<PAGE>
This is filed pursuant to Rule 497(e) File Nos. 33-18647 and 811-05398
ALLIANCECAPITAL LOGO
ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.
- -------------------------------------------------------------------------------
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
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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.
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A DIVERSIFIED SELECTION OF INVESTMENT ALTERNATIVES
- -------------------------------------------------------------------------------
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.
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.
(R): This is a registered mark used under license from the owner, Alliance
Capital Management L.P.
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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, 1996 (as amended as of July 22, 1996)
Investors are advised to carefully read this Prospectus and to retain it for
future reference.
<PAGE>
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PURCHASE INFORMATION
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The Fund will offer and sell 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 will be made without sales charge
at each Portfolio's per share net asset value. Further information can be ob-
tained from Alliance Fund Services, Inc. at the address or telephone number
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.
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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 of-
fered 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, 1996 (as amended as of July 22, 1996), 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.
<TABLE>
<CAPTION>
PREMIER GLOBAL
GROWTH BOND
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees..................................... .76%* 0%*
Other Expenses...................................... .19%* .95%*
--- ---
Total Portfolio Operating Expenses.................. .95% .95%
=== ===
</TABLE>
- --------
* Net of expense reimbursement.
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>
Premier Growth Portfolio........................ $10 $30 $52 $116
Global Bond Portfolio........................... $10 $30 $52 $116
</TABLE>
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. Expense Information for the Premier Growth Portfolio
and Global Bond Portfolio have been restated to reflect current fees. The ex-
penses listed in the table for the Premier Growth Portfolio and Global Bond
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 foreseeable future. The expenses of the Portfolios, be-
fore expense reimbursements, would be: Premier Growth Portfolio: Management
Fees --1.00%, Other Expenses -- .19% and Total Portfolio Operating Expenses --
1.19%; and Global Bond Portfolio: Management Fees -- .65%, Other Expenses --
1.12% and Total Portfolio Operating Expenses -- 1.77%. THE EXAMPLE SHOULD NOT
BE CONSIDERED REPRESENTATIVE OF FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
3
<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. Further information about the Fund's performance is contained in
the Fund's annual report, which is available without charge upon request.
<TABLE>
<CAPTION>
PREMIER GROWTH PORTFOLIO
--------------------------------------------------
YEAR ENDED DECEMBER 31, JUNE 26, 1992(A)
----------------------------- TO
1995 1994 1993 DECEMBER 31, 1992
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 12.37 $ 12.79 $ 11.38 $10.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPER-
ATIONS
Net investment income(b)... .09(c) .03(c) -0-(c) .06(c)
Net realized and unrealized
gain (loss) on invest-
ments..................... 5.44 (.41) 1.43 1.32
------- ------- ------- ------
Net increase (decrease) in
net asset value from oper-
ations.................... 5.53 (.38) 1.43 1.38
------- ------- ------- ------
LESS: DISTRIBUTIONS
Dividends from net invest-
ment income............... (.03) (.01) (.01) -0-
Distributions from net re-
alized gains.............. (.07) (.03) (.01) -0-
------- ------- ------- ------
Total dividends and distri-
butions................... (.10) (.04) (.02) -0-
------- ------- ------- ------
Net asset value, end of pe-
riod...................... $ 17.80 $ 12.37 $ 12.79 $11.38
======= ======= ======= ======
TOTAL RETURN
Total investment return
based on net asset val-
ue(d)..................... 44.85% (2.96)% 12.63% 13.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)........... $29,278 $37,669 $13,659 $3,760
Ratio to average net assets
of:
Expenses, net of waivers
and reimbursements........ .95% .95% 1.18% .95%(e)
Expenses, before waivers
and reimbursements........ 1.19% 1.40% 2.05% 4.20%(e)
Net investment income...... .55% .42% .22% .96%(e)
Portfolio turnover rate.... 97% 38% 42% 14%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL BOND PORTFOLIO
--------------------------------------------------------
YEAR ENDED DECEMBER 31, JULY 15, 1991(A)
------------------------------------- TO
1995 1994 1993 1992 DECEMBER 31, 1991
------- ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 9.82 $11.33 $11.24 $11.10 $10.00
------- ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .69(c) .57(c) .77(c) .64 .28
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... 1.73 (1.16) .43 (.13) .82
------- ------ ------ ------ ------
Net increase (decrease)
in net asset value
from operations....... 2.42 (.59) 1.20 .51 1.10
------- ------ ------ ------ ------
LESS: DISTRIBUTIONS
Dividends from net in-
vestment income....... (.09) (.62) (.85) (.28) -0-
Distributions from net
realized gains........ -0- (.30) (.26) (.09) -0-
------- ------ ------ ------ ------
Total dividends and
distributions......... (.09) (.92) (1.11) (.37) -0-
------- ------ ------ ------ ------
Net asset value, end of
period................ $ 12.15 $ 9.82 $11.33 $11.24 $11.10
======= ====== ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 24.73% (5.16)% 11.15% 4.87% 11.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $11,553 $7,298 $6,748 $5,876 $5,551
Ratio to average net
assets of:
Expenses, net of waiv-
ers and reimburse-
ments................. .95% .95% 1.50% 1.50% 1.50%(e)
Expenses, before waiv-
ers and reimburse-
ments................. 1.77% 2.05% 1.50% 1.97% 2.15%(e)
Net investment income.. 6.22% 6.01% 4.85% 5.85% 5.77%(e)
Portfolio turnover
rate.................. 262% 102% 125% 78% 25%
</TABLE>
- -------
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived 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. Total investment return calculated
for a period of less than one year is not annualized.
