ALLIANCE VARIABLE PRODUCTS SERIES FUND INC, 497, 1997-01-08

ALLIANCE VARIABLE PRODUCTS SERIES FUND INC
497, 1997-01-08

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<PAGE>

This is filed pursuant to Rule 497(c).
File Nos. 33-18647 and 811-5398.

<PAGE>

[LOGO OF ALLIANCE CAPITAL ALLIANCE VARIABLE PRODUCTS
APPEARS HERE] 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 income.
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 incidental to the
objective of capital growth. The Portfolio is not intended for investors whose
principal objective is assured income or preservation of capital. 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
securities.
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 principal.
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.
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.
(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/December 30, 1996
Investors are advised to carefully read this Prospectus and to retain it for
future reference.
<PAGE>

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.
TECHNOLOGY PORTFOLIO -- seeks growth of capital through investment in compa-
nies expected to benefit from advances in technology. The Portfolio invests
principally in a diversified portfolio of securities of companies which use
technology extensively in the development of new or improved products or
processes.
QUASAR PORTFOLIO -- seeks growth of capital by pursuing aggressive investment
policies. The Portfolio invests principally in a diversified portfolio of eq-
uity Securities of any company and industry and in any type of security which
is believed to offer possibilities for capital appreciation.
REAL ESTATE INVESTMENT PORTFOLIO -- seeks a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or re-
lated to the real estate industry.

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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 December 30, 1996, which provides a further discussion of certain areas
in this Prospectus and other matters which may be of interest to some invest-
ors, has been filed with the Securities and Exchange Commission and is incor-
porated herein by reference. For a free copy, call or write Alliance Fund
Services, Inc. at the address or telephone number shown above.

2
<PAGE>

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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 inactive
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................................. .38%* .76%* .63%* 0%* 0%* 0%*
Other Expenses.................................. .57%* .19%* .16%* .95%* .95%* .95%*
--- --- --- --- --- ---
Total Portfolio Operating Expenses.............. .95% .95% .79% .95% .95% .95%
=== === === === === ===
</TABLE>
- --------
* Net of expense reimbursement.

<TABLE>
<CAPTION>
SHORT- NORTH
TERM AMERICAN GLOBAL
INTER- MULTI- GLOBAL GOVERNMENT UTILITY DOLLAR CONSERVATIVE
NATIONAL MARKET BOND INCOME INCOME GOVERNMENT INVESTORS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees................... 0%* .20%* 0%* 0%* 0%* 0%* 0%*
Other Expenses.................... .95%* .75%* .95%* .95%* .95%* .95%* .95%*
--- --- --- --- --- --- ---
Total Portfolio Operating
Expenses......................... .95% .95% .95% .95% .95% .95% .95%
=== === === === === === ===
</TABLE>
- --------
* Net of expense reimbursement.

<TABLE>
<CAPTION>
GROWTH WORLDWIDE REAL ESTATE
INVESTORS GROWTH PRIVATIZATION TECHNOLOGY QUASAR INVESTMENT
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%* .43%* 0%* 0%* 0%* 0%*
Other Expenses......... .95%* .52%* .95%* .95%* .95%* .95%*
--- --- --- --- --- ---
Total Portfolio Operating Expenses.... .95% .95% .95% .95% .95% .95%
=== === === === === ===
</TABLE>
- --------
* Net of expense reimbursement.
** Estimated.

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.................... $ 8 $25 $43 $ 96
U.S. Government/High Grade Securities
Portfolio..................................... $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
Technology Portfolio........................... $10 $30 $52 $116
Quasar Portfolio............................... $10 $30 $52 $116
Real Estate Investment 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, Worldwide Privatization Portfolio, Technology Portfolio,
Quasar Portfolio and Real Estate Investment Portfolio are net of voluntary ex-
pense 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 -- .57% and Total Portfolio Operating Expenses -- 1.07%; Premier
Growth Portfolio: Management Fees -- 1.00%, Other Expenses -- .19% and Total
Portfolio Operating Expenses -- 1.19%; Growth and Income Portfolio: Management
Fees -- .63%, Other Expenses -- .16% and Total Portfolio Operating Expenses --
.79%; U.S. Government/High Grade Securities Portfolio: Management Fees --
.60%, Other Expenses -- .98% and Total Portfolio Operating Expenses -- 1.58%;
Total Return Portfolio: Management Fees -- .63%, Other Expenses -- 3.86% and
Total Portfolio Operating Expenses -- 4.49%; International Portfolio: Manage-
ment Fees -- 1.00%, Other Expenses -- 1.99% and Total Portfolio Operating Ex-
penses -- 2.99%; Short-Term Multi-Market Portfolio: Management Fees -- .55%,
Other Expenses -- .75% and Total Portfolio Operating Expenses -- 1.30%; Global
Bond Portfolio: Management Fees -- .65%, Other Expenses -- 1.12% and Total
Portfolio Operating Expenses -- 1.77%; North American Government Income Port-
folio: Management Fees -- .65%, Other Expenses -- 1.92% and Total Portfolio
Operating Expenses -- 2.57%; Global Dollar Government Portfolio: Management
Fees -- .75%, Other Expenses -- 4.07% and Total Portfolio Operating Ex-
penses -- 4.82%; Utility Income Portfolio: Management Fees -- .75%, Other Ex-
penses -- 3.04% and Total Portfolio Operating Expenses -- 3.79%; Worldwide
Privatization Portfolio: Management Fee -- 1.00%, Other Expenses -- 3.17% and
Total Portfolio Operating Expenses -- 4.17%; Conservative Investors Portfolio:
Management Fees -- .75%, Other Expenses -- 3.50% and Total Portfolio Operating
Expense --4.25%; Growth Investors Portfolio: Management Fees -- .75%, Other
Expenses -- 5.42% and Total Portfolio Operating Expenses -- 6.17%; Growth
Portfolio: Management Fees --.75%, Other Expenses -- .52% and Total Portfolio
Operating Expenses -- 1.27%. The estimated expenses of the Technology Portfo-
lio before expense reimbursements would be: Management Fees -- 1.00%, Other
Expenses -- 1.55% and Total Operating Expenses -- 2.55%. The estimated ex-
penses of the Quasar Portfolio before expense reimbursements would be: Manage-
ment Fees -- 1.00%, Other Expenses -- 1.55% and Total Operating Expenses --
2.55%. The estimated expenses of the Real Estate Investment Portfolio before
expense reimbursement would be: Management Fees -- .90%, Other Expenses --
1.00% and Total Operating Expenses -- 1.90%. The example should not be con-
sidered representative of future expenses; actual expenses may be greater or
less than those shown.

5
<PAGE>

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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. Information is not presented for any
shares of the Technology Portfolio, Quasar Portfolio or the Real Estate In-
vestment Portfolio since no such shares were outstanding during the periods
below. Once these Portfolios have been in operation for all or a portion of
the Fund's fiscal year, the required information will be set forth for the
Portfolios in a "Financial Highlights" table. Further information about the
Fund's performance is contained in the Fund's annual report, which is avail-
able 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
OPERATIONS
Net investment income(b)... .09(c) .03(c) -0-(c) .06(c)
Net realized and unrealized
gain (loss) on
investments............... 5.44 (.41) 1.43 1.32
------- ------- ------- ------
Net increase (decrease) in
net asset value from
operations............... 5.53 (.38) 1.43 1.38
------- ------- ------- ------
LESS: DISTRIBUTIONS
Dividends from net
investment income........ (.03) (.01) (.01) -0-
Distributions from net
realized gains........... (.07) (.03) (.01) -0-
------- ------- ------- ------
Total dividends and
distributions............ (.10) (.04) (.02) -0-
------- ------- ------- ------
Net asset value, end of
period................... $ 17.80 $ 12.37 $ 12.79 $11.38
======= ======= ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(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
waivers and
reimbursements....... .95% .95% 1.50% 1.50% 1.50%(e)
Expenses, before
waivers and
reimbursements....... 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.

