PRINTING & PUBLISHING - 0.4%
Donnelley (R.R.) & Sons Co. 800 23,600
------------

RETAILING - 6.1%
Home Depot, Inc. 700 32,200
Sears, Roebuck & Co. 3,800 174,800
Sports Authority, Inc.* 6,000 126,000
------------
333,000
------------
684,095
------------
CONSUMER STAPLES - 5.0%
TOBACCO - 5.0%
Loews Corp. 2,300 199,813
Philip Morris Cos., Inc. 1,300 74,750
------------
274,563
------------
ENERGY - 4.8%
DOMESTIC PRODUCERS - 1.0%
Anadarko Petroleum Corp. 400 15,400
Apache Corp. 500 $ 12,500
Renaissance Energy Ltd.* 500 9,668
Seagull Energy Corp.* 1,000 19,125
------------
56,693
------------
INTERNATIONAL PRODUCERS - 0.6%
YPF Sociedad Anonima (ADR) 1,600 34,200
------------
OIL & GAS SERVICES - 2.6%
Baker Hughes, Inc. 2,000 36,500
Energy Service, Inc.* 1,000 12,250
Western Atlas, Inc.* 2,500 94,063
------------
142,813
------------
PIPELINES - 0.4%
Enron Corp. 500 15,250
<PAGE>

Sonat Offshore Drilling, Inc. 200 3,550
------------
18,800
------------
OTHER - 0.2%
Enron Oil & Gas Co. 700 13,125
------------
265,631
------------
FINANCE - 24.5%
BANKING & CREDIT - 2.8%
Capital One Financial Corp.* 5,000 80,000
Citicorp. 1,000 41,375
World Acceptance Corp.* 1,500 35,062
------------
156,437
------------
INSURANCE - 11.6%
Acceptance Insurance Co. 3,000 45,000
American International Group, Inc. 1,200 117,600
CNA Financial Corp. 100 6,488
General Reinsurance Corp. 200 24,750
John Alden Financial Corp. 2,500 71,875
Penncorp Financial Group, Inc. 7,000 91,875
Travelers, Inc. 5,600 182,000
Twentieth Century Industries, Inc. 7,900 82,950
USF&G Corp. 1,100 14,987
------------
637,525
------------
MORTGAGE BANKING - 0.4%
Federal National Mortgage Assn. 300 21,863
------------
REAL ESTATE - 7.4%
Essex Property Trust 1,000 15,125
Evans Withycombe Residential 1,500 31,500
Gables Residential Trust 2,000 43,000
Highwoods Properties, Inc. 3,800 82,175
Macerich Co. 1,500 32,063
Manufactured Home Communities, Inc. 1,500 29,813
Saul Centers, Inc. 3,000 44,250
Summit Properties, Inc. 5,000 96,250
Weeks Corp. 1,500 32,812
------------
406,988
------------

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

GROWTH PORTFOLIO

PORTFOLIO OF INVESTMENTS (CONT'D)
- -------------------------------------------------------------------------------

SHARES U.S.$ VALUE
------ -----------
OTHER - 2.3%
Dean Witter, Discover & Co. 1,000 $ 33,875
Mercury Finance Co. 900 11,700
MGIC Investment Corp. 100 3,312
Student Loan Marketing Assn. 2,300 74,750
------------
123,637
------------
1,346,450
------------
HEALTH CARE - 8.2%
DRUGS - 4.9%
Healthsource, Inc.* 4,200 171,675
Lilly (Eli) & Co. 200 13,125
Merck & Co., Inc. 1,200 45,750
Pfizer, Inc. 500 38,625
------------
269,175
------------
MEDICAL PRODUCTS - 1.4%
SciMed Life Systems, Inc.* 1,500 75,844
------------
MEDICAL SERVICES - 1.5%
Abbott Laboratories, Inc. 1,000 32,625
United Healthcare Corp. 700 31,587
U.S. Healthcare, Inc. 400 16,450
------------
80,662
------------
OTHER - 0.4%
Guidant Corp.* 1,500 24,000
------------
449,681
------------
TECHNOLOGY - 23.7%
COMMUNICATIONS EQUIPMENT - 17.9%
Cisco Systems, Inc.* 6,500 227,906
DSC Communications Corp.* 1,800 64,913
EMC Corp.* 8,000 173,000
General Instrument Corp.* 3,600 108,000
Indonesian Satellite Corp. (ADR) 2,100 75,075
Millicom International
Cellular S.A.* 3,600 109,575
Motorola, Inc. 1,600 92,600
Ortel Corp.* 5,000 131,250
------------
982,319
------------
COMPUTER HARDWARE - 1.2%
Dell Computer Corp.* 1,200 49,125
Silicon Graphics, Inc.* 500 15,437
------------
64,562
------------
SHARES OR
PRINCIPAL
AMOUNT
(000)
COMPUTER SOFTWARE &
SERVICES - 0.8%
Aspen Technology, Inc.* 200 $ 3,887
Epic Design Technology, Inc.* 300 6,675
Shiva Corp.* 800 31,900
------------
42,462
------------
SEMI-CONDUCTORS &
RELATED - 2.7%
Intel Corp. 2,300 146,625
------------
TRUCKING - 0.2%
Knight Transportation, Inc.* 1,000 14,375
------------
OTHER - 0.9%
Covenant Transport, Inc.* 200 3,950
PRI Automation, Inc.* 400 6,450
Security Dynamics Technology, Inc.* 1,500 27,844
Videonics, Inc.* 1,000 12,500
------------
50,744
<PAGE>

------------
1,301,087
------------
UTILITIES - 3.9%
TELEPHONE - 3.9%
Rogers Cantel Mobile Communications,
Inc. Cl.B* 5,300 155,025
Sprint Corp. 1,200 33,150
Telephone & Data Systems, Inc. 600 27,675
------------
215,850
------------
Total Common Stocks
(cost $4,680,726) 4,886,632
------------
SHORT-TERM INVESTMENTS - 10.9%
U.S. GOVERNMENT
OBLIGATIONS - 10.9%
Federal Home Loan Bank
5.65%, 1/05/95
(amortized cost $599,623) $ 600 599,623
------------
TOTAL INVESTMENTS - 99.9%
(cost $5,280,349) 5,486,255
Other assets less liabilities - 0.1% 5,509
------------
NET ASSETS - 100.0% $ 5,491,764
============

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

* Non-income producing security.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

WORLDWIDE PRIVATIZATION PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
------ -----------
UNITED STATES - 100.4%
TIME DEPOSIT - 100.4%
State Street Bank and Trust Co.
5.4375%, 1/03/95
(amortized cost $1,132,000) $1,132 $ 1,132,000
------------
TOTAL INVESTMENTS - 100.4%
(cost $1,132,000) 1,132,000
Other assets less liabilities - (0.4%) (4,938)
------------
NET ASSETS - 100.0% $ 1,127,062
===========

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

CONSERVATIVE INVESTORS PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS - 9.7%
BASIC INDUSTRIES - 1.4%
CHEMICALS - 0.8%
Hercules, Inc. 50 $ 5,769
------------
METALS & MINING - 0.6%
Aluminum Co. of America 50 4,331
------------
10,100
------------
CAPITAL GOODS - 1.5%
ELECTRICAL EQUIPMENT - 0.7%
General Electric Co. 100 5,100
------------
MACHINERY - 0.8%
Caterpillar, Inc. 100 5,512
------------
10,612
------------
CONSUMER
MANUFACTURING - 0.7%
AUTO & RELATED - 0.7%
Chrysler Corp. 100 4,900
------------
CONSUMER SERVICES - 0.6%
BROADCASTING & CABLE - 0.6%
Capital Cities ABC, Inc. 50 4,263
------------
CONSUMER STAPLES - 1.8%
COSMETICS - 0.6%
Gillette Co. 50 3,737
------------
FOOD - 0.4%
IBP, Inc. 100 3,025
------------
TOBACCO - 0.8%
Philip Morris Cos., Inc. 100 5,750
------------
ENERGY - 1.3%
DOMESTIC PRODUCERS - 0.9%
Amoco Corp. 100 5,912
------------
PIPELINES - 0.4%
Enron Corp. 100 3,050
------------
8,962
------------
FINANCE - 0.6%
BANKING & CREDIT - 0.6%
Citicorp 100 4,138
------------
TECHNOLOGY - 1.2%
COMMUNICATIONS EQUIPMENT - 0.8%
Motorola, Inc. 100 $ 5,788
------------
COMPUTER SOFTWARE &
SERVICES - 0.4%
Reynolds & Reynolds Co. 100 2,500
------------
8,288
------------
UTILITIES - 0.6%
TELEPHONE - 0.6%
Southwestern Bell Corp. 100 4,038
------------
Total Common Stocks
(cost $69,543) 67,813
------------
U.S. GOVERNMENT
OBLIGATIONS- 30.0%
U.S. Treasury Bond
7.50%, 11/15/24
(cost $207,419) $ 220 210,443
------------
SHORT-TERM INVESTMENTS - 42.0%
U.S. GOVERNMENT
OBLIGATIONS- 42.0%
Federal Farm Credit Bank
5.85%, 1/06/95 65 64,947
<PAGE>

5.85%, 1/17/95 40 39,896
Federal Home Loan Bank
5.85%, 1/09/95 100 99,870
Federal National Mortgage Assn.
5.89%, 1/26/95 90 89,632
------------
Total Short-Term Investments
(amortized cost $294,346) 294,345
------------
TOTAL INVESTMENTS -81.7%
(cost $571,308) 572,601
Other assets less liabilities - 18.3% 128,291
------------

NET ASSETS - 100.0% $ 700,892
============

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

GROWTH INVESTORS PORTFOLIO

PORTFOLIO OF INVESTMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS - 39.6%
BASIC INDUSTRIES - 4.5%
CHEMICALS - 1.8%
Hercules, Inc. 50 $ 5,769
------------
METALS & MINING - 2.7%
Aluminum Co. of America 100 8,662
------------
14,431
------------
CAPITAL GOODS - 5.0%
ELECTRICAL EQUIPMENT - 1.6%
General Electric Co. 100 5,100
------------
MACHINERY - 3.4%
Caterpillar, Inc. 200 11,025
------------
16,125
------------
CONSUMER
MANUFACTURING - 1.5%
AUTO & RELATED - 1.5%
Chrysler Corp. 100 4,900
------------
CONSUMER SERVICES - 1.3%
BROADCASTING & CABLE - 1.3%
Capital Cities ABC, Inc. 50 4,263
------------
CONSUMER STAPLES - 6.7%
COSMETICS - 1.2%
Gillette Co. 50 3,737
------------
FOOD - 1.9%
IBP, Inc. 200 6,050
------------
TOBACCO - 3.6%
Philip Morris Cos., Inc. 200 11,500
------------
21,287
------------
ENERGY - 5.6%
DOMESTIC PRODUCERS - 3.7%
Amoco Corp. 200 11,825
------------
PIPELINES - 1.9%
Enron Corp. 200 6,100
------------
17,925
------------
FINANCE - 4.5%
BANKING & CREDIT - 2.6%
Citicorp 200 8,275
------------
SHARES OR
PRINCIPAL
AMOUNT
(000)
BROKERAGE & MONEY
MANAGEMENT - 1.9%
First Financial Management Corp. 100 $ 6,162
------------
14,437
------------
HEALTH CARE - 1.4%
MEDICAL SERVICES - 1.4%
United Healthcare Corp. 100 4,513
------------
TECHNOLOGY - 7.8%
COMMUNICATIONS EQUIPMENT - 3.6%
Motorola, Inc. 200 11,575
------------
COMPUTER SOFTWARE &
SERVICES - 4.2%
Oracle Systems Corp.* 100 4,425
Paychex, Inc. 100 4,025
Reynolds & Reynolds Co. 200 5,000
------------
13,450
<PAGE>

------------
25,025
------------
UTILITIES - 1.3%
TELEPHONE - 1.3%
Southwestern Bell Corp. 100 4,038
------------
Total Common Stocks
(cost $131,571) 126,944
------------
U.S. GOVERNMENT
OBLIGATIONS- 11.9%
U.S. Treasury Bond
7.50%, 11/15/24
(cost $37,528) $ 40 38,262
------------
SHORT-TERM INVESTMENTS - 21.7%
U.S. GOVERNMENT
OBLIGATIONS- 21.7%
Federal Farm Credit Bank
5.70%, 1/23/95
(amortized cost $69,756) 70 69,756
------------
TOTAL INVESTMENTS -73.2%
(cost $238,855) 234,962
Other assets less liabilities - 26.8% 85,836
------------
NET ASSETS - 100.0% $ 320,798
============

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

See Notes to Financial Statements.

GLOSSARY OF TERMS
ADR - American Depository Receipts
ADS - American Depository Shares
FRB - Floating Rate Bond
FRN - Floating Rate Note
GDR - Global Depository Receipts
GDS - Global Depository Shares

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF ASSETS AND LIABILITIES

DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREMIER GLOBAL GROWTH AND SHORT-TERM
GROWTH BOND INCOME MULTI-MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (cost $39,822,165,
$7,246,459, $41,826,773 and $22,611,065, respectively) $ 40,085,460 $ 7,125,387 $ 41,688,247 $21,084,740
Cash, at value (cost $482, $3,617, $180,170 and
$617, respectively).................................. 482 3,615 180,170 617
Receivable for capital stock sold...................... 36,005 -0- 195,982 -0-
Dividends receivable................................... 24,856 -0- 67,175 -0-
Deferred organization expense.......................... 13,666 6,111 5,107 4,040
Interest receivable.................................... 985 191,903 27,529 117,841
Receivable for investment securities sold.............. -0- -0- 685,918 -0-
Receivable from investment adviser..................... -0- 2,837 -0- -0-
Unrealized appreciation of forward exchange
currency contracts................................... -0- -0- -0- 50,450
Total assets........................................... 40,161,454 7,329,853 42,850,128 21,257,688
------------ ----------- ----------- -----------

LIABILITIES
Payable for investment securities purchased............ 2,441,781 -0- 1,088,770 -0-
Investment advisory fee payable........................ 17,758 -0- 21,535 10,885
Payable for capital stock redeemed..................... 6,506 -0- 6,421 298,420
Unrealized depreciation on forward exchange
currency contracts................................... -0- 2,620 -0- -0-
Accrued expenses....................................... 26,315 29,164 31,531 27,524
------------ ----------- ----------- -----------
Total liabilities...................................... 2,492,360 31,784 1,148,257 336,829
------------ ----------- ----------- -----------
NET ASSETS................................................ $ 37,669,094 $ 7,298,069 $41,701,871 $20,920,859
============ =========== =========== ===========
Shares of capital stock outstanding.................... 3,044,420 743,012 3,517,661 2,111,469
========= ======= ========= =========
Net asset value per share.............................. $ 12.37 $ 9.82 $11.85 $ 9.91
======= ======= ====== ======

COMPOSITION OF NET ASSETS
Capital stock, at par.................................. $ 3,044 $ 743 $ 3,517 $ 2,111
Additional paid-in capital............................. 37,035,476 7,502,422 40,751,533 22,564,821
Undistributed (overdistributed) net investment income.. 95,835 70,965 539,879 (2,357)
Accumulated net realized gain (loss) on investments, options
written and foreign currency transactions............ 271,444 (151,800) 545,474 (170,178)
Net unrealized appreciation (depreciation) of investments
and foreign currency................................. 263,295 (124,261) (138,532) (1,473,538)
------------ ----------- ----------- -----------
$ 37,669,094 $ 7,298,069 $41,701,871 $ 20,920,859
============ =========== =========== ============

</TABLE>

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF ASSETS AND LIABILITIES

DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

U.S. GOVERNMENT/
HIGH GRADE TOTAL MONEY
SECURITIES RETURN INTERNATIONAL MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investment in securities, at value (cost $5,078,732,
$751,430, $7,684,388 and $6,776,707, respectively).... $ 4,881,714 $ 742,809 $ 7,603,019 $ 6,776,707
Cash, at value (cost $355, $973, $38,275 and
$128,581 respectively)............................... 355 973 38,381 128,581
Receivable for capital stock sold...................... 162,931 132,000 7,914 21,091
Interest receivable.................................... 64,909 5,820 199 -0-
Deferred organization expense.......................... 13,223 14,585 14,941 14,969
Receivable from investment adviser..................... 3,160 6,435 24,773 1,533
Dividends receivable................................... 1,181 800 8,365 -0-
Receivable for investment securities sold.............. -0- -0- 144,910 -0-
------------ ----------- ----------- -----------
Total assets........................................... 5,127,473 903,422 7,842,502 6,942,881
------------ ----------- ----------- -----------

LIABILITIES
Payable for investment securities purchased............ -0- 113,810 478,005 -0-
Unrealized depreciation on forward exchange
currency contracts................................... -0- -0- 1,892 -0-
Accrued expenses....................................... 26,189 39,712 86,217 44,586
------------ ----------- ----------- -----------
Total liabilities...................................... 26,189 153,522 566,114 44,586
------------ ----------- ----------- -----------
NET ASSETS................................................ $ 5,101,284 $ 749,900 $ 7,276,388 $ 6,898,295
============ =========== =========== ===========
Shares of capital stock outstanding.................... 513,429 72,033 564,889 6,898,778
======= ====== ======= =========
Net asset value per share.............................. $ 9.94 $ 10.41 $ 12.88 $ 1.00
======= ======= ======= ======

COMPOSITION OF NET ASSETS
Capital stock, at par.................................. $ 513 $ 72 $ 565 $ 6,899
Additional paid-in capital............................. 5,180,229 752,946 7,314,758 6,891,076
Undistributed net investment income.................... 147,340 9,940 23,907 803
Accumulated net realized gain (loss) on investments and
foreign currency transactions........................ (29,780) (4,437) 20,397 (483)
Net unrealized depreciation of investments and
foreign currency..................................... (197,018) (8,621) (83,239) -0-
------------ ----------- ----------- -----------
$ 5,101,284 $ 749,900 $ 7,276,388 $ 6,898,295
============ =========== =========== ===========

</TABLE>

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF ASSETS AND LIABILITIES

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

NORTH AMERICAN
GLOBAL DOLLAR GOVERNMENT UTILITY
GOVERNMENT INCOME INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (cost $1,291,958,
$4,524,950, $1,124,341 and $5,280,349, respectively). $ 1,239,237 $ 3,809,209 $ 1,091,379 $ 5,486,255
Cash, at value (cost $168, $110, $190,118 and
$187,520, respectively).............................. 168 110 190,118 187,520
Interest receivable.................................... 26,090 49,709 1,031 -0-
Receivable for investment securities sold.............. 14,969 -0- 58,405 -0-
Deferred organization expense.......................... 8,663 8,668 8,707 9,408
Receivable from investment adviser..................... 6,997 5,885 7,984 6,758
Receivable for capital stock sold...................... -0- 7,086 -0- 14,301
Dividends receivable................................... -0- -0- 5,718 5,686
Total assets........................................... 1,296,124 3,880,667 1,363,342 5,709,928
------------ ----------- ----------- -----------

LIABILITIES
Payable for investment securities purchased............ 113,760 -0- 77,252 195,358
Accrued expenses....................................... 36,038 32,585 31,841 22,806
------------ ----------- ----------- -----------
Total liabilities...................................... 149,798 32,585 109,093 218,164
------------ ----------- ----------- -----------
NET ASSETS................................................ $ 1,146,326 $ 3,848,082 $ 1,254,249 $ 5,491,764
============ =========== =========== ===========
Shares of capital stock outstanding.................... 116,502 437,622 125,979 521,613
======= ======= ======= =======
Net asset value per share.............................. $ 9.84 $ 8.79 $ 9.96 $10.53
======= ======= ====== ======

COMPOSITION OF NET ASSETS
Capital stock, at par.................................. $ 116 $ 438 $ 126 $ 522
Additional paid-in capital............................. 1,173,920 4,434,779 1,277,920 5,322,867
Undistributed net investment income.................... 25,782 141,547 18,832 11,263
Accumulated net realized loss on investments and
foreign currency transactions........................ (771) (12,932) (9,667) (48,794)
Net unrealized appreciation (depreciation) of investments
and foreign currency................................. (52,721) (715,750) (32,962) 205,906
------------ ----------- ----------- -----------
$ 1,146,326 $ 3,848,082 $ 1,254,249 $ 5,491,764
============ =========== =========== ===========
</TABLE>