(e) Annualized.
4
<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 Portfo-
lio 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 in-
tention of doing so, the Fund is empowered to establish, without shareholder
approval, additional portfolios which may have different investment
objectives.
The Fund currently has 18 Portfolios, 2 of which are offered by this Prospec-
tus: the Premier Growth Portfolio and the Global Bond 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
annuity 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 either 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 objec-
tives and policies between the Portfolios determine the types of portfolio se-
curities 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 Portfolio'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 pol-
5
<PAGE>
icies that are not designated "fundamental 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 de-
scribed in greater detail below.
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 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
6
<PAGE>
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 Portfolio's portfolio. Conversely, in rising markets, while reducing or
eliminating 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 Ad-
7
<PAGE>
viser 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
comprising the Standard & Poor's 500 Composite Stock Price Index, a widely
recognized unmanaged index of market activity based upon the aggregate perfor-
mance of a selected portfolio of publicly traded stocks, including monthly ad-
justments to reflect the reinvestment of dividends and distributions.
The Portfolio intends to invest in special situations from time to time. A
special situation arises when, in the opinion of the Portfolio's management,
the securities of a particular company will, within a reasonably estimable pe-
riod 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.
Short Sales. The Premier Growth Portfolio may not sell securities short, ex-
cept 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
contemporaneously owns or has the right to obtain securities identical to
those sold short without payment. Not more than 15% of the value of the Port-
folio'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 op-
tion, 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.
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
8
<PAGE>
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.
As noted, the Portfolio may also purchase and sell put and call options written
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 pur-
chase such options in such markets. If an option is not so sold and is permit-
ted to expire without being exercised, its premium would be lost by the Portfo-
lio.
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.
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 de-
nominated 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 14 years, debt securities offered by certain foreign governments
pro-vided 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 econo-
my. 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 opportu-
nities 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 gov-
ernments are deemed stable by the Adviser and the Sub-Adviser. Their determina-
tion that a particular country should be considered stable depends on their
evaluation of political and economic developments affecting the
9
<PAGE>
country as well as recent experience in the markets for foreign government se-
curities of the country. Examples of foreign governments which the Adviser and
Sub-Adviser currently consider to be stable, among others, are the governments
of Australia, Austria, Canada, Denmark, France, Germany, Ireland, Italy, Ja-
pan, New Zealand, The Netherlands, Norway, Spain, Sweden, Switzerland 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 debt securities. The Portfolio intends to spread
investment risk among the capital markets of a number of countries and will
invest in securities of the governments of, and companies based in, at least
three, and normally considerably more, such countries. The percentage of the
Portfolio's assets invested in the debt securities of the government of, or a
company based in, a particular country or denominated in a particular currency
will vary depending on the relative yields of such securities, the economies
of the countries in which the investments are made and such countries' finan-
cial 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 poli-
cies) as well as technical and political data. Under normal market conditions,
it is expected that approximately 25% of the Portfolio's net assets will be
invested in debt securities denominated in the U.S. Dollar. On December 31,
1995, 8% of the Portfolio's net assets were invested in debt securities of
Japanese issuers. See "Other Investment Policies and Techniques -- Foreign Se-
curities".