6
<PAGE>

<TABLE>
<CAPTION>
SHORT-TERM MULTI-MARKET PORTFOLIO
-------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993 1992 1991
------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................... $ 9.91 $ 11.07 $ 10.77 $ 10.68 $10.03
------ ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income(b)... .82(c) .47(c) .28(c) .63(c) .36
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions.............. (.15) (1.16) .43 (.54) .34
------ ------- ------- ------- ------
Net increase (decrease) in
net asset value from
operations................ .67 (.69) .71 .09 .70
------ ------- ------- ------- ------
LESS: DISTRIBUTIONS
Dividends from net
investment income......... -0- (.46) (.41) -0- (.03)
Distributions from net
realized gains............ -0- -0- -0- -0- (.02)
Return of capital.......... -0- (.01) -0- -0- -0-
------ ------- ------- ------- ------
Total dividends and
distributions............. -0- (.47) (.41) -0- (.05)
------ ------- ------- ------- ------
Net asset value, end of
period.................... $10.58 $ 9.91 $ 11.07 $ 10.77 $10.68
====== ======= ======= ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(d).................. 6.76% (6.51)% 6.62% .84% 7.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)........... $3,152 $20,921 $23,560 $14,841 $5,858
Ratio to average net assets
of:
Expenses, net of waivers
and reimbursements........ .95% .94% 1.17% .99% 1.79%
Expenses, before waivers
and reimbursements........ 1.30% .99% 1.24% 1.66% 4.40%
Net investment income...... 8.22% 6.52% 6.39% 7.18% 7.53%
Portfolio turnover rate... 379% 134% 210% 153% 51%
</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. Total investment return calculated
for a period of less than one year is not annualized.
(e) Annualized.

7
<PAGE>

<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO
-----------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
----------------------------- TO
1995 1994 1993 DECEMBER 31, 1992
------- ------- ------- --------------------
<S> <C> <C> <C> <C>
Net asset value, begin-
ning of period.......... $10.41 $10.97 $10.01 $10.00
------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b).............. .36(c) .15(c) .15(c) .01
Net realized and
unrealized gain (loss)
on investments ........ 2.10 (.56) .81 -0-
------- ------- ------- ------
Net increase (decrease)
in net asset value from
operations............. 2.46 (.41) .96 .01
------- ------- ------- ------
LESS: DISTRIBUTIONS
Dividends from net in-
vestment income........ (.07) (.09) -0- -0-
Distributions from net
realized gains ........ -0- (.06) -0- -0-
------- ------- ------- ------
Total dividends and dis-
tributions............. (.07) (.15) -0- -0-
------- ------- ------- ------
Net asset value, end of
period................. $12.80 $10.41 $10.97 $10.01
======= ======= ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(d)............... 23.67% (3.77)% 9.59% .10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted)... $ 8,242 $ 750 $ 360 $ 95
Ratio to average net
assets of:
Expenses, net of waivers
and reimbursements..... .95% .95% 1.20% 0%
Expenses, before waivers
and reimbursements..... 4.49% 19.49% 25.96% 0%
Net investment income... 3.16% 2.29% 1.45% 2.21%(e)
Portfolio turnover rate. 30% 83% 25% 0%
</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.

8
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
---------------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 28, 1992(A)
--------------------------- TO
1995 1994 1993 DECEMBER 31, 1992
------- ------ ------ --------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 12.88 $12.16 $10.00 $10.00
------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income(b).. .18(c) .10(c) .03(c) -0-
Net realized and
unrealized gain on
investments and foreign
currency transactions.... 1.08 .72(d) 2.13 -0-
------- ------ ------ ------
Net increase in net asset
value from operations.... 1.26 .82 2.16 -0-
------- ------ ------ ------
LESS: DISTRIBUTIONS
Dividends from net
investment income........ (.03) (.02) -0- -0-
Distributions from net
realized gains........... (.04) (.08) -0- -0-
------- ------ ------ ------
Total dividends and
distributions............ (.07) (.10) -0- -0-
------- ------ ------ ------
Net asset value, end of
period................... $ 14.07 $12.88 $12.16 $10.00
======= ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(e)................. 9.86% 6.70% 21.60% 0%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted).......... $16,542 $7,276 $ 688 $ 79
Ratio of average net
assets of:
Expenses, net of waivers
and reimbursements..... .95% .95% 1.20% 0%
Expenses, before waivers
and reimbursements..... 2.99% 7.26% 39.28% 0%
Net investment income... 1.41% .90% .26% 2.07%(f)
Portfolio turnover rate... 87% 95% 85% 0%
</TABLE>

<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 28, 1992(A)
---------------------- TO
1995 1994 1993 DECEMBER 31, 1992
------- ------ ----- --------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 1.00 $ 1.00 $1.00 $1.00
------- ------ ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)......... .05 .03 .22 -0-
Net realized and unrealized gain
on investments.................. -0- -0- -0- -0-
------- ------ ----- -----
Net increase in net asset value
from operations................. .05 .03 .22 -0-
------- ------ ----- -----
LESS: DISTRIBUTIONS
Dividends from net investment
income.......................... (.05) (.03) (.22) -0-
Distributions from net realized
gains........................... -0- -0- -0- -0-
------- ------ ----- -----
Total dividends and
distributions................... (.05) (.03) (.22) -0-
------- ------ ----- -----
Net asset value, end of period... $ 1.00 $ 1.00 $1.00 $1.00
======= ====== ===== =====
TOTAL RETURN
Total investment return based on
net asset value(e).............. 4.97% 3.27% 2.25% .02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)........................ $28,092 $6,899 $ 102 $ 30
Ratio of average net assets of:
Expenses, net of waivers and
reimbursements................ .95% .95% 1.16% 0%
Expenses, before waivers and
reimbursements................ 1.07% 4.46% 68.14% 0%
Net investment income.......... 4.85% 3.98% 2.15% 3.05%(f)
</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. Total investment return calculated
for a period of less than one year is not annualized.
(f) Annualized.

9
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NORTH AMERICAN
GLOBAL DOLLAR GOVERNMENT
GOVERNMENT PORTFOLIO INCOME PORTFOLIO
---------------------------- -----------------------------------
MAY 2, 1994(A) MAY 3, 1994(A)
YEAR ENDED TO YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ --------------- ------------ ---------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.84 $10.00 $ 8.79 $10.00
------ ------ ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .92(c) .36(c) 1.13(c) .50(c)
Net realized and
unrealized loss on
investments and
foreign currency
transactions.......... 1.32 (.52) .83 (1.71)
------ ------ ------- ------
Net decrease in net
asset value from
operations............ 2.24 (.16) 1.96 (1.21)
------ ------ ------- ------
LESS: DISTRIBUTIONS
Dividends from net
investment income .... (.13) -0- (.27) -0-
Distributions from net
realized gains ....... -0- -0- -0- -0-
------ ------ ------- ------
Total dividends and
distributions ........ (.13) -0- (.27) -0-
------ ------ ------- ------
Net asset value, end of
period................ $11.95 $ 9.84 $ 10.48 $ 8.79
====== ====== ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 22.98% (1.60)% 22.71% (12.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $3,778 $1,146 $7,278 $3,848
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements...... .95% .95%(e) .95% .95%(e)
Expenses, before
waivers and
reimbursements...... 4.82% 15.00%(e) 2.57% 4.43%(e)
Net investment income 8.65% 6.02%(e) 12.24% 8.49%(e)
Portfolio turnover
rate.................. 13% 9% 35% 15%
<CAPTION>
UTILITY GROWTH
INCOME PORTFOLIO PORTFOLIO
---------------------------- -----------------------------------
MAY 10, 1994(A) SEPTEMBER 15, 1994(A)
YEAR ENDED TO YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ --------------- ------------ ---------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 9.96 $10.00 $ 10.53 $10.00
------ ------ ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .30(c) .28(c) .17(c) .03(c)
Net realized and
unrealized gain (loss)
on investments........ 1.83 (.32) 3.54 .50
------ ------ ------- ------
Net increase (decrease)
in net asset value
from operations....... 2.13 (.04) 3.71 .53
------ ------ ------- ------
LESS: DISTRIBUTIONS
Dividends from net
investment income..... (.08) -0- (.01) -0-
Distributions from net
realized gains ....... -0- -0- -0- -0-
------ ------ ------- ------
Total dividends and
distributions ........ (.08) -0- (.01) -0-
------ ------ ------- ------
Net asset value, end of
period................ $12.01 $ 9.96 $ 14.23 $10.53
====== ====== ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 21.45% (.40)% 35.23% 5.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $6,251 $1,254 $45,220 $5,492
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements...... .95% .95%(e) .95% .95%(e)
Expenses, before
waivers and
reimbursements...... 3.79% 15.98%(e) 1.27% 4.19%(e)
Net investment income 2.73% 4.62%(e) 1.31% 1.17%(e)
Portfolio turnover
rate.................. 138% 31% 86% 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. Total investment return calculated
for a period of less than one year is not annualized.
(e) Annualized.