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF ASSETS AND LIABILITIES

DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WORLDWIDE CONSERVATIVE GROWTH
PRIVATIZATION INVESTORS INVESTORS
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- -----------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value ( cost $1,132,000,
$571,308 and $238,855, respectively)................. $ 1,132,000 $ 572,601 $ 234,962
Cash, at value (cost $299, $91,980 and
$98,226, respectively)............................... 299 91,980 98,226
Deferred organization expense.......................... 9,452 9,644 9,644
Receivable from investment adviser..................... 8,529 8,911 8,856
Receivable for capital stock sold...................... 2,500 32,500 -0-
Interest receivable.................................... 342 2,142 390
Dividends receivable................................... -0- 191 298
------------ ----------- ------------
Total assets........................................... 1,153,122 717,969 352,376
------------ ----------- ------------

LIABILITIES
Payable for investment securities purchased............ -0- -0- 14,798
Accrued expenses....................................... 26,060 17,077 16,780
------------ ----------- ------------
Total liabilities...................................... 26,060 17,077 31,578
------------ ----------- ------------
NET ASSETS................................................ $ 1,127,062 $ 700,892 $ 320,798
=========== ============ ============
Shares of capital stock outstanding.................... 111,570 69,581 32,549
======= ====== ======
Net asset value per share.............................. $ 10.10 $ 10.07 $ 9.86
======= ======= =======

COMPOSITION OF NET ASSETS
Capital stock, at par.................................. $ 112 $ 69 $ 33
Additional paid-in capital............................. 1,119,766 696,780 324,301
Undistributed net investment income.................... 7,184 3,462 1,067
Accumulated net realized loss on investments........... -0- (712) (710)
Net unrealized appreciation (depreciation) of investments -0- 1,293 (3,893)
$ 1,127,062 $ 700,892 $ 320,798
============ =========== ============
</TABLE>

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREMIER GLOBAL GROWTH AND SHORT-TERM
GROWTH BOND INCOME MULTI-MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $-0-, $-0-,
$9,432 and $-0-, respectively)....................... $ 286,083 $ -0- $ 658,453 $ -0-
Interest (net of foreign tax withheld of $-0-, $3,345,
$-0- and $13,291, respectively)...................... 34,773 473,105 192,025 1,916,619
------------ ----------- ----------- -----------
Total investment income................................ 320,856 473,105 850,478 1,916,619
------------ ----------- ----------- -----------

EXPENSES
Investment advisory fee................................ 235,000 44,159 203,549 141,225
Custodian.............................................. 57,131 64,179 55,384 79,186
Audit and legal........................................ 12,039 10,554 10,765 12,422
Printing............................................... 9,485 10,729 8,335 9,310
Amortization of organization expenses.................. 5,497 3,975 4,449 4,449
Registration........................................... 5,057 153 6,506 1,696
Transfer agency........................................ 2,248 2,195 2,814 2,327
Director's fees........................................ 1,420 1,420 1,972 1,651
Miscellaneous.......................................... 2,012 2,126 3,613 2,773
------------ ----------- ----------- -----------
Total expenses......................................... 329,889 139,490 297,387 255,039
Less: expense reimbursement............................ (106,639) (74,975) (3,095) (13,543)
------------ ----------- ----------- -----------
Net expenses........................................... 223,250 64,515 294,292 241,496
------------ ----------- ----------- -----------
Net investment income.................................. 97,606 408,590 556,186 1,675,123
------------ ----------- ----------- -----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on security transactions...... 271,826 (154,419) 605,669 (150,822)
Net realized loss on options written and
foreign currency transactions........................ -0- (253,681) (50) (1,801,598)
Net change in unrealized appreciation (depreciation)
of investments....................................... (1,055,863) (279,435) (1,403,801) (1,154,264)
Net change in unrealized appreciation (depreciation)
of options written and foreign currency.............. -0- (74,522) (6) (61,098)
------------ ----------- ----------- -----------
Net loss on investments................................ (784,037) (762,057) (798,188) (3,167,782)
------------ ----------- ----------- -----------
NET DECREASE IN NET ASSETS FROM OPERATIONS................ $ (686,431) $ (353,467) $ (242,002) $(1,492,659)
=========== ========== ========== ===========
</TABLE>
- -------------------------------------------------------------------------------

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT/
HIGH GRADE TOTAL MONEY
SECURITIES RETURN INTERNATIONAL MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest............................................... $ 167,791 $ 9,014 $ 18,531 $ 102,454
Dividends (net of foreign tax withheld of $-0-, $-0-, $4,687
and $-0-, respectively).............................. 4,725 4,714 33,148 -0-
------------ ----------- ----------- -----------
Total investment income................................ 172,516 13,728 51,679 102,454
------------ ----------- ----------- -----------

EXPENSES
Investment advisory fee................................ 15,701 2,645 27,975 10,387
Custodian.............................................. 48,846 46,788 141,885 46,179
Audit and legal........................................ 12,073 12,252 13,127 13,591
Printing............................................... 10,208 10,299 10,139 8,412
Amortization of organization expenses.................. 4,873 4,872 4,994 4,993
Transfer agency........................................ 2,785 2,754 2,233 2,569
Director's fees........................................ 1,819 2,150 1,114 3,996
Registration........................................... 184 142 1,103 1,348
Miscellaneous.......................................... 1,239 590 544 1,091
------------ ----------- ----------- -----------
Total expenses......................................... 97,728 82,492 203,114 92,566
Less: expense reimbursement............................ (72,868) (78,468) (176,537) (72,831)
------------ ----------- ----------- -----------
Net expenses........................................... 24,860 4,024 26,577 19,735
------------ ----------- ----------- -----------
Net investment income.................................. 147,656 9,704 25,102 82,719
------------ ----------- ----------- -----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on security transactions............. (29,780) (4,437) 18,758 (473)
Net realized gain on foreign currency transactions..... -0- -0- 1,982 -0-
Net change in unrealized depreciation of investments... (182,479) (22,102) (103,346) -0-
Net change in unrealized depreciation on foreign currency -0- -0- (3,355) -0-
Net loss on investments................................ (212,259) (26,539) (85,961) (473)
------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS..... $ (64,603) $ (16,835) $ (60,859) $ 82,246
=========== ========== ========== ==========

</TABLE>

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NORTH AMERICAN
GLOBAL DOLLAR GOVERNMENT UTILITY
GOVERNMENT INCOME INCOME GROWTH
PORTFOLIO (A) PORTFOLIO (B) PORTFOLIO (C) PORTFOLIO (D)
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest................................................. $ 29,849 $ 161,885 $ 4,462 $ 9,840
Dividends (net of foreign tax withheld of $-0-, $-0-, $178
and $-0-, respectively)................................ -0- -0- 18,261 10,542
------------ ----------- ----------- -----------
Total investment income.................................. 29,849 161,885 22,723 20,382
------------ ----------- ----------- -----------
EXPENSES
Investment advisory fee.................................. 3,211 11,144 3,059 7,199
Custodian................................................ 33,213 36,004 35,381 14,796
Audit and legal.......................................... 14,878 14,695 14,855 11,340
Printing................................................. 7,428 7,417 7,346 3,348
Director's fees.......................................... 2,204 2,891 1,621 324
Amortization of organization expenses.................... 1,337 1,331 1,293 592
Transfer agency.......................................... 424 328 472 216
Registration............................................. 304 1,068 153 1,600
Miscellaneous............................................ 1,217 1,121 978 756
------------ ----------- ----------- -----------
Total expenses........................................... 64,216 75,999 65,158 40,171
Less: expense reimbursement.............................. (60,149) (59,712) (61,284) (31,052)
------------ ----------- ----------- -----------
Net expenses............................................. 4,067 16,287 3,874 9,119
------------ ----------- ----------- -----------
Net investment income.................................... 25,782 145,598 18,849 11,263
------------ ----------- ----------- -----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on security transactions............... (771) (12,751) (9,667) (48,794)
Net realized loss on foreign currency transactions....... -0- (4,232) (17) -0-
Net unrealized appreciation (depreciation) of investments (52,721) (715,741) (32,962) 205,906
Net unrealized depreciation on foreign currency.......... -0- (9) -0- -0-
Net gain (loss) on investments........................... (53,492) (732,733) (42,646) 157,112
------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS..... $ (27,710) $ (587,135) $ (23,797) $ 168,375
============ =========== =========== ===========
</TABLE>

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

(a) Commencement of operations, May 2, 1994.
(b) Commencement of operations, May 3, 1994.
(c) Commencement of operations, May 10, 1994.
(d) Commencement of operations, September 15, 1994.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WORLDWIDE CONSERVATIVE GROWTH
PRIVATIZATION INVESTORS INVESTORS
PORTFOLIO (A) PORTFOLIO (B) PORTFOLIO (B)
------------ ----------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest............................................... $ 8,782 $ 4,101 $ 1,022
Dividends.............................................. -0- 286 488
------------ ----------- ------------
Total investment income................................ 8,782 4,387 1,510
------------ ----------- ------------

EXPENSES
Investment advisory fee................................ 1,682 730 350
Custodian expense...................................... 13,700 8,905 8,905
Audit and legal........................................ 10,500 6,825 6,825
Printing............................................... 3,100 2,015 2,015
Amortization of organization expenses.................. 548 356 356
Registration........................................... 336 205 180
Director's fees........................................ 300 195 195
Transfer agency........................................ 200 130 130
Miscellaneous.......................................... 700 455 455
------------ ----------- ------------
Total expenses......................................... 31,066 19,816 19,411
Less: expense reimbursement............................ (29,468) (18,891) (18,968)
------------ ----------- ------------
Net expenses........................................... 1,598 925 443
------------ ----------- ------------
Net investment income.................................. 7,184 3,462 1,067
------------ ----------- ------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on security transactions............. -0- (712) (710)
Net unrealized appreciation (depreciation) of investments -0- 1,293 (3,893)
Net gain (loss) on investments......................... -0- 581 (4,603)
------------ ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS..... $ 7,184 $ 4,043 $ (3,536)
============ =========== ===========
</TABLE>

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

(a) Commencement of operations, September 23, 1994.
(b) Commencement of operations, October 28, 1994.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREMIER GROWTH PORTFOLIO GLOBAL BOND PORTFOLIO
----------------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income....................... $ 97,606 $ 19,019 $ 408,590 $ 302,648
Net realized gain (loss) on security
transactions............................... 271,826 55,949 (154,419) 181,668
Net realized gain (loss) on foreign currency
transactions.............................. -0- -0- (253,681) 42,628
Net change in unrealized appreciation (depreciation)
of investments and foreign currency....... (1,055,863) 1,001,174 (353,957) 136,242
------------ ----------- ----------- -----------
Net increase (decrease) in net assets
from operations........................... (686,431) 1,076,142 (353,467) 663,186

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................... (20,473) (10,082) (383,604) (330,796)
Net realized gain on investments and foreign
currency transactions..................... (56,132) (9,307) (181,669) (255,069)

CAPITAL STOCK TRANSACTIONS
Net increase................................ 24,773,454 8,842,017 1,468,349 795,308
------------ ----------- ----------- -----------
Total increase.............................. 24,010,418 9,898,770 549,609 872,629

NET ASSETS
Beginning of period......................... 13,658,676 3,759,906 6,748,460 5,875,831
------------ ----------- ----------- -----------

End of period (including undistributed net
investment income of $95,835, $18,702,
$70,965 and $303,791, respectively)....... $37,669,094 $ 13,658,676 $ 7,298,069 $ 6,748,460
=========== ============ =========== ===========

</TABLE>

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO SHORT-TERM MULTI-MARKET PORTFOLIO
----------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income....................... $ 556,186 $ 264,070 $ 1,675,123 $ 1,144,150
Net realized gain (loss) on
security transactions .................... 605,669 422,874 (567,154) 35,446
Net realized gain (loss) on options written and
foreign currency transactions............. (50) -0- (1,385,266) (226,112)
Net change in unrealized appreciation (depreciation)
of investments and foreign currency....... (1,403,807) 997,654 (1,215,362) 140,407
------------ ----------- ----------- -----------
Net increase (decrease) in net assets
from operations........................... (242,002) 1,684,598 (1,492,659) 1,093,891

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................... (277,061) (82,842) (1,057,212) (671,358)
Net realized gain on investments............ (484,873) (43,527) -0- -0-
Return of capital........................... -0- -0- (940) -0-

CAPITAL STOCK TRANSACTIONS
Net increase (decrease)..................... 19,950,283 13,394,453 (88,801) 8,296,929
------------ ----------- ----------- -----------
Total increase (decrease)................... 18,946,347 14,952,682 (2,639,612) 8,719,462

NET ASSETS
Beginning of period......................... 22,755,524 7,802,842 23,560,471 14,841,009
------------ ----------- ----------- -----------

End of period (including undistributed
(overdistributed) net investment
income of $539,879, $263,579, $(2,357)
and $1,411,590, respectively)............. $41,701,871 $ 22,755,524 $20,920,859 $ 23,560,471
=========== ============ =========== ============
</TABLE>

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

U.S. GOVERNMENT/
HIGH GRADE SECURITIES PORTFOLIO TOTAL RETURN PORTFOLIO
----------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income....................... $ 147,656 $ 52,417 $ 9,704 $ 3,228
Net realized gain (loss) on security
transactions.............................. (29,780) 37,563 (4,437) 2,282
Net change in unrealized appreciation (depreciation)
of investments............................ (182,479) (2,396) (22,102) 13,455
------------ ----------- ----------- -----------
Net increase (decrease) in net assets
from operations........................... (64,603) 87,584 (16,835) 18,965

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................... (52,816) (8,681) (3,795) -0-
Net realized gain on investments............ (35,522) -0- (2,282) -0-

CAPITAL STOCK TRANSACTIONS
Net increase................................ 3,903,950 485,928 412,828 245,865
------------ ----------- ----------- -----------
Total increase.............................. 3,751,009 564,831 389,916 264,830

NET ASSETS
Beginning of period......................... 1,350,275 785,444 359,984 95,154
------------ ----------- ----------- -----------
End of period (including undistributed net
investment income of $147,340, $52,500,
$9,940 and $3,251, respectively).......... $ 5,101,284 $ 1,350,275 $ 749,900 $ 359,984
=========== ============ =========== ============
</TABLE>

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO MONEY MARKET PORTFOLIO
----------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income....................... $ 25,102 $ 511 $ 82,719 $ 1,847
Net realized gain (loss) on security
transactions.............................. 18,758 10,916 (473) (10)
Net realized gain (loss) on foreign currency
transactions.............................. 1,982 (698) -0- -0-
Net change in unrealized appreciation (depreciation)
of investments and foreign currency....... (106,701) 23,442 -0- -0-
------------ ----------- ----------- -----------
Net increase (decrease) in net assets
from operations........................... (60,859) 34,171 82,246 1,837

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................... (1,901) -0- (82,719) (1,847)
Net realized gain on investments and foreign
currency transactions..................... (11,169) -0- -0- -0-

CAPITAL STOCK TRANSACTIONS
Net increase................................ 6,662,423 574,261 6,797,225 71,544
------------ ----------- ----------- -----------
Total increase.............................. 6,588,494 608,432 6,796,752 71,534

NET ASSETS
Beginning of period......................... 687,894 79,462 101,543 30,009
------------ ----------- ----------- -----------

End of period (including undistributed net
investment income of $23,907, $529, $803
and $-0-, respectively)................... $ 7,276,388 $ 687,894 $ 6,898,295 $ 101,543
=========== ============ =========== ============
</TABLE>

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

See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

NORTH AMERICAN
GLOBAL DOLLAR GOVERNMENT UTILITY
GOVERNMENT INCOME INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------------- ---------------- --------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 (A) 1994 (B) 1994 (C) 1994 (D)
---------------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income....................... $ 25,782 $ 145,598 $ 18,849 $ 11,263
Net realized loss on security transactions.. (771) (12,751) (9,667) (48,794)
Net realized gain (loss) on foreign currency
transactions.............................. -0- (4,232) (17) -0-
Net unrealized appreciation (depreciation)
of investments and foreign currency....... (52,721) (715,750) (32,962) 205,906
------------ ----------- ----------- -----------
Net increase (decrease) in net assets
from operations........................... (27,710) (587,135) (23,797) 168,375

CAPITAL STOCK TRANSACTIONS
Net increase................................ 1,174,036 4,435,217 1,278,046 5,323,389
------------ ----------- ----------- -----------
Total increase.............................. 1,146,326 3,848,082 1,254,249 5,491,764

NET ASSETS
Beginning of period......................... -0- -0- -0- -0-
------------ ----------- ----------- -----------

End of period (including undistributed net
investment income of $25,782, $141,547,
$18,832 and $11,263, respectively)........ $ 1,146,326 $ 3,848,082 $ 1,254,249 $ 5,491,764
============ =========== =========== ============
</TABLE>

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

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

WORLDWIDE CONSERVATIVE GROWTH
PRIVATIZATION INVESTORS INVESTORS
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- --------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 (A) 1994 (B) 1994 (B)
---------------- ---------------- ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income....................... $ 7,184 $ 3,462 $ 1,067
Net realized gain (loss) on security transactions -0- (712) (710)
Net unrealized appreciation (depreciation)
of investments and foreign currency....... -0- 1,293 (3,893)
------------ ----------- ------------
Net increase (decrease) in net assets
from operations........................... 7,184 4,043 (3,536)

CAPITAL STOCK TRANSACTIONS
Net increase................................ 1,119,878 696,849 324,334
------------ ----------- ------------
Total increase.............................. 1,127,062 700,892 320,798

NET ASSETS
Beginning of period......................... -0- -0- -0-
------------ ----------- ------------

End of period (including undistributed net
investment income of $7,184, $3,462 and
$1,067, respectively)..................... $ 1,127,062 $ 700,892 $ 320,798
============ =========== ============
</TABLE>

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

(a) Commencement of operations, September 23, 1994.
(b) Commencement of operations, October 28, 1994.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1994
- -------------------------------------------------------------------------------

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Alliance Variable Products Series Fund, Inc. (the "Fund"), was incorporated in
the State of Maryland on November 17, 1987 as an open-end series investment
company. The Fund had no operations prior to November 28, 1990. The Fund offers
fifteen separately managed pools of assets which have differing investment
objectives and policies. The Fund currently issues shares of the Premier Growth
Portfolio (formerly Growth Portfolio), Global Bond Portfolio, Growth and Income
Portfolio, Short-Term Multi-Market Portfolio, U.S. Government/High Grade
Securities Portfolio, Total Return Portfolio, International Portfolio, Money
Market Portfolio, Global Dollar Government Portfolio, North American Government
Income Portfolio, Utility Income Portfolio, Growth Portfolio, Worldwide
Privatization Portfolio, Conservative Investors Portfolio and Growth Investors
Portfolio (the "Portfolios").

The Fund offers and sells its shares only to separate accounts of certain life
insurance companies, for the purpose of funding variable annuity contracts and
variable life insurance policies. Sales are made without sales charge, at each
Portfolio's net asset value per share.

The following is a summary of significant accounting policies followed by the
Fund.

1. SECURITY VALUATION
Investments are stated at value. Investments for which market quotations are
readily available are valued at the closing price on the day of valuation.
Securities for which market quotations are not readily available are valued in
good faith at fair value using methods determined by the Board of Directors.
Securities which mature in 60 days or less are valued at amortized cost, which
approximates market value, unless this method does not represent fair value.

2. OPTION WRITING
When a Portfolio writes an option, an amount equal to the premium received by
the Portfolio is recorded as a liability and is subsequently adjusted to the
current market value of the option written. Premiums received from writing
options which expire unexercised are recorded by the Portfolio on the expiration
date as realized gains. The difference between the premium and the amount paid
on effecting a closing purchase transaction, including brokerage commissions, is
also recorded as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Portfolio has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security or currency purchased by the Portfolio. In writing an option, the
Portfolio bears the market risk of unfavorable changes in the price of the
security or currency underlying the written option. Exercise of an option
written by the Portfolio could result in the Portfolio selling or buying a
security or currency at a price different from the current market value.

3. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked prices of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.