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". Pending investment, to maintain liquidity or for temporary 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 purchase and sale of for-
ward foreign currency exchange contracts and other hedging techniques. For a
discussion of these investment policies of the Portfolio, see "Other Invest-
ment Policies and Techniques --Hedging Techniques," below.
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
10
<PAGE>
Union, which is a fifteen-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic cooper-
ative whose members are various European nations' steel and coal industries;
and the Asian Development Bank, which is an international development bank es-
tablished to lend portfolios, promote investment and provide technical assis-
tance to member nations in the Asian and Pacific regions.
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 member states of the European Union. The specific
amounts of currencies comprising the ECU may be adjusted by the Council of Min-
isters of the European Union to reflect changes in relative values of the un-
derlying 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 securi-
ties, see "Other Investment Policies and Techniques -- Foreign Securities," be-
low.
OTHER INVESTMENT POLICIES AND TECHNIQUES
Except as otherwise noted below, the following description of other investment
policies is applicable to both Portfolios:
REPURCHASE AGREEMENTS
Each Portfolio may enter into agreements pertaining to U.S. Government Securi-
ties.
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, normally
one day or a few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon interest rate. Such agreements permit the
Portfolio to keep all of its assets at work while retaining "overnight" flexi-
bility in pursuit of investment of a longer-term nature. Each Portfolio re-
quires continual maintenance for its account in the Federal Reserve/Treasury
Book Entry System of collateral in an amount equal to, or in excess of, the re-
sale 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 pro-
cedures, 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 may write covered call options listed on one or
more national securities exchanges. A call option gives the purchaser of the
option, upon payment of a premium to the writer of the option, the right to
purchase 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. The Premier
Growth Portfolio is permitted to write call
11
<PAGE>
options but may not do so unless it at all times during the option period owns
the optioned securities, or securities convertible or carrying rights to
acquire the optioned securities at no additional cost. The Premier Growth
Portfolio may not write covered call options in excess of 25% of its assets.
The Premier Growth Portfolio may terminate its obligation to the holder of an
option written by it through a "closing purchase transaction." It 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 Premier Growth
Portfolio realizes a profit or loss from a closing purchase transaction if the
cost of the transaction is more or less than the premium received by it from
writing the option. Although the writing of covered call options only on na-
tional securities exchanges increases the likelihood of the Portfolio being
able to make closing purchase transactions, there is no assurance that it 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 in-
creases in the portfolio turnover of the Premier Growth Portfolio, especially
during periods when market prices of the underlying securities appreciate.
LOANS OF PORTFOLIO SECURITIES
Each Portfolio of the Fund may make secured loans of its portfolio securities
to brokers, dealers and financial institutions provided that cash, U.S. Gov-
ernment 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 rele-
vant 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
securities, 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 beneficial rights such as voting rights, subscription rights and
rights to dividends, interest or other distributions. Each Portfolio may pay
reasonable finders', administrative and custodial fees in connection with a
loan. The Directors will monitor the lending of securities by each Portfolio.
No more than 30% of the value of the assets of the Premier Growth Portfolio
and 20% of the Global Bond Portfolio may be loaned at any time, nor will ei-
ther Portfolio lend its portfolio securities to any officer, director, em-
ployee or affiliate of either the Fund or the Adviser.
FOREIGN SECURITIES
For a description of the investment policies of the Global Bond Portfolio with
respect to foreign securities, see above. The Premier Growth Portfolio may in-
vest in listed and unlisted foreign securities without limitation, although it
intends to invest at least 85% of the value of its total assets in the equity
securities of American companies.
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<PAGE>
The Portfolios may convert U.S. Dollars into foreign currency, but only to ef-
fect securities transactions on a foreign securities exchange and not to hold
such currency as an investment. Each Portfolio may enter into forward foreign
currency exchange contracts in order to protect against uncertainty in the
level of future foreign exchange rates.
To the extent that the Global Bond Portfolio invests in foreign securities,
consideration is given to certain factors comprising both risk and opportuni-
ty. The values of foreign securities investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax
laws, including withholding taxes, changes in governmental administration or
economic, taxation or monetary policy (in the United States and abroad) or
changed circumstances in dealings between nations. Currency exchange rate
movements will increase or reduce the U.S. dollar value of the Portfolio's net
assets and income 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 accounting, auditing and financial reporting standards and require-
ments comparable 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 particu-
lar, 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 ac-
cordance with U.S. generally accepted accounting principles. In addition, for
an issuer that keeps accounting records in local currency, inflation account-
ing 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
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.