10
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WORLDWIDE PRIVATIZATION PORTFOLIO CONSERVATIVE INVESTORS PORTFOLIO
---------------------------------- ----------------------------------------
YEAR ENDED SEPTEMBER 23, 1994(A) YEAR ENDED OCTOBER 28, 1994(A)
DECEMBER 31, TO DECEMBER 31, TO
1995 DECEMBER 31, 1994 1995 DECEMBER 31, 1994
------------ --------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $10.10 $10.00 $ 10.07 $10.00
------ ------ ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .32(c) .10(c) .51(c) .06(c)
Net realized and
unrealized gain (loss)
on investments........ .78 -0- 1.20 .01
------ ------ ------- ------
Net increase in net
asset value from
operations............ 1.10 .10 1.71 .07
------ ------ ------- ------
LESS: DISTRIBUTIONS
Dividends from net in-
vestment income....... (.03) -0- (.02) -0-
Distributions from net
realized gains........ -0- -0- 0 -0-
------ ------ ------- ------
Total dividends and
distributions......... (.03) -0- (.02) -0-
------ ------ ------- ------
Net asset value, end of
period................ $11.17 $10.10 $ 11.76 $10.07
====== ====== ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 10.87% 1.00% 16.99% 0.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted).. $5,947 $1,127 $ 7,420 $ 701
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements...... .95% .95%(e) .95% .95%(e)
Expenses, before
waivers and
reimbursements...... 4.17% 18.47%(e) 4.25% 20.35%(e)
Net investment income 2.96% 4.27%(e) 4.65% 3.55%(e)
Portfolio turnover
rate.................. 23% 0% 61% 2%
<CAPTION>
GROWTH INVESTORS PORTFOLIO TECHNOLOGY PORTFOLIO
---------------------------------- --------------------
JANUARY 11, 1996(A)
YEAR ENDED OCTOBER 28, 1994(A) TO
DECEMBER 31, TO JUNE 30, 1996
1995 DECEMBER 31, 1994 (UNAUDITED)
------------ --------------------- --------------------
<S> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 9.86 $10.00 $ 10.00
------ ------ -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .35(c) .04(c) .08(c)
Net realized and
unrealized loss on
investments........... 1.67 (.18) (.17)
------ ------ -------
Net increase (decrease)
in net asset value
from operations....... 2.02 (.14) (.09)
------ ------ -------
LESS: DISTRIBUTIONS
Dividends from net in-
vestment income....... (.01) -0- -0-
Distributions from net
realized gains ....... -0- -0- -0-
------ ------ -------
Total dividends and
distributions ........ (.01) -0- -0-
------ ------ -------
Net asset value, end of
period................ $11.87 $ 9.86 $ 9.91
====== ====== =======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 20.48% (1.40)% (.90)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted).. $4,978 $ 321 $12,170
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements...... .95% .95%(e) .95%(e)
Expenses, before
waivers and
reimbursements...... 6.17% 41.62%(e) 1.85%(e)
Net investment income 3.21% 2.29%(e) 1.96%(e)
rate................
Portfolio turnover rate 50% 3% 11%
</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. Total investment return calculated
for a period of less than one year is not annualized.
(e) Annualized.

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 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 19 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 Conser-
vative Investors Portfolio, the Growth Investors Portfolio, the Growth Portfo-
lio, the Worldwide Privatization Portfolio, the Technology Portfolio, the Qua-
sar Portfolio and the Real Estate Investment 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 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 objec-
tives and policies among the Portfolios determine the types of portfolio secu-
rities in which each Portfolio invests,

12
<PAGE>

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 ob-
jectives 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 Portfo-
lio's investment policies 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 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 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

13
<PAGE>

Statement of Additional Information for a further description of Rule 2a-7.

The Portfolio may purchase restricted securities that are determined by the
Adviser 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 Ad-
viser, are likely to achieve superior earnings growth. The Portfolio invest-
ments in the 25 such 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 Port-
folio's investment portfolio. The Portfolio thus differs from more typical eq-
uity mutual funds by investing most of its assets in a relatively small number
of intensively 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
Portfolio 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
making investment decisions for the Portfolio. The research staff generally
follows a primary research universe of approximately 600 companies which are
considered by the Adviser to have strong management, superior industry posi-
tions, excellent balance sheets and the ability to demonstrate superior earn-
ings growth. As one of the largest multi-national investment firms, the Ad-
viser has access to considerable information concerning all of the companies
followed, an in-depth understanding of the products, services, markets

14
<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
communication among the analysts result in decision-making based on the rela-
tive attractiveness 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 funda-
mentals. Research emphasis is placed on the identification of companies whose
substantially 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 Adviser seeks to gain positive returns in good markets
while providing some measure of protection in poor markets.

15
<PAGE>

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 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.

16
<PAGE>

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 se-
curity 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 matu-
rity 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 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 vehi-
cle. 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

17
<PAGE>

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 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. Never-
theless, the Portfolio reserves the right to modify the percentage of its in-
vestments in U.S. Government Securities in order to comply with all applicable
tax requirements.

U.S. Government Securities. Securities issued or guaranteed by the U.S. Govern-
ment include: (i) U.S. Treasury obligations, which differ only in their inter-
est 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., 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 the Statement of Additional Information of the Fund for a description 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 emphasizes
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) investment grade corporate
debt securities of a type other than the high grade debt securities described
above (including collateralized mortgage obligations), (ii) certificates of de-
posit, bankers' acceptances and interest-bearing savings deposits of banks hav-
ing total assets of more than $1 billion and which are members of the Federal
Deposit Insurance Corporation, and (iii) put and call options, futures con-
tracts and options on futures contracts. Investment grade debt securities de-
scribed in (i) above are those rated BBB or higher by

18
<PAGE>

S&P or Baa or higher by Moody's or, if not so rated, are of equivalent invest-
ment quality in the opinion of the Adviser. Securities rated BBB by S&P or Baa
by Moody's nor mally provide higher yields but may be considered to have spec-
ulative characteristics. See "Other Investment Policies and Techniques -- Se-
curities Ratings." " -- Investment in Securities Rated Baa and BBB" and Appen-
dix 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 in-
vestment 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 low-
ered 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 invest-
ment quality as determined by the Adviser. Such highrisk, high-yield securi-
ties (commonly referred to as "junk bonds") are considered to have speculative
or, in, the case of relatively low ratings, predominantly speculative charac-
teristics. See "Other Investment Policies and Techniques -- Securities Rat-
ings," " -- Investments in Lower-Rated Fixed-Income Securities" and Appendix
A. There is no minimum rating requirement applicable to the Portfolio's in-
vestments 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 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

19
<PAGE>

mortgage-related securities that provide funds for mortgage loans made to res-
idential homeowners. These include securities which represent interests in
pools of fixed and adjustable 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 High-Yield
Portfolio) by various governmental, government-related and private organiza-
tions.