Net foreign exchange gains (losses) of $(253,681), $(50), $(1,394,953), $1,982,
$(4,232) and $(17) in the Global Bond Portfolio, Growth and Income Portfolio,
Short-Term Multi-Market Portfolio, International Portfolio, North American
Government Income Portfolio and Utility Income Portfolio, respectively,
represent foreign exchange gains and losses from sales and maturities of
securities, holding of foreign currencies, options on foreign currencies,
exchange gains or losses realized between the trade and settlement dates on
security transactions, and the difference between the amounts of interest and
dividends recorded on the Portfolio's books and the U.S. dollar equivalent of
the amounts actually received or paid.

Net currency gains and losses from valuing foreign currency denominated assets
and liabilities at period end

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONT'D)
- -------------------------------------------------------------------------------

exchange rates are reflected as a component of unrealized appreciation
(depreciation) on investments and foreign currency.

4. ORGANIZATION EXPENSES
Organization expenses of $260,664 have been deferred and are being amortized on
a straight-line basis as follows: Premier Growth Portfolio $27,506 through June
1997; Global Bond Portfolio $19,898 through July 1996; Growth and Income
Portfolio $22,263 through January 1996; Short-Term Multi-Market Portfolio
$22,263 through November 1995; U.S. Government/High Grade Securities Portfolio
$24,384 through September 1997; Total Return Portfolio $24,384 through December
1997; International Portfolio $24,983 through December 1997; Money Market
Portfolio $24,983 through December 1997; Global Dollar Government Portfolio
$10,000 through April 1999; North American Government Income Portfolio $10,000
through April 1999; Utility Income Portfolio $10,000 through April 1999; Growth
Portfolio $10,000 through September 1999; Worldwide Privatization Portfolio
$10,000 through September 1999; Conservative Investors Portfolio $10,000 through
October 1999 and Growth Investors Portfolio $10,000 through October 1999.

5. FEDERAL INCOME TAX
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provision for federal income tax is required.

6. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Dividend income is recorded on the ex-dividend
date. Security transactions are accounted for on the date securities are
purchased or sold. Security gains and losses are determined on the identified
cost basis. The Fund accretes discounts as adjustments to interest income.

7. DIVIDENDS AND DISTRIBUTIONS
Each Portfolio declares and distributes dividends and distributions from net
investment income and net realized gains, respectively, if any, at least
annually, except for dividends on the Money Market Portfolio, which are declared
daily and paid monthly. Income dividends and capital gain distributions are
determined in accordance with income tax regulations, which may differ from
generally accepted accounting principles.

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

NOTE B -- ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, each Portfolio pays
Alliance Capital Management L.P., (the "Adviser"), an investment advisory fee,
based on average net assets, at the following annual rates: Premier Growth
Portfolio, 1%; Global Bond Portfolio .65 of 1%; Growth and Income Portfolio .625
of 1%; Short-Term Multi-Market Portfolio, .55 of 1%; U.S. Government/High Grade
Securities Portfolio, .60 of 1%; Total Return Portfolio, .625 of 1%;
International Portfolio, 1%; Money Market Portfolio, .50 of 1%; Global Dollar
Government Portfolio, .75 of 1%; North American Government Income Portfolio, .65
of 1%; Utility Income Portfolio, .75 of 1%; Growth Portfolio, .75 of 1%;
Worldwide Privatization Portfolio, 1%; Conservative Investors Portfolio, .75 of
1% and Growth Investors Portfolio, .75 of 1%. Such fee is accrued daily and paid
monthly. For the Global Bond Portfolio, the adviser has retained, under a
sub-advisory agreement, a sub-adviser, AIGAM International Ltd., an affiliate of
American International Group, Inc.

The Adviser voluntarily agreed to reimburse each Portfolio based on their
respective average net assets for expenses exceeding their limitation which was
.95% for the period ended December 31, 1994. Expense reimbursements, if any, are
accrued daily and paid monthly. For the period ended December 31, 1994, such
reimbursements amounted to $106,639, $30,816, $3,095, $13,543, $72,868, $78,468,
$176,537, $72,831, $60,149, $59,712, $61,284, $31,052, $29,468, $18,891 and
$18,968 for the Premier Growth Portfolio, the Global Bond Portfolio, the Growth
and Income Portfolio, the Short-Term Multi-Market Portfolio, the U.S.
Government/High Grade Securities Portfolio, the Total Return Portfolio, the
International Portfolio, the Money Market Portfolio, the Global Dollar
Government Portfolio, the North American Government Income Portfolio, the
Utility Income Portfolio, the Growth Portfolio, the

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONT'D)
- -------------------------------------------------------------------------------

Worldwide Privatization Portfolio, the Conservative Investors Portfolio and the
Growth Investors Portfolio, respectively. In addition, for the year ended
December 31, 1994, the Advisers agreed to waive the Global Bond Portfolio's
investment advisory fee in the amount of $44,159.

Each Portfolio compensates Alliance Fund Services, Inc. (a wholly-owned
subsidiary of the Adviser) for providing personnel and facilities to perform
transfer agency services for the Portfolio. Such compensation amounted to $900
for the Premier Growth Portfolio, the Global Bond Portfolio, the Growth and
Income Portfolio, the Short-Term Multi-Market Portfolio, the U.S.
Government/High Grade Securities Portfolio, the Total Return Portfolio, the
International Portfolio and the Money Market Portfolio and $424, $328, $472,
$216, $200,

$130 and $130 for the Global Dollar Government Portfolio, the North American
Government Income Portfolio, the Utility Income Portfolio, the Growth Portfolio,
the Worldwide Privatization Portfolio, the Conservative Investors Portfolio and
the Growth Investors Portfolio, respectively, for the period ended December 31,
1994.

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

NOTE C -- INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
for the period ended December 31, 1994 were:

<TABLE>
<CAPTION> U.S. GOVERNMENT/
PREMIER GLOBAL GROWTH AND SHORT-TERM HIGH GRADE
GROWTH BOND INCOME MULTI-MARKET SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
PURCHASES
Stocks and debt obligations.................. $ 32,753,919 $ 6,933,893 $ 45,231,112 $ 13,998,012 $ 943,138
U.S. Government and government
agency obligations........................ -0- 1,127,828 87,695 1,191,875 2,934,005

SALES
Stocks and debt obligations.................. 8,887,239 6,260,040 27,997,025 23,296,459 522,775
U.S. Government and government
agency obligations........................ -0- 157,735 481,561 1,192,125 239,834

<CAPTION>
GLOBAL NORTH AMERICAN
TOTAL DOLLAR GOVERNMENT UTILITY
RETURN INTERNATIONAL GOVERNMENT INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
PURCHASES
Stocks and debt obligations.................. $ 365,375 $ 9,011,605 $ 653,376 $ 922,173 $ 1,298,176
U.S. Government and government
agency obligations........................ 218,416 -0- 491,914 2,599,688 -0-

SALES
Stocks and debt obligations.................. 247,272 2,489,956 55,619 6,444 164,177
U.S. Government and government
agency obligations........................ 81,758 -0- -0- 285,816 -0-

</TABLE>

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONT'D)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WORLDWIDE CONSERVATIVE GROWTH
GROWTH PRIVATIZATION INVESTORS INVESTORS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
PURCHASES
Stocks and debt obligations.................. $ 5,501,242 $ -0- $ 74,838 $ 136,866
U.S. Government and government
agency obligations........................ -0- -0- 207,407 37,524

SALES
Stocks and debt obligations.................. 771,721 -0- 4,592 4,592
U.S. Government and government
agency obligations........................ -0- -0- -0- -0-

</TABLE>

At December 31, 1994, the cost of investments for federal income tax purposes
was substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation (depreciation) of investments for
each Portfolio were as follows:

<TABLE>
<CAPTION>
NET
UNREALIZED
GROSS UNREALIZED APPRECIATION
PORTFOLIO APPRECIATION DEPRECIATION (DEPRECIATION)
- --------- ------------ ------------ --------------
<S> <C> <C> <C>
Premier Growth..................................................... $ 2,157,787 $ (1,894,492) $ 263,295
Global Bond........................................................ 30,214 (151,286) (121,072)
Growth and Income.................................................. 1,471,498 (1,610,024) (138,526)
Short-Term Multi-Market............................................ 89,229 (1,615,554) (1,526,325)
U.S. Government/High Grade Securities.............................. 506 (197,524) (197,018)
Total Return....................................................... 14,283 (22,904) (8,621)
International...................................................... 148,894 (230,263) (81,369)
Global Dollar Government........................................... 3,351 (56,072) (52,721)
North American Government Income................................... -0- (715,741) (715,741)
Utility Income..................................................... 20,245 (53,208) (32,963)
Growth Portfolio................................................... 319,888 (113,982) 205,906
Worldwide Privatization............................................ -0- -0- -0-
Conservative Investors............................................. 3,659 (2,366) 1,293
Growth Investors................................................... 1,608 (5,501) (3,893)
</TABLE>

At December 31, 1994, for federal income tax purposes, the Short-Term
Multi-Market and Money Market Portfolios had net capital loss carryforwards of
$160,415 (of which $9,593 expires in 2000 and $150,822 expires in 2002) and $483
(of which $10 expires in 2001 and $473 expires in 2002), respectively, and the
Global Bond, U.S. Government/High Grade Securities, Total Return, Global Dollar
Government, North American Government Income, Utility Income, Growth,
Conservative Investors and Growth Investors Portfolios had net capital loss
carryforwards of $154,419, $29,780, $2,456, $771, $12,931, $9,667, $43,194, $712
and $710, respectively, which all expire in 2002.

The Global Bond, Short-Term Multi-Market and International Portfolios enter into
forward exchange currency contracts in order to hedge their exposure to changes
in foreign currency exchange rates on their foreign portfolio holdings. A
forward contract is a commitment to purchase or sell a foreign currency at a
future date at a negotiated forward rate. The Portfolios may enter into
contracts to deliver or receive foreign currency it will receive from or require
for its normal investment activi-ties. It may also use contracts in a manner
intended to protect foreign currency-denominated securities from declines in
value due to unfavorable exchange rate movements. The gain or loss arising from
the difference

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONT'D)
- -------------------------------------------------------------------------------

between the original contract and the closing of such contract is included in
realized gains or losses from foreign currency transactions. Fluctuations in the
value of forward exchange currency contracts are recorded for financial
reporting purposes as unrealized gains or losses by the Portfolio. Risks may
arise from the potential

inability of a counterparty to meet the terms of a contract and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar. At December 31, 1994, the outstanding forward exchange currency
contracts were as follows:

GLOBAL BOND PORTFOLIO:
CONTRACT COST ON U.S.$
AMOUNT ORIGINATION CURRENT UNREALIZED
FOREIGN CURRENCY SALE CONTRACTS (000) DATE VALUE DEPRECIATION
- ------------------------------- ---------- -------------- ------- ------------
<S> <C> <C> <C> <C>
Deutsche Marks, expiring 1/30/95........................ 450 $ 287,908 $ 290,528 $ 2,620
=========

<CAPTION>
SHORT-TERM MULTI-MARKET PORTFOLIO:
CONTRACT COST ON U.S.$ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
FOREIGN CURRENCY BUY CONTRACTS (000) DATE VALUE (DEPRECIATION)
- ------------------------------ ---------- -------------- ------- --------------
<S> <C> <C> <C> <C>
British Pounds, expiring 2/23/95........................ 616 $ 966,768 $ 963,555 $ (3,213)
Canadian Dollars, expiring 1/30/95-4/17/95.............. 2,528 1,822,944 1,801,767 (21,177)
Deutsche Marks, expiring 2/21/95-2/23/95................ 3,842 2,492,151 2,481,594 (10,557)
Finnish Markka, expiring 1/9/95-1/17/95................. 4,945 1,040,929 1,044,147 3,218
French Francs, expiring 1/31/95......................... 3,331 615,334 623,764 8,430
Indonesian Rupiahs, expiring 3/7/95..................... 440,602 195,840 198,066 2,226
New Zealand Dollars, expiring 1/24/95................... 1,783 1,083,775 1,139,520 55,745
Spanish Pesetas, expiring 1/23/95....................... 164,557 1,248,504 1,249,039 535

FOREIGN CURRENCY SALE CONTRACTS
Australian Dollars, expiring 1/20/95.................... 1318 969,376 1,021,599 (52,223)
Belgian Francs, expiring 1/11/95-1/26/95................ 51,033 1,637,243 1,604,436 32,807
Deutsche Marks, expiring 2/21/95-2/23/95................ 2,512 1,608,484 1,622,376 (13,892)
Finnish Markka, expiring 1/9/95-1/17/95................. 5,155 1,107,017 1,088,121 18,896
French Francs, expiring 1/31/95......................... 3,331 649,533 623,601 25,932
New Zealand Dollars, expiring 1/24/95................... 847 521,074 541,416 (20,342)
Spanish Pesetas, expiring 1/23/95....................... 156,803 1,209,899 1,189,838 20,061
Swedish Krona, expiring 1/23/95-1/31/95................. 13,590 1,830,486 1,826,482 4,004
---------
$ 50,450
=========
<CAPTION>
INTERNATIONAL PORTFOLIO:
CONTRACT COST ON U.S.$
AMOUNT ORIGINATION CURRENT UNREALIZED
FOREIGN CURRENCY SALE CONTRACTS (000) DATE VALUE DEPRECIATION
- ------------------------------- ---------- -------------- ------- ------------
<S> <C> <C> <C> <C>
Deutsche Marks, expiring 2/28/95........................ 300 $ 191,914 $ 193,806 $ 1,892
=========
</TABLE>

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONT'D)
- -------------------------------------------------------------------------------

Transactions in currency call and put options written by the Short-Term
Multi-Market Portfolio for the year ended December 31, 1994 were as follows:

<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
---------- ----------
<S> <C> <C>
Options outstanding at beginning of year................................................ -0- $ -0-
Options written......................................................................... 4 11,662
Options terminated in closing purchase transactions..................................... -0- -0-
Options expired......................................................................... (4) (11,662)
Options exercised....................................................................... -0- -0-
--- ---
Options outstanding at December 31, 1994 ............................................... -0- $ -0-
=== ==========
</TABLE>
- -------------------------------------------------------------------------------

NOTE D -- CAPITAL STOCK
There are 900,000,000 shares of capital stock, $.001 par value per share of the
Fund authorized. Transactions in capital stock were as follows:

<TABLE>
<CAPTION>
PREMIER GROWTH PORTFOLIO
-------------------------------------------------------------
SHARES AMOUNT
--------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
-------------------------------- --------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 2,158,503 889,167 $ 27,040,995 $ 10,571,023
Shares issued in reinvestment of dividends
and distributions................................. 6,295 1,643 76,606 19,389
Shares redeemed...................................... (187,942) (153,728) (2,344,147) (1,748,395)
-------- -------- ---------- ----------
Net increase......................................... 1,976,856 737,082 $ 24,773,454 $ 8,842,017
========= ======= ============= =============
<CAPTION>
GLOBAL BOND PORTFOLIO
-------------------------------------------------------------
SHARES AMOUNT
-------------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
-------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 99,445 18,949 $ 1,004,475 $ 213,273
Shares issued in reinvestment of dividends
and distributions................................. 57,681 54,146 565,272 585,865
Shares redeemed...................................... (9,522) (334) (101,398) (3,830)
------ ---- -------- ------
Net increase......................................... 147,604 72,761 $ 1,468,349 $ 795,308
======= ====== ============ ============
</TABLE>

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONT'D)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
-------------------------------------------------------------
SHARES AMOUNT
-------------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
-------------------------------- --------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 1,938,671 1,270,247 $ 23,400,005 $ 14,712,220
Shares issued in reinvestment of dividends
and distributions................................. 65,234 10,969 761,935 126,368
Shares redeemed...................................... (355,050) (122,326) (4,211,657) (1,444,135)
-------- -------- ---------- ----------
Net increase......................................... 1,648,855 1,158,890 $ 19,950,283 $ 13,394,453
========= ========= = ========== = ==========

<CAPTION>
SHORT-TERM MULTI-MARKET PORTFOLIO
------------------------------------------------------------
SHARES AMOUNT
-------------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
-------------- ----------------- -------------- ----------
<S>
Shares sold.......................................... 2,182,196 1,712,885 $ 23,826,681 $ 18,917,712
Shares issued in reinvestment of dividends
and distributions................................. 100,584 61,354 1,058,151 671,209
Shares redeemed...................................... (2,298,689) (1,025,075) (24,973,632) (11,291,992)
---------- ---------- ----------- -----------
Net increase (decrease).............................. (15,909) 749,164 $ (88,801) $ 8,296,929
========== ========== ============ ============

<CAPTION>
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLI
--------------------------------------------------------------
SHARES AMOUNT
--------------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
--------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 518,614 124,778 $ 5,232,257 $ 1,316,230
Shares issued in reinvestment of dividends
and distributions................................. 8,852 817 88,339 8,681
Shares redeemed...................................... (140,052) (78,982) (1,416,646) (838,983)
-------- ------- ------------ ------------
Net increase......................................... 387,414 46,613 $ 3,903,950 $ 485,928
======== ======= ============ ============

<CAPTION>
TOTAL RETURN PORTFOLIO
------------------------------------------------------------
SHARES AMOUNT
------------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
-------------- ----------------- -------------- ----------
<S> <C> <C> <C> <C>
Shares sold.......................................... 69,761 26,302 $ 736,467 $ 278,320
Shares issued in reinvestment of dividends
and distributions................................. 583 -0- 6,076 -0-
Shares redeemed...................................... (31,120) (3,003) (329,715) (32,455)
------- ------ -------- -------
Net increase......................................... 39,224 23,299 $ 412,828 $ 245,865
====== ====== ============ ============
</TABLE>

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONT'D)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
--------------------------------------------------------------
SHARES AMOUNT
--------------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
-------------------------------- --------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 547,184 49,958 $ 7,176,460 $ 589,918
Shares issued in reinvestment of dividends
and distributions................................. 1,015 -0- 13,070 -0-
Shares redeemed...................................... (39,868) (1,343) (527,107) (15,657)
------- ------ -------- -------
Net increase......................................... 508,331 48,615 $ 6,662,423 $ 574,261
======= ====== ============ ============
<CAPTION>

MONEY MARKET PORTFOLIO
--------------------------------------------------------------
SHARES AMOUNT
--------------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1993 1994 1993
-------------------------------- --------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 14,471,656 597,121 $ 14,471,656 $ 597,121
Shares issued in reinvestment of dividends........... 82,845 1,851 82,845 1,851
Shares redeemed...................................... (7,757,276) (527,428) (7,757,276) (527,428)
---------- -------- ---------- --------
Net increase......................................... 6,797,225 71,544 $ 6,797,225 $ 71,544
========= ====== ============ ============
<CAPTION>
NORTH AMERICAN
GLOBAL DOLLAR GOVERNMENT
GOVERNMENT PORTFOLIO INCOME PORTFOLIO
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------- --------- ----------
MAY 2, 1994 (A) MAY 3, 1994 (A)
TO TO
DECEMBER 31, 1994 DECEMBER 31, 1994
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 118,322 $ 1,192,406 525,199 $ 5,263,041
Shares redeemed...................................... (1,820) (18,370) (87,577) (827,824)
------ ------- ------- --------
Net increase......................................... 116,502 $ 1,174,036 437,622 $ 4,435,217
======= ============ ======= ============
<CAPTION>

UTILITY GROWTH
INCOME PORTFOLIO PORTFOLIO
-------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ---------------- ---------------- ------------
MAY 10, 1994 (A) SEPTEMBER 15, 1994 (A)
TO TO
DECEMBER 31, 1994 DECEMBER 31, 1994
--------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 130,903 $ 1,329,004 525,636 $ 5,364,669
Shares redeemed...................................... (4,924) (50,958) (4,023) (41,280)
------ ------- ------ -------
Net increase......................................... 125,979 $ 1,278,046 521,613 $ 5,323,389
======= ============ ======= ===========

</TABLE>

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONT'D)
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
WORLDWIDE CONSERVATIVE
PRIVATIZATION PORTFOLIO INVESTORS PORTFOLIO
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------- --------------- --------
SEPTEMBER 23, 1994 (A) OCTOBER 28, 1994 (A)
TO TO
DECEMBER 31, 1994 DECEMBER 31, 1994
--------------------------------- -------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 111,619 $ 1,120,370 71,574 $ 716,743
Shares redeemed...................................... (49) (492) (1,993) (19,894)
--- ---- ------ -------
Net increase......................................... 111,570 $ 1,119,878 69,581 $ 696,849
======= ============ ====== ===========
<CAPTION>

GROWTH
INVESTORS PORTFOLIO
-----------------------
SHARES AMOUNT
------- ---------
OCTOBER 28, 1994 (A)
TO
DECEMBER 31, 1994
-------------------------
<S> <C> <C>
Shares sold.......................................... 34,433 $ 342,801
Shares redeemed...................................... (1,884) (18,467)
------ -------
Net increase......................................... 32,549 $ 324,334
====== ============
</TABLE>

- -------------------------------------------------------------------------------
(a) Commencement of operations.