HEDGING TECHNIQUES
The following hedging techniques are utilized by the Global Bond Portfolio.
Cross Hedges. The attractive returns currently available from foreign currency
denominated debt instruments can be ad-
13
<PAGE>
versely affected by changes in exchange rates. The Adviser believes that the
use of foreign currency hedging techniques, including "cross-hedges" (see
"Forward Foreign Currency Exchange Contracts," below), can help protect
against declines in the U.S. Dollar value of income available for distribution
to shareholders and declines in the net asset 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 forward exchange contract to
sell a different foreign currency, where such contract 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 protection 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 exchange rate risks perfectly,
and if the Adviser is incorrect in its judgment of future exchange rate rela-
tionships, a Portfolio could be in a less advantageous position than if such a
hedge had not been established.
Indexed Debt Securities. The Portfolio 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 "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 undertaken, pending the resolution of this
issue by the staff, to establish a segregated account with respect to its in-
vestments in this type of security and to maintain in such account cash not
available for investment or U.S. Government Securities or other liquid high
quality debt securities having a value equal to the aggregate principal amount
of outstanding commercial paper of this type.
14
<PAGE>
Futures Contracts and Options on Futures Contracts. The Portfolio may enter
into contracts for the purchase or sale for future delivery of fixed-income se-
curities or foreign currencies, or contracts based on financial indices includ-
ing any index of U.S. Government Securities, foreign government securities or
corporate 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 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 In-
formation for further discussion of the use,
15
<PAGE>
risks and costs of futures contracts 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 the Portfolio could be required to pur-
chase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on a foreign currency may consti-
tute an effective hedge against fluctuations in exchange rates although, in
the event of rate movements adverse to the Portfolio's position, it may for-
feit the entire 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 per-
centage limitation 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 the U.S. Dollar and other cur-
rencies. 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 available for investment, U.S. Gov-
ernment securities or other liquid high-grade debt securities in a segregated
account having a value equal to the aggregate amount of the Portfolio's com-
mitments 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 transac-
16
<PAGE>
tions, such as interest rate swaps and may purchase or sell (i.e. write) in-
terest rate caps and floors. The Portfolio expects to enter into these trans-
actions primarily to preserve a return or spread on a particular investment or
portion of its portfolio. The Portfolio may also enter into these transactions
to protect against any increase in the price of securities the Portfolio an-
ticipates 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 pur-
chase of an interest rate cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined interest rate, to receive payments on
a contractually-based principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined interest rate to
receive payments on a contractually-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
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.
17
<PAGE>
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 ex-
change-traded futures contracts and options on futures contracts, there are no
daily price fluctuation limits with respect to options on currencies and for-
ward contracts, and adverse market movements could therefore continue to an
unlimited extent over a period of time. In addition, the correlation between
movements in the price of the securities and currencies hedged or used for
cover will not be perfect and could produce unanticipated losses.
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, neither of the
Portfolios will maintain more than 15% of its net assets in illiquid securi-
ties. For purposes 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 re-
strictions 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 termina-
ble within seven days. Securities eligible for resale under Rule 144A under
the Securities Act of 1933, as amended, that have legal or contractual re-
strictions on resale but have a readily available market are not deemed illiq-
uid for purposes of this limitation. The Adviser will monitor the liquidity of
such securities under the supervision of the
18
<PAGE>
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.
SECURITIES RATINGS
The ratings of fixed-income securities by S&P and Moody's are a generally ac-
cepted barometer of credit risk. They are, however, subject to certain limita-
tions from an investor's standpoint. 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. In addition, there may be varying degrees of dif-
ference in credit risk of securities within each rating category.
NON-DIVERSIFIED STATUS
The Global Bond Portfolio is "non-diversified", which means it is not limited
in the proportion of its assets that may be invested in the securities of a
single issuer. However, because the Global Bond Portfolio may invest in a
smaller number of individual issuers than a diversified portfolio, an invest-
ment in the Global Bond Portfolio may, under certain circumstances, present
greater risk to an investor than an investment in a diversified portfolio. The
Global Bond 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, it 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 securi-
ties 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.
DEFENSIVE POSITION
When business or financial conditions warrant, the Premier Growth Portfolio
may assume a temporary defensive position and invest without limit in high
grade fixed income securities or hold their assets in cash equivalents, in-
cluding (i) short-term obligations of the U.S. Government and its agencies or
instrumentalities, (ii) certificates of deposit, bankers' acceptances and in-
terest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit
19
<PAGE>
Insurance Corporation, and (iii) commercial paper 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.