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 government
and government-related pools because there are no direct or indirect govern-
ment guarantees of payments in such pools. However, timely payment of interest
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 securities
without insurance or guarantees if through an examination of the loan experi-
ence and practices of the poolers the Adviser determines that the securities
meet the Portfolio's investment criteria. Although the market for such securi-
ties is becoming increasingly liquid, securities issued by certain private or-
ganizations may not be readily marketable. The High-Yield Portfolio will not
purchase mortgage-related securities or any other assets which in the Advis-
er's opinion are illiquid if, as a result, more than 10% of the value of the
Portfolio's total assets will be illiquid.

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.

20
<PAGE>

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 investments
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 currencies 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 pay-
ment of a premium, the right to deliver a specified amount of a security 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 ac-
count 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 HighYield 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 purchase
put and call options to provide protection against adverse price or yield ef-
fects from anticipated changes in prevailing interest rates in the same manner
discussed below under "Other Investment Policies and Techniques -- When-Issued
Securities and Forward Commitments." 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.
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 increased or remained the same or did not decrease during that pe-
riod 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 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
transac-

21
<PAGE>

tion 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
cov-ered 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. Op-
tions purchased or written by the Portfolio in negotiated transactions are il-
liquid 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 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

22
<PAGE>

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 Adviser considers it consistent with these ob-
jectives to acquire securities of companies incorporated in the United States
and having their principal activities and interests outside of the United
States. The International Portfolio intends to be invested primarily in such
issuers and under normal circumstances more than 80% of its assets will be so
invested.

In seeking its objective, the International Portfolio expects to invest its as-
sets primarily in common stocks of established non-United States companies
which in the opinion of the Adviser have potential for growth of capital or in-
come or both. There is no requirement, however, that the Portfolio invest ex-
clusively 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 instru-
ments, including, but not limited to, government obligations, certificates of
deposit, bankers' acceptances, commercial paper, short-term corporate debt se-
curities and repurchase agreements.

The International Portfolio intends to diversify investments broadly among
countries and normally to have represented in the portfolio, business activi-
ties 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
Portfolio may purchase securities of companies, wherever organized, which, in
the judgment of the Adviser, have their principal activities and interests out-
side 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 Invest-
ment 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 ad-
verse changes in the relationship between the U.S. Dollar and other 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's dealings in
forward contracts will be limited to hedging involving either specific transac-
tions or portfolio positions. Transaction hedging is the purchase or sale of
forward contracts with respect to specific receivables or payables of the Port-
folio accruing in connection with the purchase and sale of its portfolio secu-
rities or the payment of dividends and distributions by the Portfolio. Position
hedging is the sale of for-

23
<PAGE>

ward 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 Adviser 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 cur-
rency 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 portfo-
lio denominated or quoted in that particular foreign currency. If the Portfo-
lio enters into a position hedging transaction, its custodian bank will place
cash or liquid securities in a separate account of the Portfolio in an amount
equal to the value of the Portfolio's total assets committed to the consumma-
tion of such forward contract. If the value of the securities placed in the
separate account declines, additional cash or securities will be placed in the
account so that the value of the account will equal the amount of the Portfo-
lio'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 port-
folio securities or prevent losses if the prices of such securities decline.
Such transactions also preclude 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 devaluation that is so generally anticipated that the Port-
folio is not able to contract to sell the currency at a price above the deval-
uation level it anticipates. The Portfolio will not enter into a forward con-
tract with a term of more than one year or if, as a result thereof, more than
50% of the Portfolio's total assets would be committed to such contracts.

The Portfolio may also invest in warrants which entitle the holder to buy eq-
uity securities 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, 1995, 36% 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

24
<PAGE>

level of current income, consistent with what the Adviser considers to be pru-
dent investment risk, that is available from a portfolio of high-quality debt
securities having remaining maturities of not more than three years. The Port-
folio seeks high current yields by investing in a portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. Accordingly,
the Portfolio will seek investment opportunities in foreign, as well as
domestic, securities markets. While the Portfolio normally will maintain a sub-
stantial portion of its assets in debt securities denominated in foreign cur-
rencies, the Portfolio will invest at least 25% of its net assets in U.S. Dol-
lar-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 Portfolio in ac-
cordance 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 markets and issuers. In
this regard, the percentage of assets invested in securities of a particular
country or denominated in a particular currency will vary in accordance with
the Adviser's assessment 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 particular 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 coun-
tries whose governments are considered stable by the Adviser. In addition to
the U.S. Dollar, such currencies include, among others, the Australian Dollar,
Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish Krone,
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 country 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. government, its agen-
cies or instrumentalities; (ii) obligations issued or guaranteed by a foreign
government or any of its political subdivisions, authorities, agencies, or in-
strumentalities, or by supranational entities, all of which are rated AAA or AA
by

25
<PAGE>

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 Ad-
viser to be of equivalent quality; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, banks (in-
cluding 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 Ad-
viser 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 having out-
standing 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 develop-
ment projects in developing member countries; the European Union, which is a
fifteen-nation organization engaged in cooperative economic activities; the Eu-
ropean Coal and Steel Community, which is an economic cooperative whose members
are various European nations' steel and coal industries; and the Asian Develop-
ment Bank, which is an international development bank established to lend
funds, promote investment and provide 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
member states of the European Union. The specific amounts of currencies com-
prising the ECU may be adjusted by the Council of Ministers of the European
Union 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 obliga-
tions.

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

26
<PAGE>

industry, the Portfolio will have greater exposure to the risk factors which
are characteristic of such investments. In particular, the value of and invest-
ment return on the Portfolio's shares will be affected by economic or regula-
tory developments in or related to the banking industry. Sustained increases 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 sub-
ject to the effects of: the concentration of loan portfolios in particular
businesses such as real estate, energy, agriculture or high technology-related
companies; national and local regulation; and competition within those indus-
tries as well as with other types of financial institutions. In addition, the
Portfolio's investments in commercial banks located in several foreign coun-
tries 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 in-
vesting only in debt securities which are determined to be of high quality.

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 to decline. However, a shorter average maturity
is generally associated with a lower level of market value volatility and, ac-
cordingly, 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 con-
tracts and other currency hedging techniques. For a discussion of these invest-
ment 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 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
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

27
<PAGE>

performance of various countries' fixed income markets historically has re-
flected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been sig-
nificant, 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. government and corporate bond market is less risky than a portfolio
invested exclusively in foreign debt securities, and provides investors with
more opportunities for attractive total return than a portfolio invested ex-
clusively 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 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 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

28
<PAGE>

unrated, judged by the Adviser and Sub-Adviser to be of comparable quality. See
"Other Investment Policies and Techniques -- Securities Ratings" and Appendix
A. Pending investment, to maintain liquidity or for temporary defensive purpos-
es, 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 forward foreign
currency exchange contracts and other hedging techniques. For a discussion of
these investment policies of the Portfolio, see "Other Investment 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 develop-
ment projects in developing member countries; the European Union, which is a
fifteen-nation organization engaged in cooperative economic activities; the Eu-
ropean Coal and Steel Community, which is an economic cooperative whose members
are various European nations' steel and coal industries; and the Asian Develop-
ment Bank, which is an international development bank established to lend port-
folios, promote investment and provide technical assistance 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.