NOTE E -- RECLASSIFICATION OF COMPONENTS OF NET ASSETS
During the year ended December 31, 1994, the Fund adopted Statement of Position
93-2 Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.
Accordingly, permanent book and tax basis differences relating to shareholder
distributions have been reclassified to additional paid in capital. As of the
beginning of the current period, the cumulative effect of such differences have
been restated as follows:

<TABLE>
<CAPTION>
GLOBAL GROWTH AND SHORT-TERM TOTAL
BOND INCOME MULTI-MARKET RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Paid-in capital...................................... $ -0- $ 711 $ (309,420) $ (780)
Undistributed net investment income.................. (257,812) (2,825) (2,031,858) 780
Undistributed net realized gains..................... 257,812 2,114 2,341,278 -0-

<CAPTION>
NORTH AMERICAN
MONEY GOVERNMENT UTILITY
INTERNATIONAL MARKET INCOME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ---------------- ----------
<S> <C> <C> <C> <C>
Paid-in capital...................................... $ (785) $ (803) $ -0- $ -0-
Undistributed net investment income.................. 226 803 (4,051) (17)
Undistributed net realized gains..................... 559 -0- 4,051 17
</TABLE>

Net investment income, net realized gains and net assets were not affected by
the change.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREMIER GROWTH PORTFOLIO
-------------------------------------------------------
YEAR ENDED DECEMBER 31, JUNE 26, 1992(A)
-------------------------- TO
1994 1993 DECEMBER 31, 1992
----- ---- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 12.79 $ 11.38 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .03(c) -0-(c) .06(c)
Net realized and unrealized gain (loss) on investments.... (.41) 1.43 1.32
---------- ---------- ----------
Net increase (decrease) in net asset value from operations (.38) 1.43 1.38
---------- ---------- ----------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... (.01) (.01) -0-
Distributions from net realized gains..................... (.03) (.01) -0-
---------- ---------- ----------
Total dividends and distributions......................... (.04) (.02) -0-
---------- ---------- ----------
Net asset value, end of period............................ $ 12.37 $ 12.79 $ 11.38
========== ========== ==========
TOTAL RETURNS
Total investment return based on net asset value (d)...... (2.96)% 12.63% 13.80%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $37,669 $13,659 $3,760
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95% 1.18% .95%(f)
Expenses, before waivers and reimbursements............. 1.40% 2.05% 4.20%(f)
Net investment income................................... .42% .22% .96%(f)
Portfolio turnover rate................................... 38% 42% 14%
<CAPTION>
GLOBAL BOND PORTFOLIO
YEAR ENDED DECEMBER 31, JULY 15, 1991(A)
---------------------------------- TO
1994 1993 1992 DECEMBER 31, 1991
----- ---- ---- -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period......................... $ 11.33 $ 11.24 $ 11.10 $ 10.00
---------- ---------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .57(c) .77(c) .64 .28
Net realized and unrealized gain (loss) on investments
and foreign currency transactions....................... (1.16) .43 (.13) .82
---------- ---------- --------- ---------
Net increase (decrease) in net asset value from operations (.59) 1.20 .51 1.10
---------- ---------- --------- ---------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... (.62) (.85) (.28) -0-
Distributions from net realized gains..................... (.30) (.26) (.09) -0-
---------- ---------- ---------- ---------
Total dividends and distributions......................... (.92) (1.11) (.37) -0-
---------- ---------- --------- ---------
Net asset value, end of period............................ $ 9.82 $ 11.33 $ 11.24 $ 11.10
========== ========== ========= =========
TOTAL RETURNS
Total investment return based on net asset value (d)...... (5.16)% 11.15% 4.87% 11.00%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $7,298 $6,748 $5,876 $5,551
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95% 1.50% 1.50% 1.50%(f)
Expenses, before waivers and reimbursements............. 2.05% 1.50% 1.97% 2.15%(f)
Net investment income................................... 6.01% 4.85% 5.85% 5.77%(f)
Portfolio turnover rate................................... 102% 125% 78% 25%
</TABLE>
- ------------------------------------------------------------------------------
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the investment advisor.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(e) Total investment return calculated for a period of less than one year is not
annualized.
(f) Annualized.

<PAGE>

<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
---------------------------------------------------------
JANUARY 14, 1991(A)
YEAR ENDED DECEMBER 31, TO
1994 1993 1992 DECEMBER 31, 1991
----- ------ ------ ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period......................... $ 12.18 $ 10.99 $ 10.35 $ 10.00
------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .10(c) .01(c) .10(c) .35(c)
Net realized and unrealized gain (loss) on investments.... (.16) 1.27 .71 -0-
------- ------- -------- -------
Net increase (decrease) in net asset value from operations (.06) 1.28 .81 .35
------- ------- -------- -------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... (.10) (.06) (.17) -0-
Distributions from net realized gains..................... (.17) (.03) -0- -0-
------- ------- -------- -------
Total dividends and distributions......................... (.27) (.09) (.17) -0-
------- ------- ------- -------
Net asset value, end of period............................ $ 11.85 $ 12.18 $ 10.99 $ 10.35
======= ======= ======= =======
TOTAL RETURNS
Total investment return based on net asset value (d)...... (.35)% 11.69% 7.92% 3.50%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $41,702 $22,756 $7,803 $1,431
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .90% 1.18% .99% 1.79%(f)
Expenses, before waivers and reimbursements............. .91% 1.28% 2.09% 9.43%(f)
Net investment income................................... 1.71% 1.76% 2.42% 3.59%(f)
Portfolio turnover rate................................... 95% 69% 49% 0%
<CAPTION>
SHORT-TERM MULTI-MARKETPORTFOLIO
-------------------------------------------------------------------
NOVEMBER 28, 1990(A)
YEAR ENDED DECEMBER 31, TO
---------------------------------------------
1994 1993 1992 1991 DECEMBER 31, 1990
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............. $ 11.07 $ 10.77 $ 10.68 $ 10.03 $ 10.00
------- -------- ---------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)..................... .47(c) .28(c) .63(c) .36 .03
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (1.16) .43 (.54) .34 -0-
------- -------- ---------- --------- ---------
Net increase (decrease) in net asset value
from operations............................. (.69) .71 .09 .70 .03
------- -------- ---------- --------- ---------
LESS: DISTRIBUTIONS
Dividends from net investment income.......... (.46) (.41) -0- (.03) -0-
Distributions from net realized gains......... -0- -0- -0- (.02) -0-
Return of capital............................. (.01) -0- -0- -0- -0-
------- -------- ---------- --------- ---------
Total dividends and distributions............. (.47) (.41) -0- (.05) -0-
------- -------- ---------- --------- ---------
Net asset value, end of period................ $ 9.91 $ 11.07 $ 10.77 $ 10.68 $ 10.03
======= ========= ========== ========= =========
TOTAL RETURN
Total investment return based on
net asset value (d)......................... (6.51)% 6.62% .84% 7.01% .30%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)..... $20,921 $23,560 $14,841 $5,858 $296
Ratio to average net assets of:
Expenses, net of waivers and reimbursements. .94% 1.17% .99% 1.79% 2.50%(f)
Expenses, before waivers and reimbursements. .99% 1.24% 1.66% 4.40% 10.62%(f)
Net investment income....................... 6.52% 6.39% 7.18% 7.53% 5.76%(f)
Portfolio turnover rate....................... 134% 210% 153% 51% 0%
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Commencement of operations.
(b) Net of expenses reimbursed by the investment adviser.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(e) Total investment return calculated for a period of less than one year is not annualized.
(f) Annualized.
</TABLE>
62

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
---------------------------------------------------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 17, 1992(A)
--------------------------------- TO
1994 1993 DECEMBER 31, 1992
---- ---- ------------------------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 10.72 $ 9.89 $ 10.00
------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .28(c) .43(c) .14(c)
Net realized and unrealized gain (loss) on investments.... (.71) .48 (.25)
------- ---------- ---------
Net increase (decrease) in net asset value from operations (.43) .91 (.11)
------- ---------- ---------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... (.21) (.08) -0-
Distributions from net realized gains..................... (.14) -0- -0-
------- ---------- ---------
Total dividends and distributions......................... (.35) (.08) -0-
------- ---------- ---------
Net asset value, end of period............................ $ 9.94 $ 10.72 $ 9.89
======= ========== =========
TOTAL RETURNS
Total investment return based on net asset value (d)...... (4.03)% 9.20% (1.10%)(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $5,101 $1,350 $785
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95% 1.16% .95%(f)
Expenses, before waivers and reimbursements............. 3.73% 5.42% 11.56%(f)
Net investment income................................... 5.64% 4.59% 4.82%(f)
Portfolio turnover rate................................... 32% 177% 13%
<CAPTION>
TOTAL RETURN PORTFOLIO
------------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
------------------------ TO
1994 1993 DECEMBER 31, 1992
---- ---- ----------------------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 10.97 $ 10.01 $ 10.00
---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .15(c) .15(c) .01
Net realized and unrealized gain (loss) on investments.... (.56) .81 -0-
---------- ---------- ---------
Net increase (decrease) in net asset value from operations (.41) .96 .01
---------- ---------- ---------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... (.09) -0- -0-
Distributions from net realized gains..................... (.06) -0- -0-
---------- ---------- ---------
Total dividends and distributions......................... (.15) -0- -0-
---------- ---------- ---------
Net asset value, end of period............................ $ 10.41 $ 10.97 $ 10.01
========== ========== =========
TOTAL RETURNS
Total investment return based on net asset value (d)...... (3.77)% 9.59% .10%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $750 $360 $95
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95% 1.20% 0%
Expenses, before waivers and reimbursements............. 19.49% 25.96% 0%
Net investment income................................... 2.29% 1.45% 2.21%(f)
Portfolio turnover rate................................... 83% 25% 0%

- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the investment adviser.
(c) Based on average share outstanding.
(d) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(e) Total investment return calculated for a period of less than one year is not annualized.
(f) Annualized.
</TABLE>

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
---------------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
----------------------------------- TO
1994 1993 DECEMBER 31, 1992
---- ---- ----------------------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 12.16 $ 10.00 $ 10.00
---------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .10(c) .03(c) -0-
Net realized and unrealized gain on investments and
foreign currency transactions........................... .72(d) 2.13 -0-
---------- ---------- ---------
Net increase in net asset value from operations........... .82 2.16 -0-
---------- ---------- ---------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... (.02) -0- -0-
Distributions from net realized gains..................... (.08) -0- -0-
---------- ---------- ---------
Total dividends and distributions......................... (.10) -0- -0-
---------- ---------- ---------
Net asset value, end of period............................ $ 12.88 $ 12.16 $ 10.00
========== ========== =========
TOTAL RETURN
Total investment return based on net asset value (e)...... 6.70% 21.60% 0%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $7,276 $688 $79
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95% 1.20% 0%
Expenses, before waivers and reimbursements............. 7.26% 39.28% 0%
Net investment income................................... .90% .26% 2.07%(g)
Portfolio turnover rate................................... 95% 85% 0%
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
------------------------------ TO
1994 1993 DECEMBER 31, 1992
---- ---- -------------------------
<S> <C> <C> <C>
Net asset value, beginning of period......................... $ 1.00 $ 1.00 $ 1.00
--------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .03 .22 -0-
Net realized and unrealized gain on investments........... -0- -0- -0-
--------- ---------- ---------
Net increase in net asset value from operations........... .03 .22 -0-
--------- ---------- ---------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... (.03) (.22) -0-
Distributions from net realized gains..................... -0- -0- -0-
--------- ---------- ---------
Total dividends and distributions......................... (.03) (.22) -0-
--------- ---------- ---------
Net asset value, end of period............................ $ 1.00 $ 1.00 $ 1.00
========= ========== =========
TOTAL RETURNS
Total investment return based on net asset value (e)...... 3.27% 2.25% .02%(f)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $6,899 $102 $30
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95% 1.16% 0%
Expenses, before waivers and reimbursements............. 4.46% 68.14% 0%
Net investment income................................... 3.98% 2.15% 3.05%(g)
Portfolio turnover rate................................... 0% 0% 0%
- --------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Commencement of operations.
(b) Net of expenses reimbursed by investment advisor.
(c) Based on average shares outstanding.
(d) The amount shown in this caption for a share outstanding throughout the
period may not accord with the change in realized and unrealized gains and
losses in the Portfolio securities for the period because of the timing of
sales and repurchases of Portfolio shares in relation to fluctuating market
values for the Portfolio.
(e) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(f) Total investment return calculated for a period of less than one year is not annualized.
(g) Annualized.
</TABLE>
64

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NORTH AMERICAN
GLOBAL DOLLAR GOVERNMENT
GOVERNMENT PORTFOLIO INCOME PORTFOLIO
--------------------- ----------------
MAY 2, 1994(A) MAY 3, 1994(A)
TO TO
DECEMBER 31, 1994 DECEMBER 31, 1994
------------------- ------------------
<S> <C> <C>
Net asset value, beginning of period......................... $ 10.00 $ 10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .36(c) .50(c)
Net realized and unrealized loss on investments and
foreign currency transactions........................... (.52) (1.71)
------- ------
Net decrease in net asset value from operations........... (.16) (1.21)
------- ------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... -0- -0-
Distributions from net realized gains..................... -0- -0-
--- ---
Total dividends and distributions......................... -0- -0-
--- ---
Net asset value, end of period............................ $ 9.84 $ 8.79
======= ======
TOTAL RETURN
Total investment return based on net asset value(d)....... (1.60)%(e) (12.10)%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $1,146 $3,848
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95%(f) .95%(f)
Expenses, before waivers and reimbursements............. 15.00%(f) 4.43%(f)
Net investment income................................... 6.02%(f) 8.49%(f)
Portfolio turnover rate................................... 9% 15%
<CAPTION>
UTILITY GROWTH
INCOME PORTFOLIO PORTFOLIO
---------------- ---------------------
MAY 10, 1994(A) SEPTEMBER 15, 1994(A)
TO TO
DECEMBER 31, 1994 DECEMBER 31, 1994
------------------- ------------------
<S> <C> <C>
Net asset value, beginning of period......................... $ 10.00 $ 10.00
---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .28(c) .03(c)
Net realized and unrealized gain (loss) on investments.... (.32) .50
---- ---
Net increase (decrease) in net asset value from operations (.04) .53
---- ---
LESS: DISTRIBUTIONS
Dividends from net investment income...................... -0- -0-
Distributions from net realized gains..................... -0- -0-
--- ---
Total dividends and distributions......................... -0- -0-
--- ---
Net asset value, end of period............................ $ 9.96 $ 10.53
========== =========
TOTAL RETURN
Total investment return based on net asset value(d)....... (.40)%(e) 5.30%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $1,254 $5,492
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95%(f) .95%(f)
Expenses, before waivers and reimbursements............. 15.98%(f) 4.19%(f)
Net investment income................................... 4.62%(f) 1.17%(f)
Portfolio turnover rate................................... 31% 25%
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Commencement of operations.
(b) Net of expenses reimbursed by investment advisor.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(e) Total investment return calculated for a period of less than one year is not annualized.
(f) Annualized.
</TABLE>
65

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

FINANCIAL HIGHLIGHTS

SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

WORLDWIDE CONSERVATIVE
PRIVATIZATION PORTFOLIO INVESTORS PORTFOLIO
----------------------- -------------------
SEPTEMBER 23, 1994(A) OCTOBER 28, 1994(A)
TO TO
DECEMBER 31, 1994 DECEMBER 31, 1994
------------------- ------------------
<S> <C> <C>
Net asset value, beginning of period......................... $ 10.00 $ 10.00
---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .10(c) .06(c)
Net realized and unrealized gain on investments........... -0- .01
---------- ---------
Net increase in net asset value from operations........... .10 .07
---------- ---------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... -0- -0-
Distributions from net realized gains..................... -0- -0-
---------- ---------
Total dividends and distributions......................... -0- -0-
---------- ---------
Net asset value, end of period............................ $ 10.10 $ 10.07
========== =========
TOTAL RETURN
Total investment return based on net asset value(d)....... 1.00%(e) 0.70%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $1,127 $701
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95%(f) .95%(f)
Expenses, before waivers and reimbursements............. 18.47%(f) 20.35%(f)
Net investment income................................... 4.27%(f) 3.55%(f)
Portfolio turnover rate................................... 0% 2%
<CAPTION>
GROWTH
INVESTORS PORTFOLIO
-------------------
OCTOBER 28, 1994(A)
TO
DECEMBER 31, 1994
------------------
<S> <C>
Net asset value, beginning of period......................... $ 10.00
--------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .04(c)
Net realized and unrealized loss on investments........... (.18)
---------
Net decrease in net asset value from operations........... (.14)
--------
LESS: DISTRIBUTIONS
Dividends from net investment income...................... -0-
Distributions from net realized gains..................... -0-
--------
Total dividends and distributions......................... -0-
--------
Net asset value, end of period............................ $ 9.86
========
TOTAL RETURN
Total investment return based on net asset value(d)....... (1.40)%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)................. $321
Ratio to average net assets of:
Expenses, net of waivers and reimbursements............. .95%(f)
Expenses, before waivers and reimbursements............. 41.62%(f)
Net investment income................................... 2.29%(f)
Portfolio turnover rate................................... 3%
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Commencement of operations.
(b) Net of expenses reimbursed by investment advisor.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(e) Total investment return calculated for a period of less than one year is not annualized.
(f) Annualized.
</TABLE>

<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- -----------------------------------------------------------------------------

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Alliance Variable Products Series
Fund, Inc., (the "Fund"), (comprising, respectively, the Premier Growth
(formerly the Growth Portfolio), Global Bond, Growth and Income, Short-Term
Multi-Market, U.S. Government/High Grade Securities, Total Return,
International, Money Market, Global Dollar Government, North American
Government Income, Utility Income, Growth, Worldwide Privatization,
Conservative Investors and Growth Investors Portfolios), as of December 31,
1994, and the related statements of operations and changes in net assets and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1994, by correspondence with the custodian and brokers
or other alternative procedures when replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Portfolios constituting Alliance Variable Products Series
Fund, Inc. at December 31, 1994, and the results of their operations, the
changes in their net assets and the financial highlights for each of the
indicated periods, in conformity with generally accepted accounting principles.

New York, New York
February 6, 1995

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

FEDERAL INCOME TAX INFORMATION (UNAUDITED)
The following Portfolios of the Fund hereby designate the respective amounts
per share as long-term capital gain distributions during the taxable year ended
December 31, 1994:

PER SHARE
---------
Premier Growth $.013
Global Bond $.12
Growth and Income $.01

<PAGE>

APPENDIX A

BOND AND COMMERCIAL PAPER RATINGS

STANDARD & POOR'S BOND RATINGS

A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation. Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree. 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
a debt of a higher rated category. 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 to repay principal for debt in this category
than for higher rated categories.

Debt rated "BB," "B," "CCC" or "CC" 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 "CC" 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. The rating "C" is reserved for income bonds
on which no interest is being paid. Debt rated "D" is in default
and payments of interest and/or repayment of principal is in
arrears.

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.

MOODY'S BOND RATINGS

Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations; Baa
- - considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured and have speculative
characteristics as well; Ba, B, Caa, Ca, C--protection of

A-1

<PAGE>

interest and principal payments is questionable; Ba indicates
some speculative elements while Ca represents a high degree of
speculation and C represents the lowest rated class of bonds;
Caa, Ca and C bonds may be in default. Moody's applies numerical
modifiers 1, 2 and 3 in each generic rating classification from
Aa to B in its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks at the
lower end of its generic rating category.