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 ex-
ercising control. When circumstances warrant, however, securities may be sold
without regard to the length of time held.
The annual portfolio turnover rate of the Premier Growth Portfolio may be in
excess of 100%. A 100% annual portfolio turnover rate would occur, for exam-
ple, if all of the stocks in a portfolio were replaced in a period of one
year. A 100% turnover rate is greater than that of most other investment com-
panies, including those which emphasize capital appreciation as a basic poli-
cy, 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. See "Dividends, Distributions and Taxes."
The Global Bond Portfolio will actively use trading to benefit from yield dis-
parities among different issues of fixed-income securities or otherwise to
achieve their investment objectives and policies. Although management cannot
accurately predict its portfolio turnover rate, it is anticipated that the an-
nual turnover rate for 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 securi-
ties 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. The
Global Bond Portfolio 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 Global Bond Portfolio. See "Divi-
dends, Distributions and Taxes."
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.
20
<PAGE>
Briefly, with respect to the Premier Growth Portfolio these fundamental in-
vestment policies provide that it may not: (i) invest in securities of any one
issuer (including repurchase agreements with any one entity) other than secu-
rities issued or guaranteed 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 issuer, except that 25% of the value of the total assets of a
Portfolio may be invested 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 preferred stock of an issuer shall be deemed a single class,
and all indebtedness of an issuer shall be deemed a single class); (iii) in-
vest more than 25% of the value of its total assets at the time an investment
is made in the securities of issuers conducting their principal business ac-
tivities in any one industry, except that there is no such limitation with re-
spect to U.S. Government securities or certificates of deposit, bankers'
acceptances and interest-bearing deposits. For purposes of this investment re-
striction, the electric, gas, telephone and water business shall each be con-
sidered as a separate industry; (iv) borrow money, except that the Premier
Growth 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 hypothecate any of its assets, except as
may be necessary in connection with permissible borrowings described in para-
graph (iv) above (in an aggregate amount not to exceed 15% of total assets of
the Premier Growth Portfolio), (vi) invest in illiquid securities if immedi-
ately after such investment more than 10% of the Premier Growth Portfolio's
total assets (taken at market value) would be invested in such securities; 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 Global Bond Portfolio, these fundamental investment poli-
cies provide that it may not: (i) invest 25% or more of its 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
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
Global Bond Portfolio's total assets (including the amount borrowed) less lia-
bilities (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 Global Bond Portfolio's total assets are outstanding; (iii)
pledge, hypothecate, mortgage or otherwise encumber its assets, except to se-
cure permitted borrowings; or (iv) invest in illiquid securities if immedi-
ately after such investment more than 10% of the Global Bond Portfolio's total
assets (taken at market value) would be invested in such securities.
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
21
<PAGE>
comply at all times with the diversification requirements prescribed in Sec-
tion 817(h) of the Internal Revenue Code or any successor thereto and the ap-
plicable Treasury Regulations thereunder. This policy may be changed upon no-
tice 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 1991.
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 1991.
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 1991.
John H. Dobkin is President of Historic Hudson Valley (historic preservation)
since prior to 1991. 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 1991.
Dr. James M. Hester is President of the Harry Frank Guggenheim Foundation and
a Director of Union Carbide Corporation since prior to 1991. 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 which he has been associated since prior to 1991.
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 1991.
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 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
1991. The person principally responsible
22
<PAGE>
for the investment program of the Global Bond Portfolio since its inception is
Ian Coulman, an Investment Manager of the Sub-Adviser.
The Adviser has retained under a sub-advisory agreement a sub-adviser, AIGAM
International Limited (the "Sub-Adviser"), an indirect, majority owned subsidi-
ary 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 June 30, 1996 totaling more than $168 billion (of
which approximately $56 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 108 separate investment portfolios currently have over two
million shareholders. As of June 30, 1996, the Adviser was retained as an in-
vestment manager by 33 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 Equita-
ble Life Assurance Society of the United States ("Equitable"), one of the larg-
est life insurance companies in the United States and a wholly owned subsidiary
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 Ad-
ditional Information under "Management of the Fund."
The Sub-Adviser is an asset management firm specializing in global fixed-income
money management. The Sub-Adviser manages a range of institutional specialty
funds, investment companies, and dedicated institutional portfolios.