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 con-
siders 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, Mexico and Argentina, their political subdivisions (including Canadian
Provinces but excluding States of the United States), agencies, instrumentali-
ties 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. Normally, the Portfolio expects to
maintain at least 25% of its assets in securities denominated in the U.S. Dol-
lar. In addition, the Portfolio may invest up to 25% of its total assets in
debt securities issued by governmental entities of Argentina ("Argentine Gov-
ernment securities"). The Portfolio expects that it will not retain a debt se-
curity which is

29
<PAGE>

down-graded below BBB or Baa, or, if unrated, determined by the Adviser 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 governmental issuer in
one of the countries in which the Portfolio has substantial investments, 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 expected to vary between one year or
less and 30 years. See "Other Investment Policies and Techniques -- Fixed-In-
come Securities." The Portfolio will utilize certain other investment tech-
niques, 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 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, pro-

30
<PAGE>

vided, however, that the Portfolio may invest up to 25% of its total assets in
Argentine Government Securities. Under normal market conditions, 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. 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 matu-
rities 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 government guaranteed mort-
gage-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 ("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 of the Student Loan Marketing Association. See
the Statement of Additional Information for a description of obligations issued
or guaranteed by U.S. Government 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 issued
without interest coupons, U.S. Treasury notes and bonds which have been
stripped of their unma-tured 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 pur-
chased 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 distribu-
tions 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 neces-
sary, greater than the total amount of cash that the Portfolio has actually re-
ceived as interest during the year. The Adviser believes, however, that it is
highly unlikely that it would be necessary to liquidate any portfolio securi-
ties 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 pro-

31
<PAGE>

gram 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 undi-
vided interests in these instruments (which instruments are generally held by a
bank in a custodial or trust account). The staff of the Commission has indi-
cated 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 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 Port-
folio will not be subject to any limitations on their purchase.

U.S. Government Securities do not generally involve the credit risks associated
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.

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 govern-
ment, is responsible for the distribution of these bonds and Treasury bills.
The Bank of Canada offers new issues, as approved by the Government, to spe-
cific 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 corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Spreads in the marketplace are de-
termined by various factors, including the relative supply and the rating as-
signed by the rating agencies.

Many Canadian municipalities, municipal financial authorities and Crown corpo-
rations raise funds through the bond market in order to finance capital
expenditures. Unlike U.S. municipal securities, which have special tax status,
Canadian municipal securities have the same tax status as other Canadian Gov-
ernment Securities and trade similarly to such securities.

32
<PAGE>

The Canadian municipal 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") es-
tablished 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
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 A-1+ by S&P. The Portfo-
lio'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 directly 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 quar-
terly 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 In-
version y Crecimiento ("BIC"), which are investment and growth bonds issued di-
rectly by the Argentine government with maturities of ten years; (ii) Bono de
Consolidacion Economica ("BOCON"), which are economic consolidation bonds is-
sued 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 Se-
curities 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 Provincial
governments. The Parliament of Canada has jurisdiction over all areas not as-
signed exclusively to the Provin-

33
<PAGE>

cial legislatures, and has jurisdiction over such matters as the federal pub-
lic 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.

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 25% from October 1991, but from Jan-
uary 20, 1995, through February 15, 1996, the Canadian Dollar increased in
value by approximately 3.4% against the U.S. Dollar. The range of fluctuation
that occurred in the past is not necessarily indicative of the range of fluc-
tuation that will occur in the future. Future rates of exchange cannot be pre-
dicted.

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 seven consecutive years (1987-1994) 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 experi-
enced an economic crisis that led to the devaluation of the Peso in December
1994. Much of the past improvement in the Mexican economy has been attribut-
able to a series of economic policy initiatives initiated by the Mexican gov-
ernment over the past decade, which seek to modernize and reform the Mexican
economy, control inflation, reduce the financial deficit, increase public rev-
enues 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 Mexican government has been proceeding with a program for
privatizing certain state owned enterprises, developing and modernizing the

34
<PAGE>

securities markets, increasing investment in the private sector and permitting
increased levels of foreign investment. The recent adoption by Canada, the
United States and Mexico of the North American Free Trade Agreement could also
contribute to the growth of the Mexican economy.

In 1994 Mexico faced internal and external conditions that resulted in an eco-
nomic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by
inflows of foreign capital, were factors contributing to the crisis. A weaken-
ing economy and unsettling political and social developments caused investors
to lose confidence in the Mexican economy. This resulted in a large decline in
foreign reserves followed by a sharp and rapid devaluation of the Mexican Peso.
The ensuing economic and financial crisis resulted in higher inflation and do-
mestic interest rates, a contraction in real gross domestic product and a li-
quidity crisis.

In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and a new so-
cial accord among the government, business and labor sectors of the country was
entered into in an effort to stabilize the economy and the financial markets.
To help relieve Mexico's economy, the Mexican government also obtained finan-
cial assistance from the United States, other countries and certain interna-
tional agencies conditioned upon the implementation and continuation of the
economic reform program.

While the Mexican economy has stabilized, it is still in a recession and suf-
fers from high inflation and high interest rates. In October 1995, the Mexican
government announced a new accord designed to encourage economic growth and re-
duce inflation. It cannot be accurately predicted whether this accord will
achieve its purpose. 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. The recovery of the economy will require
continued economic and fiscal discipline as well as stable political and social
conditions. There is no assurance that Mexico's economic policy initiatives
will be successful or that succeeding administrations 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. From December 22,
1994 through February 15, 1996, the Mexican Peso decreased in value compared to
the U.S. Dollar by approximately 60%.

35
<PAGE>

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-
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. As a re-
sult of the economic stabilization reforms, gross domestic product has in-
creased and inflation has decreased.

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.

In 1995 economic policy was directed toward the effects of the Mexican currency
crisis. The Mexican currency crisis led to a run on bank deposits, which was
brought under control by a series of measures designed to strengthen the finan-
cial system. The measures included the "dollarization" of banking reserves, the
establishment of two trust funds, and the implementation of limited deposit in-
surance.

In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by for-

36
<PAGE>

eign exchange reserves, in an effort to make the Argentine Peso fully convert-
ible into the U.S. Dollar at a rate of one to one.

The Argentine Peso has been the Argentine currency since January 1, 1992.
Since that date, the rate of exchange from the Argentine Peso to the U.S. Dol-
lar has remained approximately one to one. The fixed exchange rate has been
instrumental in stabilizing the economy, but has not reduced pressures from a
slow-growth economy and record unemployment. It is not clear that the govern-
ment will be able to resist pressure to devalue the currency. However, the
historic range is not necessarily indicative of fluctuations that may occur in
the exchange rate over time and future rates of exchange cannot be accurately
predicted. The Argentine foreign exchange market was highly controlled until
December 1989, when a free exchange rate was established for all foreign cur-
rency transactions. Argentina 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 investing in U.S. Government Securities. For a description of
certain risks associated with investing in foreign securities, see "Other In-
vestment 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 invest-
ments in the securities of Canadian issuers or investments denominated in Ca-
nadian 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 securities of Mexican and other non-Canadian Foreign issuers, including
investments in securities

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<PAGE>

denominated in Mexican Pesos or other non-Canadian Foreign currencies. If not
hedged, however, currency fluctuations could affect the unrealized apprecia-
tion and depreciation of non-Canadian Government Securities as expressed in
U.S. dollars.

Currency Risks. Because Portfolio assets will be invested in fixed income se-
curities denominated in the Canadian Dollar, the Mexican Peso and other for-
eign 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
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. 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 distributions, 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 ex-
penses in U.S. Dollars could be greater than the equivalent amount of such ex-
penses 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
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 be-
tween foreign governments and financial institutions, and interests in enti-
ties 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 obliga-
tions issued by the U.S. government, its agencies or instrumentalities ("Col-
lateralized Brady Bonds"). The Portfolio may also invest up to 35% of its to-
tal assets in U.S. and non-U.S. corporate fixed income securities. The Portfo-
lio will limit its investments in Sovereign Debt Obligations and U.S. and non-
U.S. corporate fixed income securities to U.S. dollar denominated securities.
The Adviser expects that, based upon current market conditions, the Fund's
portfolio of U.S. fixed-income securities will have an average 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

38
<PAGE>

Fund's portfolio of sovereign debt obligations will have a longer average matu-
rity.