FITCH INVESTORS SERVICE BOND RATINGS

AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
trustees and fiduciary institutions, and liable to but slight
market fluctuation other that through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with
such stability of applicable earnings that safety is beyond
reasonable question whatever changes occur in conditions. Other
features may enter in, such as a wide margin of protection
through collateral security or direct lien on specific property
as in the case of high class equipment certificates or bonds that
are first mortgages on valuable real estate. Sinking funds or
voluntary reduction of the debt by call or purchase are often
factors, while guarantee or assumption by parties other than the
original debtor may also influence the rating.

AA. Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many
are highly active. Their merits are not greatly unlike those of
the AAA class, but a security so rated may be of junior through
strong lien -- in many cases directly following an AAA security
- -- or the margin of safety is less strikingly broad. The issue
may be the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the
enterprise and more local type of market.

A. A securities are strong investments and in many
cases of highly active market, but are not so heavily protected
as the two upper classes or possibly are of similar security but
less quickly salable. As a class they are more sensitive in
standing and market to material changes in current earnings of
the company. With favoring conditions such securities are likely
to work into a high rating, but in occasional instances changes
cause the rating to be lowered.

A-2

<PAGE>

BBB. BBB rated bonds are considered to be investment
grade and of satisfactory quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to weaken this ability than bonds with
higher ratings.

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A is the highest commercial paper rating category
utilized by S&P, which uses the number 1+, 1, 2 and 3 to denote
relative strength within its A classification. Commercial paper
issues rated A by S&P have the following characteristics:
Liquidity ratios are better than industry average, long-term debt
rating is A or better. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow
are in an upward trend. Typically, the issuer is a strong
company in a well-established industry and has superior
management. Issues rated "B" are regarded as having only an
adequate capacity for timely payment. However, such capacity may
be damaged by changing conditions or short-term adversities. The
rating "C" is assigned to short-term debt obligations with a
doubtful capacity for repayment. An issue rated "D" is either in
default or is expected to be in default upon maturity.

MOODY'S COMMERCIAL PAPER RATINGS

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

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

Issuers rated Prime-3 (or related supporting
institutions) have an acceptable capacity for repayment of short-
term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced.

A-3

<PAGE>

Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement
for relatively high financial leverage. Adequate alternate
liquidity is maintained.

The rating category Not Prime encompasses all other
rated commercial paper issuers.

COMMERCIAL PAPER RATINGS OF FITCH INVESTORS SERVICES, INC.
AND DUFF & PHELPS INC.

Commercial paper rated "Fitch-1" is considered to be the
highest grade paper and is regarded as having the strongest
degree of assurance for timely payment. "Fitch-2" is considered
very good grade paper and reflects an assurance of timely payment
only slightly less in degree than the strongest issue.
Commercial paper carrying the "Fitch-3" rating is considered to
be good grade paper having a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as the
two higher categories. "Fitch-4" is considered poor grade paper
having characteristics suggesting that the degree of assurance
for timely payment is minimal and is susceptible to near-term
adverse change due to less favorable financial economic
conditions.

Commercial paper issues rated "Duff 1" by Duff & Phelps
Inc. have the following characteristics: very high certainty of
timely payment, excellent liquidity factors supported by good
fundamental protection factors, and risk factors which are minor.
Issues rated "Duff 2" have a good certainty of timely payment,
sound liquidity factors and company fundamentals, small risk
factors, and good access to capital markets. Commercial paper
issues rated "Duff 3" have satisfactory liquidity and other
protection factors which qualify them as investment grade issue.
Although the risk factors associated with these issues are larger
and subject to more variation, timely payment is expected.
Issues rated "Duff 4" are considered to be non-investment grade
and have speculative investment characteristics, liquidity
insufficient to insure against disruption in debt service, and
operating factors and market access subject to a high degree of
variation. Issuers of commercial paper issues rated "Duff 5" are
considered to be in default and have failed to meet scheduled
principal and/or interest payments.

A-4
00250292.AM8

<PAGE>

APPENDIX B

DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED
BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES

FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS--are bonds
issued by a cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit Administration, an
independent agency of the U.S. Government. These bonds are not
guaranteed by the U.S. Government.

MARITIME ADMINISTRATION BONDS--are bonds issued and
provided by the Department of Transportation of the U.S.
Government and are guaranteed by the U.S. Government.

FHA DEBENTURES--are debentures issued by the Federal
Housing Administration of the U.S. Government and are guaranteed
by the U.S. Government.

GNMA CERTIFICATES--are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage
loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Each mortgage loan
included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.

FHLMC BONDS--are bonds issued and guaranteed by the
Federal Home Loan Mortgage Corporation.

FNMA BONDS--are bonds issued and guaranteed by the
Federal National Mortgage Association.

FEDERAL HOME LOAN BANK NOTES AND BONDS--are notes and
bonds issued by the Federal Home Loan Bank System and are not
guaranteed by the U.S. Government.

STUDENT LOAN MARKETING ASSOCIATION ("SALLIE MAE") NOTES
AND BONDS--are notes and bonds issued by the Student Loan
Marketing Association.

Although this list includes a description of the primary
types of U.S. Government agency or instrumentality obligations in
which certain Portfolios of the Fund intends to invest,
Portfolios may invest in obligations of U.S. Government agencies
or instrumentalities other than those listed above.

B-1
00250292.AM8

<PAGE>

APPENDIX C

FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCIES

FUTURES CONTRACTS

Portfolios of the Fund may enter into contracts for the
purchase or sale for future delivery of fixed-income securities
or foreign currencies, or contracts based on financial or stock
indices including any index of U.S. Government Securities,
Foreign Government Securities, corporate debt securities or
common stock. U.S. futures contracts have been designed by
exchanges which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC"), and must be
executed through a futures commission merchant, or brokerage
firm, which is a member of the relevant contract market. Futures
contracts trade on a number of exchange markets, and, through
their clearing corporations, the exchanges guarantee performance
of the contracts as between the clearing members of the exchange.

At the same time a futures contract is purchased or
sold, a Portfolio must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2%-5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Portfolio would provide or receive cash that reflects any decline
or increase in the contract's value.

At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.

Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the

C-1

<PAGE>

contracts are traded, a Portfolio will incur brokerage fees when
it purchases or sells futures contracts.

INTEREST RATE FUTURES

The purpose of the acquisition or sale of a futures
contract, in the case of a portfolio, such as a Portfolio of the
Fund, which holds or intends to acquire fixed-income securities,
is to attempt to protect the Portfolio from fluctuations in
interest or foreign exchange rates without actually buying or
selling fixed-income securities or foreign currency. For
example, if interest rates were expected to increase, the
Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as
selling an equivalent value of the debt securities owned by the
Portfolio. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the
futures contracts to the Portfolio would increase at
approximately the same rate, thereby keeping the net asset value
of the Portfolio from declining as much as it otherwise would
have. The Portfolio could accomplish similar results by selling
debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of
futures contracts as an investment technique allows a Portfolio
to maintain a defensive position without having to sell its
portfolio securities.

Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher
prices. Since the fluctuations in the value of futures contracts
should be similar to those of debt securities, the Portfolio
could take advantage of the anticipated rise in the value of debt
securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be
liquidated and the Portfolio could then buy debt securities on
the cash market. To the extent a Portfolio enters into futures
contracts for this purpose, the assets in the segregated asset
account maintained to cover the Portfolio's obligations with
respect to such futures contracts will consist of cash, cash
equivalents or high quality liquid debt securities (or, in the
case of the North American Government Income Portfolio, Global
Dollar Government Portfolio and Utility Income Portfolio, high
grade liquid debt securities) from its portfolio in an amount
equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to
such futures contracts.

C-2

<PAGE>

The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.

In addition, futures contracts entail risks. Although
the Portfolio believes that use of such contracts will benefit
the Portfolio, if the Adviser's investment judgment about the
general direction of interest rates is incorrect, the Portfolio's
overall performance would be poorer than if it had not entered
into any such contract. For example, if a Portfolio has hedged
against the possibility of an increase in interest rates which
would adversely affect the price of debt securities held in its
portfolio and interest rates decrease instead, the Portfolio will
lose part or all of the benefit of the increased value of its
debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have
to sell debt securities from its portfolio to meet daily
variation margin requirements. Such sales of bonds may be, but
will not necessarily be, at increased prices which reflect the
rising market. The Portfolio may have to sell securities at a
time when it may be disadvantageous to do so.

STOCK INDEX FUTURES

A Portfolio may purchase and sell stock index futures as
a hedge against movements in the equity markets. There are
several risks in connection with the use of stock index futures
by a Portfolio as a hedging device. One risk arises because of
the imperfect correlation between movements in the price of the
stock index futures and movements in the price of the securities
which are the subject of the hedge. The price of the stock index
futures may move more than or less than the price of the
securities being hedged. If the price of the stock index futures

C-3

<PAGE>

moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being
hedged has moved in a favorable direction, this advantage will be
partially offset by the loss on the index future. If the price
of the future moves more than the price of the stock, the
Portfolio will experience either a loss or gain on the future
which will not be completely offset by movements in the price of
the securities which are subject to the hedge. To compensate for
the imperfect correlation of movements in the price of securities
being hedged and movements in the price of the stock index
futures, the Portfolio may buy or sell stock index futures
contracts in a greater dollar amount than the dollar amount of
securities being hedged if the volatility over a particular time
period of the prices of such securities has been greater than the
volatility over such time period of the index, or if otherwise
deemed to be appropriate by the Adviser. Conversely, the
Portfolio may buy or sell fewer stock index futures contracts if
the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such
time period of the stock index, or it is otherwise deemed to be
appropriate by the Adviser It is also possible that, where the
Portfolio has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of
securities held in the Portfolio may decline. If this occurred,
the Portfolio would lose money on the futures and also experience
a decline in value in its portfolio securities. However, over
time the value of a diversified portfolio should tend to move in
the same direction as the market indices upon which the futures
are based, although there may be deviations arising from
differences between the composition of the Portfolio and the
stocks comprising the index.

Where futures are purchased to hedge against a possible
increase in the price of stock before the Portfolio is able to
invest its cash (or cash equivalents) in stocks (or options) in
an orderly fashion, it is possible that the market may decline
instead. If the Portfolio then concludes not to invest in stock
or options at that time because of concern as to possible further
market decline or for other reasons, the Portfolio will realize a
loss on the futures contract that is not offset by a reduction in
the price of securities purchased.

In addition the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in the stock index futures and the portion of the
portfolio being hedged, the price of stock index futures may not
correlate perfectly with movement in the stock index due to
certain market distortions. Rather than meeting additional

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margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the
normal relationship between the index and futures markets.
Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortion in the futures market, and because of the imperfect
correlation between the movements in the stock index and
movements in the price of stock index futures, a correct forecast
of general market trends by the investment adviser may still not
result in a successful hedging transaction over a short time
frame.

Positions in stock index futures may be closed out only
on an exchange or board of trade which provides a secondary
market for such futures. Although the Portfolios intend to
purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no
assurance that a liquid secondary market on any exchange or board
of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close
a futures investment position, and in the event of adverse price
movements, the Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event
futures contracts have been used to hedge portfolio securities,
such securities will not be sold until the futures contract can
be terminated. In such circumstances, an increase in the price
of the securities, if any, may partially or completely offset
losses on the futures contract. However, as described above,
there is no guarantee that the price of the securities will in
fact correlate with the price movements in the futures contract
and thus provide an offset on a futures contract.

The Adviser intends to purchase and sell futures
contracts on the stock index for which it can obtain the best
price with due consideration to liquidity.

OPTIONS ON FUTURES CONTRACTS

Portfolios of the Fund intend to purchase and write
options on futures contracts for hedging purposes. None of the
Portfolios is a commodity pool and all transactions in futures
contracts engaged in by a Portfolio must constitute bona fide
hedging or other permissible transactions in accordance with the
rules and regulations promulgated by the CFTC. The purchase of a
call option on a futures contract is similar in some respects to
the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based or the price

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of the underlying debt securities, it may or may not be less
risky than ownership of the futures contract or underlying debt
securities. As with the purchase of futures contracts, when a
Portfolio is not fully invested it may purchase a call option on
a futures contract to hedge against a market advance due to
declining interest rates.

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

The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Portfolio may
purchase a put option on a futures contract to hedge the
Portfolio's portfolio against the risk of rising interest rates.

The amount of risk the Portfolio assumes when it
purchases an option on a futures contract is the premium paid for
the option plus related transaction costs. In addition to the
correlation risks discussed above, the purchase of an option also
entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the
option purchased.

OPTIONS ON FOREIGN CURRENCIES

Portfolios of the Fund may purchase and write options on
foreign currencies for hedging purposes in a manner similar to
that in which futures contracts on foreign currencies, or forward

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contracts, will be utilized. For example, a decline in the
dollar value of a foreign currency in which portfolio dollar
value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of
portfolio securities, the Portfolio may purchase put options on
the foreign currency. If the value of the currency does decline,
the Portfolio will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would
have resulted.

Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Portfolio may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Portfolio deriving
from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could
sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of
advantageous changes in such rates.

Portfolios of the Fund may write options on foreign
currencies for the same types of hedging purposes. For example,
where a Portfolio anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a
put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Portfolio could write a put option on the
relevant currency which, if rates move in the manner projected,
will expire unexercised and allow the Portfolio to hedge such
increased cost up to the amount of the premium. As in the case
of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the
amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised
and the Portfolio would be required to purchase or sell the
underlying currency at a loss which may not be offset by the
amount of the premium. Through the writing of options on foreign

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<PAGE>

currencies, the Portfolio also may be required to forego all or a
portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.

Portfolios of the Fund intend to write covered call
options on foreign currencies. A call option written on a
foreign currency by a Portfolio is "covered" if the Portfolio
owns the underlying foreign currency covered by the call or has
an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash
consideration held in a segregated account by the Fund's
Custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the
Portfolio has a call on the same foreign currency and in the same
principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of
the call written or (b) is greater than the exercise price of the
call written if the difference is maintained by the Portfolio in
cash, U.S. Government Securities and other high grade liquid debt
securities in a segregated account with the Fund's Custodian.

Portfolios of the Fund also intend to write call options
on foreign currencies that are not covered for cross-hedging
purposes. A call option on a foreign currency is for cross-
hedging purposes if it is not covered, but is designed to provide
a hedge against a decline in the U.S. dollar value of a security
which the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option due to an
adverse change in the exchange rate. In such circumstances, the
Portfolio collateralizes the option by maintaining in a
segregated account with the Fund's Custodian, cash or U.S.
Government Securities or other high quality liquid debt
securities (or, in the case of the North American Government
Income Portfolio and the Utility Income Portfolio, high grade
liquid debt securities) in an amount not less than the value of
the underlying foreign currency in U.S. dollars marked to market
daily.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS,
FORWARD CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

Unlike transactions entered into by a Portfolio in
futures contracts, options on foreign currencies and forward
contracts are not traded on contract markets regulated by the
CFTC or (with the exception of certain foreign currency options)
by the Commission. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national
securities exchanges, such as the Philadelphia Stock Exchange and
the Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter.

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<PAGE>

In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer and a trader of forward
contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral
requirements associated with such positions.

Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting a Portfolio to liquidate open positions at
a profit prior to exercise or expiration, or to limit losses in
the event of adverse market movements.

The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or
prohibitions, on exercise.

In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies
may be traded on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in

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<PAGE>

or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) lesser
availability than in the United States of data on which to make
trading decisions, (iii) delays in a Portfolio's ability to act
upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.

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<PAGE>

APPENDIX D

OPTIONS

Portfolios of the Fund will only write "covered" put and
call options, unless such options are written for cross-hedging
purposes. The manner in which such options will be deemed
"covered" is described in the Prospectus under the heading "Other
Investment Policies and Techniques -- Options."

The writer of an option may have no control over when
the underlying securities must be sold, in the case of a call
option, or purchased, in the case of a put option, since with
regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount, of course, may, in the
case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period.
If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option
is exercised, the writer must fulfill the obligation to purchase
the underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.

The writer of a listed option that wishes to terminate
its obligation may effect a "closing purchase transaction." This
is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that
the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option.
Likewise, an investor who is the holder of a listed option may
liquidate its position by effecting a "closing sale transaction".
This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction can be
effected.

Effecting a closing transaction in the case of a written
call option will permit the Portfolio to write another call
option on the underlying security with either a different
exercise price or expiration date or both, or in the case of a
written put option will permit the Portfolio to write another put
option to the extent that the exercise price thereof is secured
by deposited cash or short-term securities. Also, effecting a
closing transaction will permit the cash or proceeds from the
concurrent sale of any securities subject to the option to be
used for other Portfolio investments. If the Portfolio desires
to sell a particular security from its portfolio on which it has

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written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.

A Portfolio will realize a profit from a closing
transaction if the price of the transaction is less than the
premium received from writing the option or is more than the
premium paid to purchase the option; the Portfolio will realize a
loss from a closing transaction if the price of the transaction
is more than the premium received from writing the option or is
less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally
reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the
underlying security owned by the Portfolio.

An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Portfolio would have to exercise the options in order to
realize any profit. If the Portfolio is unable to effect a
closing purchase transaction in a secondary market, it will not
be able to sell the underlying security until the option expires
or it delivers the underlying security upon exercise. Reasons
for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in
certain options, (ii) restrictions may be imposed by a national
securities exchange ("Exchange") on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular
classes or series of options or underlying securities, (iv)
unusual or unforeseen circumstances may interrupt normal
operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate
to handle current trading volume, or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a
particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of
options) would cease to exist, although outstanding options on
that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue
to be exercisable in accordance with their terms.

A Portfolio may write options in connection with buy-
and-write transactions; that is, the Portfolio may purchase a
security and then write a call option against that security. The
exercise price of the call the Portfolio determines to write will
depend upon the expected price movement of the underlying
security. The exercise price of a call option may be below ("in-

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the-money"), equal to ("at-the-money") or above ("out-of-the-
money") the current value of the underlying security at the time
the option is written. Buy-and-write transactions using in-the-
money call options may be used when it is expected that the price
of the underlying security will remain flat or decline moderately
during the option period. Buy-and-write transactions using at-
the-money call options may be used when it is expected that the
price of the underlying security will remain fixed or advance
moderately during the option period. Buy-and-write transactions
using out- of-the-money call options may be used when it is
expected that the premiums received from writing the call option
plus the appreciation in the market price of the underlying
security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If
the call options are exercised in such transactions, the
Portfolio's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the
difference between the Portfolio's purchase price of the security
and the exercise price. If the options are not exercised and the
price of the underlying security declines, the amount of such
decline will be offset in part, or entirely, by the premium
received.

The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Portfolio's gain will be limited to the premium received.
If the market price of the underlying security declines or
otherwise is below the exercise price, the Portfolio may elect to
close the position or take delivery of the security at the
exercise price and the Portfolio's return will be the premium
received from the put option minus the amount by which the market
price of the security is below the exercise price. Out-of-the-
money, at-the-money, and in-the-money put options may be used by
the Portfolio in the same market environments that call options
are used in equivalent buy- and-write transactions.

A portfolio may purchase put options to hedge against a
decline in the value of its portfolio. By using put options in
this way, the Portfolio will reduce any profit it might otherwise
have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.

A Portfolio may purchase call options to hedge against
an increase in the price of securities that the Portfolio
anticipates purchasing in the future. The premium paid for the
call option plus any transaction costs will reduce the benefit,
if any, realized by the Portfolio upon exercise of the option,
and, unless the price of the underlying security rises
sufficiently, the option may expire worthless to the Portfolio.

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<PAGE>

APPENDIX E: JAPAN

Japan, located in eastern Asia, consists of four main
islands, Hokkaido, Honshu, Kyushu and Shikoku, and many small
islands. Its population is approximately 125 million.

The government of Japan is a representative democracy
whose principal executive is the Prime Minister. Japan's
legislature (known as the Diet) consists of two houses, the House
of Representatives (the lower house) and the House of Councillors
(the upper house).