The Adviser provides investment advisory services and order placement facili-
ties 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 Portfo-
lios pays the Adviser at the following annual percentage rate of its average
daily net asset value:
<TABLE>
<S> <C>
Premier Growth Portfolio 1.000%
Global Bond Portfolio .650%
</TABLE>
The fees are accrued daily and paid monthly. For the year ended December 31,
1995, the Adviser received no net advisory fees from the Global Bond Portfolio.
For the year ended December 31, 1995 the Adviser received an advisory fee from
the Premier Growth Portfolio equal to .76% of its average net assets.
For the year ended December 31, 1995, for its services as Sub-Adviser to the
Global
23
<PAGE>
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 rate of fee applicable to the Pre-
mier Growth Portfolio is higher than those paid by most other investment com-
panies; however, the Adviser believes the fee is 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 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 shareholder reports, (f) cost of maintaining the Fund's ex-
istence, (g) interest charges, taxes, brokerage fees and commissions, (h)
costs of stationery and supplies, (i) expenses and fees related to registra-
tion and filing with the Commission and with state regulatory authorities, and
(j) cost of certain personnel of the Adviser or its affiliates rendering cler-
ical, accounting and other services to the Fund.
As to the obtaining of clerical and accounting services not required to be
provided 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
personnel employed by the Adviser or by its affiliates; in such event, the
services are provided to the Fund at cost and the payments specifically ap-
proved in advance by the Fund's Board of Directors.
For the year ended December 31, 1995, the ordinary operating expenses of each
of the Global Bond Portfolio and the Premier Growth Portfolio were .95% of
each Portfolio's average net assets, both net of voluntary expense reimburse-
ments.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE OF SHARES
Shares of each Portfolio of the Fund are offered on a continuous basis di-
rectly by the Fund and by Alliance Fund Distributors, Inc., the Fund's Princi-
pal Underwriter, to the separate accounts of certain life insurance companies
without any sales or other charge, at each Portfolio's net asset value, as de-
scribed 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 surren-
der and transfer requests to be effected on that day pursuant to variable an-
nuity 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 directly with the Fund. See
the Prospectus of the separate account of the participating insurance company
for more information on the purchase of Portfolio shares.
24
<PAGE>
The public offering price of each Portfolio's shares is their net asset value.
The per 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.
Eastern 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 days on which the Exchange is closed (most national holidays
and Good Friday). For purposes of this computation, the securities in each
Portfolio are valued at their current market value determined on the basis of
market quotations 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 market value of such securities.
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 en titled 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Premier Growth Portfolio and the Global Bond Portfolio will each 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. Net income consists
of all accrued interest income on Portfolio assets less the Portfolio's ex-
penses (including accrued expenses
25
<PAGE>
and fees payable 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 Portfolio qualified and 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 capi-
tal 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 either
Portfolio are not currently taxable when left to accumulate within a variable
annuity (other than an annuity interest owned by a person who is not a natural
person) or variable life insurance contract. Distributions of net investment
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 capi-
tal 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 vari- able annuity contracts or variable life insurance policies under-
lying the account to receive the tax-deferred or tax-free treatment generally
afforded holders of annui-ties 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.
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.
26
<PAGE>
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
Global Bond Portfo-lio, occur primarily with issuers, underwriters or major
dealers acting as principals, while transactions for the Premier Growth Port-
folio are normally effected by brokers.
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. Consis-
tent with the objective of obtaining best execution, the Fund may use brokers
and dealers who provide research, statistical and other information to the Ad-
viser.
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 Conduct Rules of the National As-
sociation 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 transactions 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.
ORGANIZATION
The Fund is a Maryland corporation organized on November 17, 1987. The autho-
rized capital stock of the Fund consists solely of 9,500,000,000 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 18 series, one underlying each Portfolio of the
Fund. Shares of each Portfolio are normally entitled to one vote for all pur-
poses. Generally, shares of all Portfolios vote as a single series on matters,
such as the election of Directors, that affect all Portfolios in substantially
the same manner. Maryland law does not require a registered investment company
to hold annual meetings of shareholders and it is anticipated that shareholder
meetings will be
27
<PAGE>
held only when specifically required by federal or state law. Shareholders
have available certain procedures for the removal of Directors. Shares of each
Portfolio are freely transferable, are entitled to dividends as determined by
the Board of Directors and, in liquidation of the Fund, are entitled to re-
ceive the net assets of that Portfolio. Shareholders have no preference, pre-
emptive or conversion rights. In accordance with current law, it is antici-
pated 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.
28