With respect to its investments in Sovereign Debt Obligations and non-U.S. cor-
porate fixed income securities, the Fund will emphasize investments in coun-
tries that are considered emerging market countries at the time of purchase. As
used in this Prospectus, an "emerging market country" is any country that is
considered to be an emerging or developing country by the International Bank
for Reconstruction and Development (commonly referred to as the "World Bank").
The Portfolio anticipates that a substantial part of its initial investment fo-
cus will be in the U.S. dollar denominated securities or obligations of Argen-
tina, 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 (including, in the case
of Argentina, Mexico, the Philippines and Venezuela, issuers of currently out-
standing Brady Bonds) that, in the Adviser's opinion, will provide the most at-
tractive 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 ini-
tial 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 Portfo-
lio will limit investments in the Sovereign Debt Obligations of each such coun-
try (or of any other single foreign country) to less than 25% of its total as-
sets. 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 ac-
counts, financial markets, stability of exchange rate policy and labor condi-
tions. In selecting and allocating assets among corporate issues within a given
country, the Adviser will consider the relative financial strength of issues
and expects to emphasize investments in securities of issuers that, in the Ad-
viser'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
in-

39
<PAGE>

come securities held by the Portfolio will include debt securities, convert-
ible securities and preferred stocks of corporate issuers. The Portfolio will
not be subject to restrictions on the maturities of the securities it holds.
The Adviser expects that, based upon current market conditions, the Portfo-
lio's investment portfolio of U.S. fixed-income securities will have an aver-
age maturity range of approximately 9 to 15 years and the Portfolio's portfo-
lio of non-U.S. fixed income securities will have an average maturity range of
approximately 15 to 25 years. The Adviser anticipates that the Portfolio's
portfolio of Sovereign Debt Obligations will have a longer average maturity.

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 necessary. 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 nec-
essary to liquidate portfolio securities in order to make such required dis-
tributions or to meet its primary investment objective of high current 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.

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<PAGE>

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 adjusted
at regular intervals thereafter. Certain Brady Bonds are entitled to "value re-
covery payments" in certain circumstances, which in effect constitute supple-
mental interest payments but generally are not collateralized. Brady Bonds are
often viewed as having three or four valuation components: (i) the collateral-
ized 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 de-
faults 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 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 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.

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<PAGE>

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).

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 assign-
ors, however, the rights and obligations acquired by the Portfolio as the pur-
chaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. The assignability of certain Sovereign Debt Obliga-
tions is restricted by the governing documentation as to the nature of the as-
signee 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

42
<PAGE>

fixed income securities of the same maturity are a function of several fac-
tors, 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 commonly referred to as "junk bonds") 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 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. As of December 31, 1995, the
percentages of the Portfolio's assets invested in securities rated (or consid-
ered by the Adviser to be of equivalent quality to securities rated) in par-
ticular rating categories were 29% in A and above, 3% in Baa or BBB, 39% in Ba
or BB, 18% in B, 3% in Caa or CCC and 8% in non-rated. See "Certain Risk Con-
siderations" for a discussion of the risks associated with the Portfolio's in-
vestments in U.S. and non-U.S. corporate fixed income securities.

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 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

43
<PAGE>

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 in-
strument, if the warrant begins to trade separately from the related debt in-
strument.

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 determination by the other party, or
its trustee or receiver, whether to enforce the Portfolio's obligation to re-
purchase 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 be-

44
<PAGE>

tween the time of the short sale and the time the Portfolio replaces the bor-
rowed security, the Portfolio will incur a loss; conversely, if the price de-
clines, the Portfolio will realize a capital gain. See "Investment Restric-
tions" in the Statement of Additional Information. See "Dividends, Distribu-
tions and Taxes -- Tax Straddles" in the Statement of Additional Information
for a discussion 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 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 willing-
ness of a foreign government to make or provide for timely payments of its ob-
ligations. 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 com-
mercial 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 restructur-
ing of certain

45
<PAGE>

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 pay-
ments. 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, includ-
ing export performance, and its access to international credits and invest-
ments. To the extent that a country receives payment for its exports in cur-
rencies 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 govern-
ments, 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 with-
drawal 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 peri-
odically based upon international rates.

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 exam-
ple, 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 dimin-
ished. Bankruptcy, moratorium and other similar laws applicable to issuers of
Sovereign Debt Obligations may be substantially different from those applica-
ble 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 commercial bank debt
will not contest payments to the holders of securities issued by foreign gov-
ernments 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

46
<PAGE>

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 Port-
folio's rights with respect to defaults on such securities will be subject to
applicable 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.

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
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<PAGE>

securities and fixed income securities. Rather, the Portfolio will vary the
percentage of assets invested in any one type of security based upon the Ad-
viser's evaluation as to the appropriate portfolio structure for achieving the
Portfolio's investment objective under prevailing market, economic and finan-
cial 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 securities can be expected to increase,
and when interest rates rise, the values of fixed income securities can be ex-
pected to decrease. The Adviser expects that the average weighted maturity of
the Portfolio's portfolio of fixed-income securities may, depending upon mar-
ket 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 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 securi-
ties 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 Portfo-
lio 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.

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

48
<PAGE>

programs and lower financing costs. In addition, many utility companies have
generated cash flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into unregulated busi-
nesses. Some electric utilities have also taken advantage of the right to sell
power outside of their historical territories. At this time, there are certain
institutional impediments to the wide-scale deregulation of electric utilities,
including among other things, limitations on the redistribution of power. The
Adviser believes, however, that recent developments, including the enactment of
the Energy Policy Act of 1992, may alleviate 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 regu-
lation 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 complet-
ing 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 reduc-
ing 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 sub-
ject 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.

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 & Tele-
graph Company, including increased competition and rapidly developing technolo-
gies 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 tradi-
tional telephone services providers' local plants, either completely or par-
tially, through substitutions of special access for switched access or through
concentration of telecommunications traffic on fewer of the traditional tele-
phone services providers'
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<PAGE>

lines. Although there can be no assurance that increased competition and other
structural changes will not adversely affect the profitability of such utili-
ties, or that other negative factors will not develop in the future, in the
Adviser's opinion, increased competition and change may provide better posi-
tioned 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 rates. In addition, because of the
Portfolio's policy of concentrating its investments in securities of utility
companies, the Portfolio may be more susceptible than an investment company
without such a policy to any single economic, political or regulatory occur-
rence affecting the utilities industry. Under market conditions that are unfa-
vorable 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 5.29% for 1995, more than twice
the 2.18% average yield for the stocks in the Standard & Poor's Industrials
index. 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

50
<PAGE>

seek government approval 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 pol-
lution 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 compa-
nies currently are government-owned, thereby limiting current investment oppor-
tunities for the Portfolio, the Adviser believes that, in order to attract sig-
nificant capital for growth, some foreign governments may engage in a program
of privatization of their utilities industry, and that the securities issued by
privatized utility companies may offer attractive investment opportunities with
the potential for long-term growth.

Privatization, which refers to the trend toward investor ownership, rather than
government ownership, of assets is expected to occur both in newer, faster-
growing economies and in mature economies. In addition, efforts toward moderni-
zation in Eastern Europe, as well as the potential of economic unification of
European markets, in the view of the Adviser, may improve economic growth, re-
duce costs and increase competition in Europe, which could result in opportuni-
ties 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 increase 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 invest-
ments are made, interest rate conditions in such countries and the relationship
of such countries' currencies to the U.S. dollar. Currency is judged on the ba-
sis 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. As mentioned above, the Portfo-
lio 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 repurchase
agreements pertaining thereto, as discussed below, (ii) foreign securities, as
discussed be-

51
<PAGE>

low, (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 savings 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 obligations issued or guaranteed by U.S. Government agencies or
instrumentalities.