POLITICS

From 1955 to 1993, Japan's government was controlled by
the Liberal Democratic Party (the "LDP"), the major conservative
party. In August 1993, after a main faction left the LDP over
the issue of political reform, a non-LDP coalition government was
formed consisting of centrist and leftist parties and was headed
by Prime Minister Morihiro Hosokawa. In April 1994, Mr. Hosokawa
resigned due to allegations of personal financial irregularities.
The coalition members thereafter agreed to choose as prime
minister the foreign minister, Tsutomu Hata. As a result of the
formation of a center-right voting bloc, however, the Social
Democratic Party of Japan (the "SDPJ"), a leftist party, withdrew
from the coalition. Consequently, Mr. Hata's government was a
minority coalition, the first since 1955, and was therefore
inherently unstable. In June 1994, Mr. Hata and his coalition
were replaced by a new coalition made up of the SDPJ, the LDP and
the New Party Harbinger. This coalition is led by the present
prime minister Tomiichi Murayama, the first Socialist prime
minister in 47 years. Various political parties within the
present coalition are calling for political reform that could
split the government and lead to new political alignments. Thus,
the stability of the current ruling coalition is not assured.

ECONOMY

The Japanese economy maintained an average annual growth
rate of 3.9% in real GDP terms from 1980 through 1992, compared
with 2.1% for the United States during the same period. In 1992,
Japan's real GDP growth rate fell to 1.3% and there was little or
no growth in GDP in 1993. Inflation has remained low, estimated

E-1

at 1.5% for 1993. Consumer expenditures dropped 0.9% in 1993
from 1992 due to prevalent fears that have affected consumer and
business sentiment, such as the fear of corporate restructuring.
Recently, Japanese companies have taken steps designed to address
the economic downturn. These steps include reducing overtime and
bonus payments and initiating or accelerating early retirement
programs. Overall employment, however, increased in 1993.
Employment growth has been shifting from the manufacturing to the
service industry, a trend expected to continue for the foreseable
future. Although investment has declined from the high levels of
the late 1980's and the recent appreciation of the Japanese Yen
against the U.S. Dollar has curtailed business profits and
weakened exports, increases in housing and public investment and
a decline in imports in the early part of 1993 have provided some
buffers to the economy's recent downturn.

Japan's post World War II reliance on heavy industries
has shifted in recent years to higher technology products
assembly and to automobile, electrical and electronics
production. Most recently, because of the strong Yen and high
production costs in Japan, a structural change in Japan's economy
has begun, with final assembly of manufactured goods being
shifted to lower-cost nations, while increased reliance is being
placed on service-based industries and the production of high
technology components and parts requiring specialized skills.

Japan's success in exporting its products has generated
sizeable trade surpluses, which have caused it difficulty in its
relations with its trading partners. Japan's overall trade
surplus for 1993 was the largest in its history, amounting to
$120 billion. Exports totaled $362 billion, up 6.2% from 1992,
and imports were $242 billion, up 3.5% from 1992. Its current
account surplus in 1993 was a record $131 billion. Consequently,
Japan has become the largest creditor nation and a significant
donor of foreign aid. On October 1, 1994, the U.S. and Japan
reached an agreement that may lead to more open Japanese markets
with respect to insurance, glass and medical and
telecommunications equipment. The two countries failed to agree,
however, with respect to Japanese imports of American automobiles
and automotive parts. In response to this failure, the U.S. has
initiated the process of imposing limited trade sanctions on
Japan. The sanctions process is lengthy and, therefore, it will
be late 1995 at the earliest before the U.S. imposes any trade
sanctions on Japanese exports.

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In response to pressures exerted by the slumping economy
and the growing trade surplus, the government, in April and
September 1993, announced emergency economic packages which
included stimulus plans totaling Yen19.2 trillion for 1994 and
numerous legislative provisions. A significant amount of the
expenditures was allocated for improving infrastructure, public
works projects, low-interest loans used for housing, and low
interest small business loans. Most importantly, the September
1993 package includes an elimination or relaxation of government
regulations, a reduction of import costs, an extension of
subsidies to companies for sustaining excess workers in order to
curb unemployment, and an offer of tax breaks to middle-income
taxpayers for educational expenses and to companies for
operational streamlining in order to influence lower retail
costs. In early 1994, the government responded to the business
and financial communities by providing an immediate income-tax
cut.

The Japanese Yen has been generally appreciating against
the U.S. Dollar for the past decade. In 1994, through
September 30, the Japanese Yen high against the U.S. Dollar was
Yen96.81 per dollar and the low was Yen113.10 per dollar. The
average for 1994 through September 30 was Yen103.37 per dollar.
On October 19, 1994, the exchange rate was Yen97.36 per dollar.

JAPANESE STOCK EXCHANGES

Currently, there are eight stock exchanges in Japan.
The Tokyo Stock Exchange (the "TSE"), the Osaka Securities
Exchange and the Nagoya Stock Exchange are the largest, together
accounting for approximately 99% of the share trading volume and
for about 98.9% of the overall market value of all shares traded
on Japanese stock exchanges during the year ended December 31,
1993. The other stock exchanges are located in Kyoto, Hiroshima,
Fukuoka, Niigata and Sapporo. The chart below presents share
trading volume and overall market value information of each of
the three major Japanese stock exchanges for the years 1989
through 1993.

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Share Trading Volume and Market Value on Japanese Stock Exchanges

(mils. of shares, YEN bils.)
____________________________________________________________________________
All Exchanges Tokyo Osaka Nagoya
_____________ _____ _____ ______
Volume Value Volume Value Volume Value Volume Value
______ _____ ______ _____ ______ _____ ______ _____

1989 256,296 386,395 222,599 332,617 25,096 41,679 7,263 10,395
1990 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993 101,173 106,123 86,935 86,889 10,440 14,635 2,780 3,459

Sources: The Tokyo Stock Exchange 1994 Fact Book and 1993 Fact
Book. Trading volume and value of foreign stocks are not
included.

At end of the third quarter of 1994, the market
capitalization of the First Section of the TSE (described below)
was approximately 40% below its all-time high reached in 1989.
Although the price/earnings ratios of individual companies vary
widely from company to company, absolute Japanese price/earnings
ratios are high in comparison with other major stock markets.
Other valuation measures, such as price-to-book value and price-
to-cash flow ratios, show that the Japanese market is near its
lowest level in the last 20 years relative to other world
markets.

THE TOKYO STOCK EXCHANGE

Overview of the Tokyo Stock Exchange. The TSE is the
largest of the Japanese stock exchanges and as such is widely
regarded as the principal securities exchange for all of Japan.
In 1993, the TSE accounted for 81.9% of the market value and
85.9% of the share trading volume on all Japanese stock
exchanges. A foreign stock section on the TSE, consisting of
shares of non-Japanese companies, listed 110 non-Japanese
companies at the end of 1993. The market for stock of Japanese
issuers on the TSE is divided into a First Section and a Second
Section. The First Section is generally for larger, established
companies (in existence for five years or more) that meet
stringent listing criteria relating to the size and business
condition of the issuing company, the liquidity of its securities
and other factors pertinent to investor protection. The TSE's

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Second Section is for smaller companies and newly listed issuers.

Sector Analysis of the First and Second Sections. The
TSE's domestic stocks include a broad cross-section of companies
involved in many different areas of the Japanese economy. At the
end of 1993, the four largest industry sectors, based on market
value, listed on the TSE were banking, with 101 companies
representing 23.8% of all domestic stocks listed on the TSE;
electric appliances, with 172 companies representing 10.2% of all
domestic stocks so listed; transportation equipment, with 82
companies representing 6.6% of all domestic stocks so listed; and
electric power and gas, with 16 companies representing 5.4% of
all domestic stocks so listed. No other industry sector
represented more than 5% of TSE listed domestic stocks.

Market Growth of the TSE. The First and Second Sections
of the TSE grew in terms of both average daily trading value and
aggregate year-end market value from 1982, when they were
Yen128,320 million and Yen98,090 billion, respectively, through
the end of 1989, when they were Yen1,335,810 million and
Yen611,152 billion, respectively. Following the peak in 1989,
both average daily trading value and aggregate year-end market
value declined through 1992 when they were Yen243,362 million and
Yen289,483 billion, respectively. In 1993, both average daily
trading value and aggregate year-end market value increased and
were Yen353,208 million and Yen324,357 billion, respectively.

Market Performance of the First Section. As measured by
the TOPIX, a capitalization-weighted composite index of all
common stocks listed in the First Section, the performance of the
First Section reached a peak in 1989. Thereafter, the TOPIX
declined approximately 46% through the beginning of 1993. In
1993, the TOPIX increased by approximately 9% from the end of
1992, and by the end of the third quarter of 1994 increased by
approximately 8% from the end of 1993.

JAPANESE FOREIGN EXCHANGE CONTROLS

Under Japan's Foreign Exchange and Foreign Trade Control
Law and cabinet orders and ministerial ordinances thereunder (the
"Foreign Exchange Controls"), prior notification to the Minister
of Finance of Japan (the "Minister of Finance") of the
acquisition of shares in a Japanese company from a resident of

E-5

Japan (including a corporation) by a non-resident of Japan
(including a corporation) is required unless the acquisition is
made from or through a securities company designated by the
Minister of Finance or if the yen equivalent of the aggregate
purchase price of shares is not more than Yen100 million. Even
in these situations, if a foreign investor intends to acquire
shares of a Japanese corporation listed on a Japanese stock
exchange or traded on a Japanese over-the-counter market
(regardless of the person from or through whom the foreign
investor acquires such shares) and as a result of the acquisition
the foreign investor would directly or indirectly hold 10% or
more of the total outstanding shares of that corporation, the
foreign investor must file a report within 15 days from and
including the day of such acquisition with the Minister of
Finance and any other minister with proper jurisdiction. In
instances where the acquisition concerns national security or
meets certain other conditions specified in the Foreign Exchange
Controls, the foreign investor must file a prior notification
with respect to the proposed acquisition with the Minister of
Finance and any other minister with proper jurisdiction. The
ministers may make a recommendation to modify or prohibit the
proposed acquisition if they consider that the acquisition would
impair the safety and maintenance of public order in Japan or
harmfully influence the smooth operation of the Japanese economy.
If the foreign investor does not accept the recommendation, the
ministers may issue an order modifying or prohibiting the
acquisition. In certain limited and exceptional circumstances,
the Foreign Exchange Controls give the Minister of Finance the
power to require prior approval for any acquisition of shares in
a Japanese company by a non-resident of Japan.

In general, the acquisition of shares by non-resident
shareholders by way of stock splits, as well as the acquisition
of shares of a Japanese company listed on a Japanese stock
exchange by non-residents upon exercise of warrants or conversion
of convertible bonds, are not subject to any of the foregoing
notification or reporting requirements. Under the Foreign
Exchange Controls, dividends paid on shares held by non-residents
of Japan and the proceeds of any sales of shares within Japan
may, in general, be converted into any foreign currency and
remitted abroad.

REGULATION OF THE JAPANESE EQUITIES MARKETS

The principal securities law in Japan is the Securities
and Exchange Law which provides overall regulation for the
issuance of securities in public offerings and private placements

E-6

and for secondary market trading. Insider trading provisions are
applicable to debt and equity securities listed on a Japanese
stock exchange and to unlisted debt and equity securities issued
by a Japanese corporation that has securities listed on a
Japanese stock exchange or registered with the Japan Securities
Dealer's Association (the "JSDA"). In addition, each of the
eight stock exchanges in Japan has its own constitution,
regulations governing the sale and purchase of securities and
standing rules for exchange contracts for the purchase and sale
of securities on the exchange, as well as detailed rules and
regulations covering a variety of matters, including rules and
standards for listing and delisting of securities.

The loss compensation incidents involving preferential
treatment of certain customers by certain Japanese securities
companies, which came to light in 1991, provided the impetus for
amendments to the Securities and Exchange Law, which took effect
in 1992, as well as two reform bills passed by the Diet in 1992.
The amended Securities Exchange Law now prohibits securities
companies from the operation of discretionary accounts, loss
compensation or provision of artificial gains in securities
transactions, directly or indirectly, to their customers and
making offers or agreements with respect thereto. To ensure that
securities are traded at their fair value, the JSDA and the TSE
have promulgated certain rules, effective in 1992, which, among
other things, explicitly prohibit any transaction undertaken with
the intent to provide loss compensation or illegal gains
regardless of whether the transaction otherwise technically
complies with the rules. The reform bills passed by the Diet,
which took effect in 1992 and 1993, provide for the establishment
of a new Japanese securities regulator and for a variety of
reforms designed to revitalize the Japanese financial and capital
markets by permitting banks and securities companies to compete
in each other's field of business, subject to various regulations
and restrictions.

E-7
00250292.AM8

PART C
OTHER INFORMATION

ITEM 24. Financial Statements and Exhibits.

(a) FINANCIAL STATEMENTS

Included in the Prospectus:
Financial Highlights

Included in the Statement of Additional Information for
the Premier Growth Portfolio, Global Bond Portfolio,
Growth and Income Portfolio, Short-Term Multi-Market
Portfolio, U.S. Government/High Grade Securities
Portfolio, Total Return Portfolio, International
Portfolio and the Money Market Portfolio:
Portfolio of Investments - December 31, 1994
Statement of Assets and Liabilities -
December 31, 1994
Statement of Operations, year ended December 31,
1994
Statement of Changes in Net Assets, years ended
December 31, 1994 and December 31, 1993
Notes to Financial Statements - December 31, 1994
Financial Highlights - for the years ended
December 31, 1994, December 31, 1993 and
December 31, 1992
Report of Ernst & Young LLP, Independent Auditors

Included in the Statement of Additional Information for
the Global Dollar Government Portfolio, North American
Government Income Portfolio, Utility Income Portfolio,
Growth Portfolio, Worldwide Privatization Portfolio,
Conservative Investors Portfolio and Growth investors
Portfolio:
Portfolio of Investments - December 31, 1994
Statement of Assets and Liabilities -
December 31, 1994
Statement of Operations, year ended December 31,
1994
Statement of Changes in Net Assets, year ended
December 31, 1994
Notes to Financial Statements - December 31, 1994
Financial Highlights - for the year ended
December 31, 1994
Report of Ernst & Young LLP, Independent Auditors

All other schedules are either omitted because they
are not required under the related instructions, they

C-8

are inapplicable or the required information is
presented in the financial statements or notes which are
included in the Statement of Additional Information of
the Registration Statement.

(b) EXHIBITS:

(1)(a) Articles of Incorporation of the Registrant -
Incorporated herein by reference to Exhibit 1 to
Registration Statement on Form N-1A, filed on
November 20, 1987.

(b) Articles Supplementary to the Articles of
Incorporation of the Registrant - Incorporated
herein by reference to Exhibit 1 to Registration
Statement on Form N-1A, filed on November 20,
1987.

(c) Form of Articles Supplementary to the Articles of
Incorporation of the Registrant - Incorporated by
reference to Exhibit 1(c) to Post-Effective
Amendment No. 5 of Registration Statement on Form
N-1A, filed on May 1, 1991.

(d) Articles Supplementary to the Articles of
Incorporation of the Registrant - filed herewith.

(e) Articles of Amendment to the Articles of
Incorporation of the Registrant - filed herewith.

(2)(a) By-Laws of the Registrant - Incorporated by
reference to Exhibit 2 to Registration Statement
on Form N-1A, filed on November 20, 1987.

(b) Revised By-Laws of the Registrant - Incorporated
by reference to Exhibit 2(b) to Post-Effective
Amendment No. 4 of Registration Statement on Form
N-1A, filed on April 30, 1991.

(3) Not applicable.

(4)(a) Specimen form of Share Certificate for Money
Market Portfolio, Growth Portfolio, Growth and
Income Portfolio, Managed Income Portfolio, High
Yield Portfolio, Total Return Portfolio and
International Portfolio - Incorporated by

C-2

reference to Exhibit 4 to Registration Statement
on Form N-1A, filed on November 20, 1987.

(b) Specimen form of Share Certificate for U.S.
Government/High Grade Securities Portfolio,
Short-Term Multi-Market Portfolio - Incorporated
by reference to Exhibit 4(b) to Post-Effective
Amendment No. 4 of Registration Statement on Form
N-1A, filed on April 30, 1991

(c) Specimen form of Share Certificate for Global
Bond Portfolio - Incorporated by reference to
Exhibit 4(c) to Post-Effective Amendment No. 5 of
Registration Statement on Form N-1A, filed on
May 1, 1991.

(5)(a) Advisory Agreement between the Registrant and
Alliance Capital Management L.P.- filed herewith.

(b) Sub-Advisory Agreement between Alliance Capital
Management L.P. and Law, Dempsey & Company
Limited, relating to the Global Bond Portfolio -
Incorporated by reference to Exhibit (5)(b) to
Post-Effective Amendment No. 7 of the
Registration Statement on Form N-1A filed on
February 26, 1993.

(6) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc. -
Incorporated by reference to Exhibit (6) to Post-
Effective Amendment No. 7 of the Registration
Statement on Form N-1A filed on February 26,
1993.

(7) Not applicable.

(8)(a) Amended Custodian Contract between the Registrant
and State Street Bank and Trust Company -
Incorporated by reference to Exhibit 8(a) to
Post-Effective Amendment No. 4 of Registration
Statement on Form N-1A, filed on April 30, 1991.

(9) Not applicable

(10) Not applicable.

(11) Consent of Independent Auditors - filed herewith.

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(12) Not applicable

(13) Not applicable

(14) Not applicable

(15) Not applicable

(16)(a) Schedule for computation of Yield and Total
Return Performance Quotation - Incorporated by
reference to Exhibit 16 to Post-Effective
Amendment No. 4 of Registration Statement on Form
N-1A, filed on April 30, 1991.

(b) Schedule for computation of Yield Quotation for
the Money market Portfolio - filed herewith.

OTHER EXHIBIT:

Powers of Attorney of David H. Dievler, John D.
Carifa, William H. Foulk, Jr. and Robert C. White-
Incorporated by reference to Other Exhibit to Post-
Effective Amendment No. 4 of Registration Statement on
Form N-1A, filed on April 30, 1991.

Power of Attorney of John H. Dobkin - incorporated by
reference to Other Exhibit to Post Effective Amendment
No. 7 filed on February 26, 1993.

ITEM 25. Persons Controlled by or under Common Control
with Registrant.

None.

ITEM 26. Number of Holders of Securities.

NUMBER OF RECORD HOLDERS
TITLE OF CLASS MARCH 3, 1995

Common Stock:
Short-Term Multi-Market Portfolio - 6
Growth and Income Portfolio - 6
Global Bond Portfolio - 3
Money Market Portfolio - 5
Premier Growth Portfolio - 4
U.S. Government/High Grade Portfolio - 4
High Yield Portfolio - 0
International Portfolio - 4

C-4

Total Return Portfolio - 4
North American Government Income Portfolio - 4
Global Dollar Government Portfolio - 4
Utility Income Portfolio - 4
Conservative Investors Portfolio - 5
Growth Investors Portfolio - 5
Worldwide Privatization Portfolio - 5
Growth Portfolio - 5

ITEM 27. Indemnification.

It is the Registrant's policy to indemnify its
directors and officers, employees and other agents to
the maximum extent permitted by Section 2-418 of the
General Corporation Law of the State of Maryland and
as set forth in Article EIGHTH of Registrant's
Articles of Incorporation, filed as Exhibit 1,
Article VII of the Registrant's By-Laws filed as
Exhibit 2 and Section 9 of the Distribution Services
Agreement filed as Exhibit 6(a), all as set forth
below. Registrant's Articles of Incorporation and
Article VII, Section 1 through Section 6 of the
Registrant's By-Laws, as set forth below. The
Adviser's liability for any loss suffered by the
Registrant or its shareholders is set forth in Section
4 of the Advisory Agreement filed as Exhibit 5(a) in
response to Item 24, as set forth below.

Section 2-418 of the Maryland General Corporation Law reads
as follows:

"2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS.--(a) In this section the
following words have the meaning indicated.

(1) "Directors" means any person who is or
was a director of a corporation and any person
who, while a director of a corporation, is or
was serving at the request of the corporation as
a director, officer, partner, trustee, employee,
or agent of another foreign or domestic
corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan.

(2) "Corporation" includes any domestic or
foreign predecessor entity of a corporation in a
merger, consolidation, or other transaction in
which the predecessor's existence ceased upon
consummation of the transaction.

C-5

(3) "Expenses" include attorney's fees.