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

52
<PAGE>

markets, the Portfolio may invest in American Depositary Receipts (ADRs),
Global Depositary Receipts (GDRs) and other types of Depository Receipts
(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 converted. In ad-
dition, the issuers of the stock of unsponsored Depositary Receipts are not ob-
ligated 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 typically issued by a
United States bank or trust company which evidence ownership of underlying se-
curities 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 registered form are de-
signed for use in the U.S. securities markets and Depositary Receipts in bearer
form are designed for use in foreign securities markets. For purposes of the
Portfolio's investment policies, the Portfolio's investments 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 securities.

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 supra-
national entities include, among others, the World Bank (International Bank for
Reconstruction and Development) and the European Investment Bank. The govern-
mental members, or "stockholders," usually make initial capital contributions
to the supranational entity and in many cases are committed to make additional
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 European Currency Unit
is a basket of specified amounts of the currencies of the fifteen member states
of the European Union. The Portfolio is further authorized to invest in "semi-
governmental securities," which are securities issued by entities owned by ei-
ther a national state or equivalent government 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 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 securi-
ties exchanges and over-the-counter, enter into contracts for the purchase and
sale for future delivery of

53
<PAGE>

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 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 interest rate swaps and may purchase or sell interest
rate caps and floors and may purchase and sell options on fixed income securi-
ties. 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."

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 security, the Port-
folio 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.

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 securi-
ties, each pursuant to a different asset allocation strategy, as described be-
low. 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 pro-
file." The "conservative investor" has a relatively short-term investment bias,
either because of a limited tolerance for market volatility or a short invest-
ment horizon. This investor is adverse to taking risks that may result in prin-
cipal loss, even though such aversion may reduce the potential for higher long-
term gains and result in lower performance during periods of equity market
strength. Consequently, the asset mix for the Conservative Investors Portfolio
attempts to reduce volatility while providing modest upside potential. The
"growth investor" has a longer-term investment horizon and is therefore

54
<PAGE>

willing to take more risks in an attempt to achieve long-term growth of princi-
pal. This investor wishes, in effect, to be risk conscious without being risk
averse. The asset mix for the Growth Investors Portfolio should therefore pro-
vide 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 condi-
tions, the Committee is expected to change allocation ranges approximately
three to five times per year. However, the Committee has broad latitude to es-
tablish 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 possible that
in periods of stable and consistent outlook no change will be made. The Commit-
tee's decisions are based on and may be limited by a variety of factors, in-
cluding liquidity, portfolio size, tax consequences and general market condi-
tions, always within the context of the appropriate investor profile for each
Portfolio. Consequently, asset mix decisions for the Conservative Investors
Portfolio particularly emphasize risk assessment of each asset class viewed
over the shorter term, while decisions for the Growth Investors Portfolio are
principally 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 se-
curities 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 deter-
mined 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 eco-
nomic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments on such obligations than in
the case of higher-rated securities. See "Other Investment Policies and Tech-
niques -- Securities Ratings," "-- Investment in Fixed-Income Securities 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

55
<PAGE>

that it is no longer of investment grade), 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 cir-
cumstances.

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 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 comprise at least 10%, but never
more than 50%, of the Portfolio's total assets. The fixed-income class in-
cludes money market instruments. For temporary defensive purposes, the Portfo-
lio 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.

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<PAGE>

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 Income Secu-
rities." 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 Portfolio may invest without limit in securities which are not pub-
licly traded in the United States, although the Conservative Investors Portfo-
lio 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 to-
tal 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 mar-

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<PAGE>

ket value. Investment in these securities is restricted to 5% of a Portfolio's
total assets (not including for these purposes Rule 144A Securities, to the ex-
tent permitted by applicable law) and is also subject to the Portfolio's re-
striction against investing more than 15% of total assets in illiquid securi-
ties. 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 Direc-
tors. 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 mortgage pre-
pays the remaining principal before the mortgage's scheduled maturity date. As
a result of the pass-through of prepayments of principal on the underlying se-
curities, 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. Prepayments 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 Portfo-
lios would be required to reinvest the proceeds at the lower interest rates
then available. In addition, 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 were prepaid.

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,

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<PAGE>

retail installment loans or revolving credit receivables, both secured and
unsecured. These assets are generally held by a trust and payments of princi-
pal 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.

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 much with interest
rates and the short-term nature of the underlying car loans or other receiv-
ables tends to dampen the impact of any change in the prepayment level. Cer-
tificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying sales contracts or receivables are not re-
alized 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 consis-
tent with its investment objective and policies, the Portfolio may invest in
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. As of December 31, 1995, 64.8% of the
Portfolio's assets were invested in fixed-income securities all rated (or con-
sidered by the Adviser to be of equivalent quality to securities rated) in the
category A and above. See "Other Investment Policies and Techniques -- Securi-
ties Ratings," "-- Investment in Lower-Rated Fixed-Income Securities" and Ap-
pendix 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 secu-

59
<PAGE>

rity will normally vary to some degree with changes in the price of the under-
lying stock although in some market conditions 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. Convertible debt securities that are rated be-
low BBB (S&P) or Baa (Moody's) or comparable 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 "Investments 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 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 required
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 require-
ments.

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

60
<PAGE>

portfolio securities amounting to not more than 25% of its total assets and
may enter into repurchase agreements on up to 25% of its total assets. These
transactions must be fully collateralized at all times, but involve some risk
to a Fund if the other party should default on its obligation and the Portfo-
lio 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.

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 appli-

61
<PAGE>

cable 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 purposes Rule 144A Securi-
ties, 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 il-
liquid securities. To the extent permitted by applicable law, Rule 144A Secu-
rities will not be treated as "illiquid" for purposes of the foregoing re-
striction so long as such securities meet liquidity guidelines established by
the Board of Directors. See "Other Investment Policies and Techniques -- Il-
liquid 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, if 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
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. As of De-
cember 31, 1995, the percentages of the Portfolio's assets invested in securi-
ties rated (or considered by the Adviser to be of equivalent quality to secu-
rities rated) in particular rating categories were 2.05% in B and .26% in Caa
or CCC.

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.

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<PAGE>

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 ("index futures") and may buy options on index futures and on stock in-
dices for hedging purposes. The Portfolio may buy and sell call and put op-
tions on index futures or on stock indices in addition to, or as an alterna-
tive to, purchasing or selling index futures or, to the extent permitted by
applicable law, to earn additional income. The Portfolio may also, for hedging
purposes, purchase and sell futures contracts, options thereon and options
with respect to 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.

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<PAGE>

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, historically inaccessible to
U.S. individual investors, that are created by privatizations of state enter-
prises in both established and developing economies, including those in West-
ern Europe and Scandinavia, Australia, New Zealand, Latin America, Asia and
Eastern and Central Europe and, to a lesser degree, 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

64
<PAGE>

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 total assets in securities of issuers in any one of France, Ger-
many, Great Britain, 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 economies, including,
among others, Argentina, Mexico, Chile, Indonesia, Malaysia, Poland and Hunga-
ry, are currently engaged in privatizations. The Portfolio will invest in the
securities of enterprises, in any country, that in the Adviser's opinion pre-
sent attractive investment opportunities, and the countries in which the Port-
folio will invest may change from time to time. It is the Adviser's intention
to invest approximately 70% of the Portfolio's total assets in securities of
enterprises located in countries with established economies and the remainder
of the Portfolio's assets in securities of enterprises 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 privatiza- tion offers investors the opportunity
for significant capital appreciation relative to local and regional stock mar-
ket 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

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<PAGE>

privatizations worldwide increased from $39.5 billion in 1988 to $310 billion
in 1994.

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, 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 mar-
kets.