(4) "Official capacity" means the
following:

(i) When used with respect to a
director, the office of director in the
corporation; and

(ii) When used with respect to a person
other than a director as contemplated in
subsection (i), the elective or appointive
office in the corporation held by the officer,
or the employment or agency relationship
undertaken by the employee or agent in behalf of
the corporation.

(iii) "Official capacity" does not
include service for any other foreign or
domestic corporation or any partnership, joint
venture, trust, other enterprise, or employee
benefit plan.

(5) "Party" includes a person who was, is,
or is threatened to be made a named defendant or
respondent in a proceeding.

(6) "Proceeding" means any threatened,
pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or
investigative.

(b)(1) A corporation may indemnify any
director made a party to any proceeding by
reason of service in that capacity unless it is
established that:

(i) The act or omission of the
director was material to the matter giving rise
to the proceeding; and

1. Was committed in bad faith;
or

2. Was the result of active and
deliberate dishonesty; or

(ii) The director actually received an
improper personal benefit in money, property, or
services; or

C-6

(iii) In the case of any criminal
proceeding, the director had reasonable cause to
believe that the act or omission was unlawful.

(2) (i) Indemnification may be against
judgments, penalties, fines, settlements, and
reasonable expenses actually incurred by the
director in connection with the proceeding.

(ii) However, if the proceeding was one
by or in the right of the corporation,
indemnification may not be made in respect of
any proceeding in which the director shall have
been adjudged to be liable to the corporation.

(3) (i) The termination of any proceeding
by judgment, order or settlement does not create
a presumption that the director did not meet the
requisite standard of conduct set forth in this
subsection.

(ii) The termination of any proceeding
by conviction, or a plea of nolo contendere or
its equivalent, or an entry of an order of
probation prior to judgment, creates a
rebuttable presumption that the director did not
meet that standard of conduct.

(c) A director may not be indemnified
under subsection (b) of this section in respect
of any proceeding charging improper personal
benefit to the director, whether or not
involving action in the director's official
capacity, in which the director was adjudged to
be liable on the basis that personal benefit was
improperly received.

(d) Unless limited by the charter:

(1) A director who has been
successful, on the merits or otherwise, in the
defense of any proceeding referred to in
subsection (b) of this section shall be
indemnified against reasonable expenses incurred
by the director in connection with the
proceeding.

(2) A court of appropriate
jurisdiction upon application of a director and
such notice as the court shall require, may

C-7

order indemnification in the following
circumstances:

(i) If it determines a director is
entitled to reimbursement under paragraph (1) of
this subsection, the court shall order
indemnification, in which case the director
shall be entitled to recover the expenses of
securing such reimbursement; or

(ii) If it determines that the director
is fairly and reasonably entitled to
indemnification in view of all the relevant
circumstances, whether or not the director has
met the standards of conduct set forth in
subsection (b) of this section or has been
adjudged liable under the circumstances
described in subsection (c) of this section, the
court may order such indemnification as the
court shall deem proper. However,
indemnification with respect to any proceeding
by or in the right of the corporation or in
which liability shall have been adjudged in the
circumstances described in subsection (c) shall
be limited to expenses.

(3) A court of appropriate
jurisdiction may be the same court in which the
proceeding involving the director's liability
took place.

(e) (1) Indemnification under subsection
(b) of this section may not be made by the
corporation unless authorized for a specific
proceeding after a determination has been made
that indemnification of the director is
permissible in the circumstances because the
director has met the standard of conduct set
forth in subsection (b) of this section.

(2) Such determination shall be made:

(i) By the board of directors by a
majority vote of a quorum consisting of
directors not, at the time, parties to the
proceeding, or, if such a quorum cannot be
obtained, then by a majority vote of a committee
of the board consisting solely of two or more
directors not, at the time, parties to such
proceeding and who were duly designated to act
in the matter by a majority vote of the full

C-8

board in which the designated directors who are
parties may participate;

(ii) By special legal counsel selected
by the board or a committee of the board by vote
as set forth in subparagraph (i) of this
paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the
committee cannot be established, by a majority
vote of the full board in which directors who
are parties may participate; or

(iii) By the stockholders.

(3) Authorization of indemnification and
determination as to reasonableness of expenses
shall be made in the same manner as the
determination that indemnification is
permissible. However, if the determination that
indemnification is permissible is made by
special legal counsel, authorization of
indemnification and determination as to
reasonableness of expenses shall be made in the
manner specified in subparagraph (ii) of
paragraph (2) of this subsection for selection
of such counsel.

(4) Shares held by directors who are
parties to the proceeding may not be voted on
the subject matter under this subsection.

(f) (1) Reasonable expenses incurred by a
director who is a party to a proceeding may be
paid or reimbursed by the corporation in advance
of the final disposition of the proceeding, upon
receipt by the corporation of:

(i) A written affirmation by the
director of the director's good faith belief
that the standard of conduct necessary for
indemnification by the corporation as authorized
in this section has been met; and

(ii) A written undertaking by or on
behalf of the director to repay the amount if it
shall ultimately be determined that the standard
of conduct has not been met.

(2) The undertaking required by
subparagraph (ii) of paragraph (1) of this
subsection shall be an unlimited general

C-9

obligation of the director but need not be
secured and may be accepted without reference to
financial ability to make the repayment.

(3) Payments under this subsection
shall be made as provided by the charter,
bylaws, or contract or as specified in
subsection (e) of this section.

(g) The indemnification and advancement of
expenses provided or authorized by this section
may not be deemed exclusive of any other rights,
by indemnification or otherwise, to which a
director may be entitled under the charter, the
bylaws, a resolution of stockholders or
directors, an agreement or otherwise, both as to
action in an official capacity and as to action
in another capacity while holding such office.

(h) This section does not limit the
corporation's power to pay or reimburse expenses
incurred by a director in connection with an
appearance as a witness in a proceeding at a
time when the director has not been made a named
defendant or respondent in the proceeding.

(i) For purposes of this section:

(1) The corporation shall be deemed to
have requested a director to serve an employee
benefit plan where the performance of the
director's duties to the corporation also
imposes duties on, or otherwise involves
services by, the director to the plan or
participants or beneficiaries of the plan:

(2) Excise taxes assessed on a
director with respect to an employee benefit
plan pursuant to applicable law shall be deemed
fines; and

(3) Action taken or omitted by the
director with respect to an employee benefit
plan in the performance of the director's duties
for a purpose reasonably believed by the
director to be in the interest of the
participants and beneficiaries of the plan shall
be deemed to be for a purpose which is not
opposed to the best interests of the
corporation.

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(j) Unless limited by the charter:

(1) An officer of the corporation
shall be indemnified as and to the extent
provided in subsection (d) of this section for a
director and shall be entitled, to the same
extent as a director, to seek indemnification
pursuant to the provisions of subsection (d);

(2) A corporation may indemnify and
advance expenses to an officer, employee, or
agent of the corporation to the same extent that
it may indemnify directors under this section;
and

(3) A corporation, in addition, may
indemnify and advance expenses to an officer,
employee, or agent who is not a director to such
further extent, consistent with law, as may be
provided by its charter, bylaws, general or
specific action of its board of directors or
contract.

(k) (1) A corporation may purchase and
maintain insurance on behalf of any person who
is or was a director, officer, employee, or
agent of the corporation, or who, while a
director, officer, employee, or agent of the
corporation, is or was serving at the request,
of the corporation as a director, officer,
partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership,
joint venture, trust, other enterprise, or
employee benefit plan against any liability
asserted against and incurred by such person in
any such capacity or arising out of such
person's position, whether or not the
corporation would have the power to indemnify
against liability under the provisions of this
section.

(2) A corporation may provide similar
protection, including a trust fund, letter of
credit, or surety bond, not inconsistent with
this section.

(3) The insurance or similar
protection may be provided by a subsidiary or an
affiliate of the corporation.

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(l) Any indemnification of, or advance of
expenses to, a director in accordance with this
section, if arising out of a proceeding by or in
the right of the corporation, shall be reported
in writing to the stockholders with the notice
of the next stockholders' meeting or prior to
the meeting."

Article EIGHTH of the Registrant's Articles of
Incorporation reads as follows:

"EIGHTH: To the maximum permitted by the General
Corporation Law of the State of Maryland as from time
to time amended, the Corporation shall indemnify its
currently acting and its former directors and officers
and those persons who, at the request of the
Corporation, serve or have served another Corporation,
partnership, joint venture, trust or other enterprise
in one or more of such Corporations.

The Advisory Agreement between the Registrant and
Alliance Capital Management L.P. provides that
Alliance Capital Management L.P. will not be liable
under such agreements for any mistake of judgment or
in any event whatsoever except for lack of good faith
and that nothing therein shall be deemed to protect,
or purport to protect, Alliance Capital Management
L.P. against any liability to Registrant or its
security holders to which it would otherwise be
subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties
thereunder, or by reason of reckless disregard of its
obligations or duties thereunder.

The Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.
provides that the Registrant will indemnify, defend
and hold Alliance Fund Distributors, Inc., and any
person who controls it within the meaning of Section
15 of the Investment Company Act of 1940, free and
harmless from and against any and all claims, demands,
liabilities and expenses which Alliance Fund
Distributors, Inc. or any controlling person may incur
arising out of or based upon any alleged untrue
statement of a material fact contained in Registrant's
Registration Statement or Prospectus or Statement of
Additional Information or arising out of, or based
upon any alleged omission to state a material fact
required to be stated in either thereof or necessary
to make the statements in any thereof not misleading,
provided that nothing therein shall be so construed as

C-12

to protect Alliance Fund Distributors against any
liability to Registrant or its security holders to
which it would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in
the performance of its duties, or be reason of
reckless disregard of its obligations or duties
thereunder. The foregoing summaries are qualified by
the entire text of Registrant's Articles of
Incorporation, the Advisory Agreement between the
Registrant and Alliance Capital Management L.P. and
the Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.

Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended (the
"Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that, in the opinion
of the Securities and Exchange Commission, such
indemnification is against public policy as expressed
in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of
the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such
director, officer or controlling person in connection
with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

In accordance with Release No. IC-11330 (September 2,
1980), the Registrant will indemnify its directors,
officers, investment manager and principal
underwriters only if (1) a final decision on the
merits was issued by the court or other body before
whom the proceeding was brought that the person to be
indemnified (the "indemnitee") was not liable by
reason or willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling
conduct") or (2) a reasonable determination is made,
based upon a review of the facts, that the indemnitee
was not liable by reason of disabling conduct, by
(a) the vote of a majority of a quorum of the

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directors who are neither "interested persons" of the
Registrant as defined in section 2(a)(19) of the
Investment Company Act of 1940 nor parties to the
proceeding ("disinterested, non-party directors"), or
(b) an independent legal counsel in a written opinion.
The Registrant will advance attorneys fees or other
expenses incurred by its directors, officers,
investment adviser or principal underwriters in
defending a proceeding, upon the undertaking by or on
behalf of the indemnitee to repay the advance unless
it is ultimately determined that he is entitled to
indemnification and, as a condition to the advance,
(1) the indemnitee shall provide a security for his
undertaking, (2) the Registrant shall be insured
against losses arising by reason of any lawful
advances, or (3) a majority of a quorum of
disinterested, non-party directors of the Registrant,
or an independent legal counsel in a written opinion,
shall determine, based on a review of readily
available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the
indemnitee ultimately will be found entitled to
indemnification.

ARTICLE VII, Section 1 through Section 6 of the
Registrant's By-laws reads as follows:

"Section 1. INDEMNIFICATION OF DIRECTORS AND
OFFICERS. The Corporation shall indemnify its
directors to the fullest extent that indemnification
of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify its
officers to the same extent as its directors and to
such further extent as is consistent with law. The
Corporation shall indemnify its directors and officers
who while serving as directors or officers also serve
at the request of the Corporation as a director,
officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit
plan to the fullest extent consistent with law. The
indemnification and other rights provided by this
Article shall continue as to a person who has ceased
to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of
such a person. This Article shall not protect any
such person against any liability to the Corporation
or any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of

C-14

the duties involved in the conduct of his office
("disabling conduct").

"Section 2. ADVANCES. Any current or former director
or officer of the Corporation seeking indemnification
within the scope of this Article shall be entitled to
advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with
the matter as to which he is seeking indemnification
in the manner and to the fullest extent permissible
under the Maryland General Corporation Law. The
person seeking indemnification shall provide to the
Corporation a written affirmation of his good faith
belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a
written undertaking to repay any such advance if it
should ultimately be determined that the standard of
conduct has not been met. In addition, at least one
of the following additional conditions shall be met:
(a) the person seeking indemnification shall provide a
security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation
is insured against losses arising by reason of the
advance; or (c) a majority of a quorum of directors of
the Corporation who are neither "interested persons"
as defined in Section 2(a)(19) of the Investment
Company Act of 1940, as amended, nor parties to the
proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall
have determined, based on a review of facts readily
available to the Corporation at the time the advance
is proposed to be made, that there is reason to
believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.

"Section 3. PROCEDURE. At the request of any person
claiming indemnification under this Article, the Board
of Directors shall determine, or cause to be
determined, in a manner consistent with the Maryland
General Corporation Law, whether the standards
required by this Article have been met.
Indemnification shall be made only following: (a) a
final decision on the merits by a court or other body
before whom the proceeding was brought that the person
to be indemnified was not liable by reason of
disabling conduct or (b) in the absence of such a
decision, a reasonable determination, based upon a
review of the facts, that the person to be indemnified
was not liable by reason of disabling conduct by (i)
the vote of a majority of a quorum of disinterested

C-15

non-party directors or (ii) an independent legal
counsel in a written opinion.

"Section 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS.
Employees and agents who are not officers or directors
of the Corporation may be indemnified, and reasonable
expenses may be advanced to such employees or agents,
as may be provided by action of the Board of Directors
or by contract, subject to any limitations imposed by
the Investment Company Act of 1940.

"Section 5. OTHER RIGHTS. The Board of Directors may
make further provision consistent with law for
indemnification and advance of expenses to directors,
officers, employees and agents by resolution,
agreement or otherwise. The indemnification provided
by this Article shall not be deemed exclusive of any
other right, with respect to indemnification or
otherwise, to which those seeking indemnification may
be entitled under any insurance or other agreement or
resolution of stockholders or disinterested directors
or otherwise. The rights provided to any person by
this Article shall be enforceable against the
Corporation by such person who shall be presumed to
have relied upon it in serving or continuing to serve
as a director, officer, employee, or agent as provided
above.

"Section 6. AMENDMENTS. References in this Article
are to the Maryland General Corporation Law and to the
Investment Company Act of 1940 as from time to time
amended. No amendment of these By-laws shall effect
any right of any person under this Article based on
any event, omission or proceeding prior to the
amendment."

The Registrant participates in a joint directors and
officers liability insurance policy issued by the ICI
Mutual Insurance Company. Coverage under this policy
has been extended to directors, trustees and officers
of the investment companies managed by Alliance
Capital Management L.P. Under this policy, outside
trustees and directors are covered up to the limits
specified for any claim against them for acts
committed in their capacities as trustee or director.
A pro rata share of the premium for this coverage is
charged to each investment company and to the Adviser.

C-16

ITEM 28. Business and Other Connections of Adviser.

The descriptions of Alliance Capital Management L.P.
under the caption "Management of the Fund" in the
Prospectus and in the Statement of Additional
Information constituting of Parts A and B,
respectively, of this Registration Statement are
incorporated by reference herein.

The information as to the directors and executive
officers of Alliance Capital Management Corporation,
the general partner of Alliance Capital Management
L.P., set forth in Alliance Capital Management L.P.'s
Form ADV filed with the Securities and Exchange
Commission on April 21, 1988 (File No. 801-32361) and
amended through the date hereof, is incorporated by
reference herein.

ITEM 29. Principal Underwriters.

(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale of
shares of the Registrant, also acts as Principal
Underwriter or Distributor for the following
investment companies:

ACM Institutional Reserves, Inc.
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Fund
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund, Inc. II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.

C-17

Alliance North American Government Income Trust,
Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Hudson River Trust
The Alliance Portfolios

(b) The following are the Directors and Officers of
Alliance Fund Distributors, Inc., the principal place
of business of which is 1345 Avenue of the Americas,
New York, New York, 10105.

POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT

Michael J. Laughlin Chairman

Robert L. Errico President

Kimberly A. Baumgardner Senior Vice President

Edmund P. Bergan, Jr. Senior Vice President Secretary
and General Counsel

Daniel J. Dart Senior Vice President

Byron M. Davis Senior Vice President

David H. Dievler Senior Vice President

Mark D. Gersten Senior Vice President Treasurer and
Chief Financial
Officer

Geoffrey L. Hyde Senior Vice President

Barbara J. Krumseik Senior Vice President

William F. O'Grady Senior Vice President

Dusty W. Paschall Senior Vice President

Antonios G. Poleonadkis Senior Vice President

C-18

Gregory K. Shannahan Senior Vice President

James P. Syrett Senior Vice President

Peter J. Szabo Senior Vice President

Richard A. Winge Senior Vice President

Jim A. Yockey Senior Vice President

Michael T. Anderson Vice President

Kenneth F. Barkoff Vice President

Kevin T. Cannon Vice President

Mark J. Dunbar Vice President

Deirdre E. Duffy Vice President

Linda A. Finnerty Vice President

Robert M. Frank Vice President

Gerard J. Friscia Vice President

Troy L. Glawe Vice President

James E. Gunter Vice President

Alan Halfenger Vice President

Steven P. Hecht Vice President

George R. Hrabovsky Vice President

Valerie J. Hugo Vice President

Mark H. Huston Vice President

Robert H. Joseph Vice President & Controller

Marek E. Lakotko Vice President

Sheila F. Lamb Vice President

Stephen R. Laut Vice President

Thomas Leavitt, III Vice President

Christopher J. MacDonald Vice President

C-19

George O. Martinez Vice President &
Associate General Counsel

John A. McClain Vice President

Gregory T. McCombs Vice President

Daniel D. McGinley Vice President

Matthew P. Mintzer Vice President

Nicole M. Nolan Vice President

Robert T. Pigozzi Vice President

Bruce W. Reitz Vice President

Dennis A. Sanford Vice President

Joseph F. Sumanski Vice President

Richard E. Tambourine Vice President

Nicholas K. Willett Vice President

Warren W. Babcock III Assistant Vice President

Benji A. Baer Assistant Vice President

Angela F. Bisagna Assistant Vice President

Casimir F. Bolanowski Assistant Vice President

Maria L. Carreras Assistant Vice President

Leo H. Cook Assistant Vice President

John W. Cronin Assistant Vice President

Richard W. Dabney Assistant Vice President

Gerard P. DiSalvo Assistant Vice President

Sohaila S. Farsheed Assistant Vice President

Leon M. Fern Assistant Vice President

William C. Fisher Assistant Vice President

Joseph W. Gibson Assistant Vice President

C-20

William B. Hanigan Assistant Vice President

Vicky M. Hayes Assistant Vice President

Daniel M. Hazard Assistant Vice President

John C. Hershock Assistant Vice President

James J. Hill Assistant Vice President

Kenneth R. Hill Assistant Vice President

Thomas K. Intoccia Assistant Vice President

Edward W. Kelly Assistant Vice President

Donna M. Lamback Assistant Vice President

David P. Lambert Assistant Vice President

Nicholas J. Lapi Assistant Vice President

Michael F. Mahoney Assistant Vice President

Renate S. Mars Assistant Vice President

Daniel G. McCabe Assistant Vice President

Shawn P. McClain Assistant Vice President

Maura A. McGrath Assistant Vice President

Paul J. McIntyre Assistant Vice President

Charles R. Mechler Assistant Vice President

Thomas F. Monnerat Assistant Vice President

Joanna D. Murray Assistant Vice President

Jeanette M. Nardella Assistant Vice President

William E. Noe Assistant Vice President

Marilyn I. Noonan Assistant Vice President

Robert E. Powers Assistant Vice President

Patrick J. Pung Assistant Vice President

Carol H. Rappa Assistant Vice President

C-21

Karen C. Satterberg Assistant Vice President

Raymond S. Scalfani Assistant Vice President

Rodneu J. Shull Assistant Vice President

Robert M. Smith Assistant Vice President

William J. Strott Assistant Vice President

Joseph T. Tocyloski Assistant Vice President

Neil B. Wood Assistant Vice President

Mark R. Manley Assistant Secretary

ITEM 30. Location of Accounts and Records.

The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940
and the Rules thereunder are maintained as follows: journals,
ledgers, securities records and other original records are
maintained principally at the offices of Alliance Fund Services,
Inc., 500 Plaza Drive, Secaucus, New Jersey 07094, and at the
offices of State Street Bank and Trust Company, the Registrant's
Custodian, 225 Franklin Street, Boston, Massachusetts 02110. All
other records so required to be maintained are maintained at the
offices of Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York 10105.

ITEM 31. Management Services.

Not Applicable.

ITEM 32. Undertakings.

(c) The Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and without
charge.

C-22

SIGNATURES

Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 27th day of April, 1995.

ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.

by /s/ John D. Carifa
_____________________
John D. Carifa
Chairman and President

Pursuant to the requirements of the Securities Act of
1933, as amended, this Amendment to the Registration Statement
has been signed below by the following persons in the capacities
and on the date indicated:

SIGNATURE TITLE DATE

1. Principal Executive Officer

/s/ John D. Carifa Chairman and April 27, 1995
__________________
John D. Carifa

2. Principal Financial and
Accounting Officer

/s/ Mark D. Gersten Treasurer and April 27, 1995
___________________ Chief Financial
Mark D. Gersten Officer

C-23

3. A majority of the Directors

David H. Dievler
John D. Carifa
William H. Foulk, Jr.
John H. Dobkin
Robert C. White

by /s/ Edmund P. Bergan, Jr. April 27, 1995
____________________________
(Attorney-in-fact)
Edmund P. Bergan, Jr.

C-24

INDEX TO EXHIBITS

EXHIBIT NO.

1(d) Articles Supplementary

1(e) Articles of Amendment

5(a) Investment Advisory Agreement

11 Consent of Independent Auditors

16(b) Schedule for computation of Yield Quotation for the
Money Market Portfolio

C-25
00250292.AM8

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIE8 FUND, INC.

ARTICLES SUPPLEMENTARY

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC., a Maryland
corporation, having its principal office in the State of Maryland
in Baltimore City (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of
Maryland that:

FIRST: the aggregate number of shares of capital stock
of the Corporation is increased by the four hundred million
(400,000,000) shares, which are classified as follows: one
hundred million (100,000,000) shares as Worldwide Privatization
Portfolio Common Stock, one hundred million (100,000,000) shares
as Alliance Growth Portfolio Common Stock, one hundred million
(100,000,000) shares as Conservative Investors Portfolio Common
Stock and one hundred million (100,000,000) shares as Growth
Investors Portfolio Common Stock. The shares of Worldwide
Privatization Portfolio Common Stock, Alliance Growth Portfolio
Common Stock, Conservative Investors Portfolio Common Stock and
Growth Investors Portfolio Common Stock as so classified by the
Board of Directors shall have the preferences, conversion and
other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption
as set forth in ARTICLE FIFTH, paragraph (3) of the Corporation's
Articles of Incorporation and shall be subject to all provisions
of the Articles of Incorporation relating to stock of the
Corporation generally.

SECOND: Immediately before the increase, the
Corporation was authorized to issue One Billion Two Hundred
Million (1,200,000,000) shares of capital stock, par value $.001
per share, such shares having the following designation:

NUMBER OF SHARES DESIGNATIONS

<PAGE>

100,000,000 Global Dollar Government Portfolio Common
Stock
100,000,000 Utility Income Portfolio Common Stock

and having an aggregate par value of One Million Two Hundred
Thousand Dollars ($1,200,000). As increased, the Corporation is
authorized to issue a total of One Billion Six Hundred Million
(1,600,000,000) shares of capital stock, par value $.001 per
share, having an aggregate par value of one Million Six Hundred
Thousand Dollars ($1,600,000). Immediately after the increase
and giving effect to the classification of shares set forth in
Article FIRST hereof, such shares were classified as follows:

NUMBER OF SHARES DESIGNATIONS

100,000,000 Money Market Portfolio Common Stock
100,000,000 Growth Portfolio Common Stock
100,000,000 Growth and Income Portfolio Common Stock
100,000,000 U.S. Government/High Grade Securities
Portfolio Common Stock
100,000,000 High Yield Portfolio Common Stock
100,000,000 Total Return Portfolio Common Stock
100,000,000 International Portfolio Common Stock
100,000,000 Short-Term Multi-Market Portfolio Common
Stock
100,000,000 Global Bond Portfolio Common Stock
100,000,000 North American Government Income
Portfolio Common Stock
100,000,000 Global Dollar Government Portfolio Common
Stock
100,000,000 Utility Income Portfolio Common Stock
100,000,000 Worldwide Privatization Portfolio Common
Stock
100,000,000 Alliance Growth Portfolio Common Stock
100,000,000 Conservative Investors Portfolio Common
Stock
100,000,000 Growth Investors Portfolio Common Stock

THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940, as
amended.

FOURTH: The Board of Directors of the Corporation
increased the total number of shares of capital stock that the
Corporation has authority to issue pursuant to Section 2-105(c)
of the Maryland General Corporation Law and classified the shares
of Worldwide Privatization Portfolio Common Stock, Alliance
Growth Portfolio Common Stock, Conservative Investors Portfolio
Common Stock and Growth Investors Portfolio Common Stock under
authority contained in the Charter of the Corporation.

<PAGE>

IN WITNESS WHEREOF, Alliance Variable Products Series
Fund, Inc. has caused these Articles Supplementary to be executed
by its President and witnessed by its Secretary on this -23rd day
of August, 1994. The President of the Corporation who signed
these Articles Supplementary acknowledges them to be the act of
the Corporation and states under the penalties of perjury that,
to the best of his knowledge, information and belief, the matters
and facts set forth herein relating to authorization and approval
hereof are true in all material respects.

ALLIANCE VARIABLE PRODUCTS SERIES
FUND, INC.

By: /s/ David H. Dievler
____________________
David H. Dievler
Chairman and President

WITNESS:

/s/ Edmund P. Bergan, Jr.
_________________________
Edmund P. Bergan Jr.
Secretary

3
00250292.AN5

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.

ARTICLES OF AMENDMENT

Alliance Variable Products Series Fund, Inc., a Maryland
corporation having its principal office in the State of Maryland
in Baltimore City (hereinafter called the "Corporation"),
certifies to the State Department of Assessments and Taxation of
Maryland that:

FIRST: The charter of the Corporation is hereby amended
by changing the designation of the Corporation's "Growth
Portfolio Common Stock" to "Premier Growth Portfolio Common
Stock" and the designation of the Corporation's "Alliance Growth
Portfolio Common Stock" to "Growth Portfolio Common Stock."

SECOND: The amendment to the charter of the Corporation
has been duly approved by a majority of the entire Board of
Directors.

THIRD: The amendment is limited to a change expressly
permitted by Section 2-605 of Maryland General Corporation Law to
be made without action by stockholders, and the Corporation is
registered as an open-end company under the Investment Company
Act of 1940.

The undersigned Chairman of the Board of the Corporation
acknowledges these Articles of Amendment to be the corporate act
of the Corporation and states that to the best of his knowledge,
information and belief, the matters and facts set forth in these
Articles with respect to the authorization and approval of the
amendment of the Corporation's charter are true in all material
respects, and that this statement is made under the penalties of
perjury.

IN WITNESS WHEREOF, Alliance Variable Products Series Fund,
Inc., has caused these Articles of Amendment to be executed in
its name and on its behalf by its Chairman of the Board, David H.
Dievler, and witnessed by its Secretary, Edmund P. Bergan, Jr.,
on the 21st day of October, 1994.

ALLIANCE VARIABLE PRODUCTS SERIES FUND
By:/s/ David H. Dievler
____________________
David H. Dievler,
Chairman of the Board
WITNESS:
/s/ Edmund P. Bergan, Jr.
_________________________
Edmund P. Bergan, Jr.
Secretary

00250292.AM3

<PAGE>

INVESTMENT ADVISORY AGREEMENT

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
1345 Avenue of the Americas
New York, New York 10105

July 22, 1992,
as amended as of October 24, 1994

Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, N.Y. 10105

Dear Sirs:

We herewith confirm our agreement with you as follows:

1. We are an open-end, diversified management
investment company registered under the Investment Company Act of
1940 (the "Act"). We are currently authorized to issue separate
classes of shares and our Directors are authorized to reclassify
and issue any unissued shares to any number of additional classes
or series (Portfolios) each having its own investment objective,
policies and restrictions, all as more fully described in the
Prospectus and the Statement of Additional Information
constituting parts of the Registration Statement filed on our
behalf under the Securities Act of 1933 and the Act. We are
engaged in the business of investing and reinvesting our assets
in securities of the type and in accordance with the limitations
specified in our Articles of Incorporation, By-Laws, Registration
Statement filed with the Securities and Exchange Commission under
the Securities Act of 1933 and the Act, and any representations
made in our Prospectus and Statement of Additional Information,
all in such manner and to such extent as may from time to time be
authorized by our Directors. We enclose copies of the documents
listed above and will from time to time furnish you with any
amendments thereof.

2. (a) We hereby employ you to manage the investment
and reinvestment of the assets in each of our Portfolios as above
specified, and, without limiting the generality of the foregoing,
to provide management and other services specified below.

(b) You will make decisions with respect to all
purchases and sales of securities in each of our Portfolios. To
carry out such decisions, you are hereby authorized, as our agent
and attorney-in-fact, for our account and at our risk and in our
name, to place orders for the investment and reinvestment of our

<PAGE>

assets. In all purchases, sales and other transactions in
securities in each of our Portfolios you are authorized to
exercise full discretion and act for us in the same manner and
with the same force and effect as we might or could do with
respect to such purchases, sales or other transactions, as well
as with respect to all other things necessary or incidental to
the furtherance or conduct of such purchases, sales or other
transactions. You are permitted to utilize the services of one
or more Sub-Advisers in connection with the management of the
Global Bond Portfolio, subject to your obtaining our prior
approval of any such Sub-Advisory Agreement.

(c) You will report to our Directors at each
meeting thereof all changes in each Portfolio since the prior
report, and will also keep us in touch with important
developments affecting any Portfolio and on your own initiative
will furnish us from time to time with such information as you
may believe appropriate for this purpose, whether concerning the
individual companies whose securities are included in our
Portfolios, the industries in which they engage, or the
conditions prevailing in the economy generally. You will also
furnish us with such statistical and analytical information with
respect to securities in each of our Portfolios as you may
believe appropriate or as we reasonably may request. In making
such purchases and sales of securities, you will bear in mind the
policies set from time to time by our Directors as well as the
limitations imposed by our Articles of Incorporation and our
Registration Statement under the Act and the Securities Act of
1933, the limitations in the Act and of the Internal Revenue Code
in respect of regulated investment companies and the investment
objective, policies and restrictions for each of our Portfolios.

(d) It is understood that you will from time to
time employ or associate with yourselves such persons as you
believe to be particularly fitted to assist you in the execution
of your duties hereunder, the cost of performance of such duties
to be borne and paid by you. No obligation may be incurred on
our behalf in any such respect. During the continuance of this
agreement at our request you will provide to us persons
satisfactory to our Directors to serve as our officers. You or
your affiliates will also provide persons, who may be our
officers, to render such clerical, accounting and other services
to us as we may from time to time request of you. Such personnel
may be employees of you or your affiliates. We will pay to you
or your affiliates the cost of such personnel for rendering such
services to us at such rates as shall from time to time be agreed
upon between us, provided that all time devoted to the investment
or reinvestment of securities in each of our Portfolios shall be
for your account. Nothing contained herein shall be construed to
restrict our right to hire our own employees or to contract for
services to be performed by third parties. Furthermore, you or

<PAGE>

your affiliates (other than us) shall furnish us without charge
with such management supervision and assistance and such office
facilities as you may believe appropriate or as we may reasonably
request subject to the requirements of any regulatory authority
to which you may be subject. You or your affiliates (other than
us) shall also be responsible for the payment of any expenses
incurred in promoting the sale of our shares (other than the
portion of promotional expenses to be borne by us in accordance
with an effective plan pursuant to Rule 12b-1 under the Act and
costs of printing our prospectuses and other reports to
stockholders and fees related to registration with the Securities
and Exchange Commission and with state regulatory authorities).

3. It is further agreed that you shall be responsible
for the portion of the net expenses of each of our Portfolios
(except interest, taxes, brokerage, fees paid in accordance with
an effective plan pursuant to Rule 12b-1 under the Act,
expenditures which are capitalized in accordance with generally
acceptable accounting principles and extraordinary expenses, all
to the extent permitted by applicable state law and regulation)
incurred by us during each of our fiscal years or portion thereof
that this agreement is in effect between us which, as to a
Portfolio, in any such year exceeds the limits applicable to such
Portfolio under the laws or regulations of any state in which our
shares are qualified for sale (reduced pro rate for any portion
of less than a year). We hereby confirm that, subject to the
foregoing, we shall be responsible and hereby assume the
obligation for payment of all our other expenses, including:
(a) payment of the fee payable to you under paragraph 5 hereof;
(b) custody, transfer and dividend disbursing expenses; (c) fees
of directors who are not your affiliated persons; (d) legal and
auditing expenses; (e) clerical, accounting and other office
costs; (f) the cost of personnel providing services to us, as
provided in subparagraph (d) of paragraph 2 above; (g) costs of
printing our prospectuses and stockholder reports; (h) cost of
maintenance of corporate existence; (i) interest charges, taxes,
brokerage fees and commissions; (j) costs of stationery and
supplies; (k) expenses and fees related to registration and
filing with the Securities and Exchange Commission and with state
regulatory authorities and (1) such promotional expenses as may
be contemplated by an effective plan to Rule 12b-1 under the Act
provided, however, that our payment of such promotional expenses
shall be in the amount, and in accordance with the procedures,
set forth in such plan.

4. We shall expect of you, and you will give us the
benefit of, your best judgment and efforts in rendering these
services to us, and we agree as an inducement to your undertaking
these services that you shall not be liable hereunder for any
mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing herein shall be deemed to

<PAGE>

protect, or purport to protect, you against any liability to us
or to our security holders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder.

5. In consideration of the foregoing we will pay you a
monthly fee at an annual rate equal to the Applicable Percentage,
as defined below, of the average daily value of the net assets of
each Portfolio managed by you. Such fee shall be accrued by us
daily and shall be payable in arrears on the last day of each
calendar month for services performed hereunder during such
month. Your reimbursement, if any, of our expenses as provided
in paragraph 3 hereof, shall be estimated and paid to us monthly
in arrears, at the same time as our payment to you for such
month. Payment of the advisory fee will be reduced or postponed,
if necessary, with any adjustments made after the end of the
year. The Applicable Percentage shall be: (i) for our Money
Market Portfolio, .50 of 1% of such Portfolio's aggregate net
assets; (ii) for our Premier Growth Portfolio, 1.00% of such
Portfolio's aggregate net assets; (iii) for our Growth and Income
Portfolio, .625 of 1% of such Portfolio's aggregate net assets;
(iv) for our U.S. Government/High Grade Securities Portfolio, .60
of 1% of such Portfolio's aggregate net assets; (v) for our High-
Yield Portfolio, .625 of 1% of such Portfolio's aggregate net
assets; (vi) for our Total Return Portfolio, .625 of 1% of such
Portfolio's aggregate net assets; (vii) for our International
Portfolio, 1.00% of such Portfolio's aggregate net assets;
(viii) for our Short-Term Multi-Market Portfolio, .55 of 1% of
such Portfolio's aggregate net assets; (ix) for our Global Bond
Portfolio, .65 of 1% of such Portfolio's aggregate net assets;
(x) for our North American Government Income Portfolio, .65 of 1%
of such Portfolio's aggregate net assets; (xi) for our Utility
Income Portfolio, .75 of 1% of such Portfolio's aggregate net
assets; (xii) for our Global Dollar Government Portfolio, .75 of
1% of such Portfolio's aggregate net assets; (xiii) for our
Worldwide Privatization Portfolio, 1.00% of such Portfolio's
aggregate net assets; (xiv) for our Growth Portfolio, .75 of
1.00% of such Portfolio's average net assets; (xv) for our
Conservative Investors Portfolio, .75 of 1.00% of such
Portfolio's average net assets; and (xv) for our Growth Investors
Portfolio, .75 of 1.00% of such Portfolio's average net assets.

6. This agreement shall become effective on the date
hereof and shall remain in effect with respect to each Portfolio
until December 31, 1994 and thereafter for successive twelve-
month periods (computed from each January 1) with respect to each
such Portfolio provided that such continuance is specifically
approved at least annually by our Directors or by majority vote
of the holders of the outstanding voting securities (as defined

<PAGE>

in the Act) of such Portfolio, and, in either case, by a majority
of our Directors who are not parties to this agreement or
interested persons, as defined in the Act, of any such party
(other than as our directors) provided further, however, that if
the continuation of this agreement is not approved as to a
Portfolio, you may continue to render to such Portfolio the
services described herein in the manner and to the extent
permitted by the Act and the rules and regulations thereunder.
Upon the effectiveness of this agreement, it shall supersede all
previous agreements between us covering the subject matter
hereof. This agreement may be terminated with respect to any
Portfolio at any time, without the payment of any penalty, by
vote of a majority of the outstanding voting securities (as so
defined) of such Portfolio, or by a vote of a majority of our
Directors on sixty days' written notice to you, or by you with
respect to any Portfolio on sixty days' written notice to us.

7. This agreement may not be transferred, assigned,
sold or in any manner hypothecated or pledged by you and this
agreement shall terminate automatically in the event of such
transfer, assignment, sale, hypothecation or pledge by you. The
terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing
law and any interpretation thereof contained in rules or
regulations promulgated by the Securities and Exchange Commission
thereunder.

8. (a) Except to the extent necessary to perform your
obligations hereunder, nothing herein shall be deemed to limit or
restrict your right, or the right of any of your employees, or
any of the Directors of Alliance Capital Management Corporation,
your general partner, who may also be a Director of ours, or
persons otherwise affiliated with us (within the meaning of the
Act), to engage in any other business or to devote time and
attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render
services of any kind to any other corporation, trust, firm,
individual or association.

(b) You will notify us of any change in the
general partners of your partnership within a reasonable time
after such change.

9. If you cease to act as our investment adviser, or
in any event, if you so request in writing, we agree to take all
necessary action to change the name of our corporation to a name
not including the word "Alliance". You may from time to time
make available without charge to us for our use such marks or
symbols owned by you, including marks or symbols containing the
name "Alliance" or any variation thereof, as you may consider
appropriate. Any such marks or symbols so make available will

<PAGE>

remain your property and will have the right, upon notice in
writing, to require us to cease the use of such mark or symbol at
any time.

If the foregoing is in accordance with your
understanding, will you kindly so indicate by signing and
returning to us the enclosed copy hereof.

Very truly yours,

Alliance Variable Products
Series Fund, Inc.

By /s/ David H. Dievler
____________________
David H. Dievler
Chairman and President

Accepted:
July 22, 1992, as
amended as of October 24, 1994

Alliance Capital Management L.P.
By Alliance Capital Management Corporation,
its General Partner

By: /s/ John D. Carifa
__________________
John D. Carifa
President and Chief Operating Officer

6
00250292.AN4

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the Captions
"Financial Highlights" and "General Information -
Independent Auditors" and to the use of our report dated
February 27, 1995, in this Registration Statement (Form N-1A
33-18647) of Alliance Variable Products Series Fund, Inc.

/s/ ERNST & YOUNG LLP

ERNST & YOUNG LLP

New York, New York
April 27, 1995

00250292.AO3

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Money Market Portfolio

Yield Computation

1. Add last seven days of dividends.

Date Daily Dividends

12/25/94 0.000124489
12/26/94 0.000124489
12/27/94 0.000124646
12/28/94 0.000134189
12/29/94 0.000132669
12/30/94 0.000130014
12/31/94 0.000130014

0.000900510

2. Divide total of last 7 days of dividend by 7 to get
average daily dividend.

0.00090051 divided by 7 = .000128644

3. Take average daily amount and multiply by 365 to get 7
day yield.

.00128644 multiplied by 365 = 4.70%

4. Take 7 day yield and compound over a 365 day period to
get effective yield.

((4.70% divided by 365) + 1) compounded
by 365 = 4.81%

00250292.AN7