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
concentrating 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
anticipated returns, that the Portfolio's ability to achieve its investment
objective would be adversely affected if the Portfolio were not permitted to
invest more than 25% of its total assets in those securities. The Adviser an-
ticipates that such circum-

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<PAGE>

stances 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 concentration and non-
concentration in the securities of issuers in a single industry. The Portfolio
disagrees with the staff's position but has undertaken that it will not concen-
trate in the securities of national commercial banks until, if ever, the issue
is resolved. To the extent that the Portfolio invests more than 25% of its to-
tal assets 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 industry is subject to, among other things, in-
creases in interest rates and deteriorations 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

67
<PAGE>

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, 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 se-
curities 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, including any index of U.S. Govern-
ment Securities or securities issued by foreign government 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 securi-
ties, enter into repurchase agreements, standby commitment agreements and cur-
rency swaps, make short sales of securities and make secured loans of its
portfolio securities. Certain of these investment strategies 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 Portfolio may engage in these
investment strategies in those countries when and to the extent such strate-
gies become available or permissible in the future. Except with regard to
those investment strategies discussed immediately below, each of these invest-
ment strategies is discussed under the caption "Other Investment 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.

Short Sales. The Portfolio may make short sales of securities or maintain a
short posi-

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tion 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 Portfo-
lio 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 security, the Portfolio
will incur a loss; conversely, if the price declines, the Portfolio will real-
ize 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 certain
jurisdictions, the ability of foreign entities, such as the Portfolio, to par-
ticipate 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 successful or that
governments will not re-nationalize enterprises that have been privatized. Fur-
thermore, 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 enter-
prises. 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.

Most state enterprises or former state enterprises go through an internal reor-
ganization of management prior to mailing an initial equity offering in an at-
tempt to better enable these enterprises to compete in the private sector. How-
ever, 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. After making an initial equity offering enterprises
which may have enjoyed preferential treatment from the respective state or gov-
ernment that owned or controlled them may no longer 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. In addition, the privatization of an en-

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<PAGE>

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.

Currency Considerations. Because substantially all of the Portfolio's assets
will be in-
vested in securities denominated in foreign currencies and a corresponding por-
tion of the Portfolio's revenues will be received in such currencies, the dol-
lar equivalent of the Portfolio's net assets and distributions will be ad-
versely affected by reductions in the value of certain foreign currencies rela-
tive 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 in-
vestment practices listed above. If the value of the foreign currencies in
which the Portfolio receives its income falls relative to the U.S. dollar be-
tween 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 Policies 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.

TECHNOLOGY PORTFOLIO

The Technology Portfolio is a diversified investment portfolio that emphasizes
growth of capital and invests for capital appreciation, and only incidentally
for current income. The Portfolio invests primarily in securities of companies
expected to benefit from technological advances and improvements (i.e., compa-
nies that use technology extensively in the development of new or improved
products or processes). The Portfolio will normally have at least 80% of its
assets invested in the securities of these companies. The Portfolio normally
will have substantially all its assets invested in equity securities, but it
also invests in debt securities offering an opportunity for price appreciation.
The Portfolio will invest in listed and unlisted securities and U.S. and for-
eign securities, but it will not purchase a foreign security if as a result 10%
or more of the Portfolio's total assets would be invested in foreign
securities.

The Technology Portfolio's policy is to invest in any company and industry and
in any type of security with potential for capital appreciation. It invests in
well-known and established companies and in new and unseasoned companies.

The Portfolio may maintain up to 15% of its net assets in illiquid securities,
lend portfolio securities equal in value to not more than 30% of the Technology
Portfolio's total assets and invest up to 10% of its total assets in foreign
securities.

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Options. In an effort to increase current income and to reduce fluctuations in
net asset value, the Technology Portfolio intends to write covered call op-
tions 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 ex-
changes. A call option written by the 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 Custodian) 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 exer-
cise price of the call written if the difference is maintained by the Portfo-
lio in cash and liquid high-grade debt securities in a segregated account with
the Fund's Custodian. The premium paid by the purchaser of an option will re-
flect, among other things, the relationship of the exercise price to the mar-
ket price and volatility of the underlying security, the remaining term of the
option, supply and demand and interest rates.

The Technology Portfolio will not write uncovered call options and will not
write a call option if the premium to be received by the Portfolio in doing so
would not produce an annualized return of at least 15% of the then current
market value of the securities subject to the option (without giving effect to
commissions, stock transfer taxes and other expenses that are deducted from
premium receipts). The Portfolio will not write a call option if, as a result,
the aggregate of the Portfolio's securities subject to outstanding call op-
tions (valued at the lower of the option price or market value of such securi-
ties) would exceed 15% of the Portfolio's total assets or more than 10% of the
Portfolio's assets would be committed to call options that at the time of sale
have a remaining term of more than 100 days. The aggregate cost of all out-
standing options purchased and held by the Portfolio will at no time exceed
10% of the Portfolio's total assets.

The Technology Portfolio may purchase or write options on securities of the
types in which it is permitted to invest in privately negotiated transactions.
The Portfolio will effect such transactions only with investment dealers and
other financial institutions (such as commercial banks or savings and loan in-
stitutions) deemed creditworthy by the Adviser, and the Adviser has adopted
procedures for monitoring the creditworthiness of such entities. Options pur-
chased 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 "Illiq-
uid Securities." See Appendix D in the Statement of Additional Information for
a further discussion of the use, risks and costs of option trading.

The Technology 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 security except
that, rather than the right to take or make delivery of a security at a speci-

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fied price, an option on a securities index gives the holder the right to re-
ceive, 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.

Rights and Warrants. The Technology Portfolio may also invest up to 10% of its
total assets in rights and warrants. The Portfolio will invest in right and
warrants only if the underlying equity securities themselves are deemed appro-
priate by the Adviser for inclusion in the Portfolio. Rights and warrants en-
title the holder to buy equity securities at a specific price for a specific
period of time. Right are similar to warrants except that they have a substan-
tially shorter duration. Rights and warrants may be considered more specula-
tive than certain other types of investments in that they do not entitle a
holder to dividends or voting rights with respect to the underlying securities
nor do they represent any rights in the assets of the issuing company. The
value of a warrant does not necessarily change with the value of the under-
lying security, although the value of a right or warrant may decline because
of an increase in the value of the underlying security, the passage of time or
a change in perception as to the potential of the underlying security, or any
combination thereof. If the market price of the underlying security is below
the exercise price set forth in the warrant on the expiration date, the war-
rant will expire worthless. Moreover, a right or warrant ceases to have value
if it is not exercised prior to the expiration date.

For a further description of the Technology Portfolio's investment policies
and techniques, see "Other Investment Policies and Techniques" below.
QUASAR PORTFOLIO

The Quasar Portfolio is a diversified investment company that seeks growth of
capital by pursuing aggressive investment policies. It invests for capital ap-
preciation and only incidentally for current income. The selection of securi-
ties based on the possibility of appreciation cannot prevent loss in value.
Moreover, because the Portfolio's investment policies are aggressive, an in-
vestment in the Portfolio is risky and investors who want assured income or
preservation of capital should not invest in the Portfolio.

The Portfolio invests in any company and industry and in any type of security
with potential for capital appreciation. It invests in well-known and estab-
lished companies and in new and unseasoned companies. When selecting securi-
ties, the Adviser considers economic and Political outlook, the values of spe-
cific securities relative to other investments, trends in the determinants of
corporate profits and management capability and practices.

The Portfolio invests principally in equity securities, but it also invests to
a limited degree in non-convertible bonds and preferred stock. The Portfolio
invests in listed and unlisted U.S. and foreign securities. The Portfolio pe-
riodically invests in special situations, which occur when the securities of a
company are expected to appreciate due to a development particularly or
uniquely applicable to that company and regardless of general business condi-
tions or movements of the market as a whole.

The Portfolio may also: (i) invest up to 15% of its total assets in securities
for which there is no ready market; (ii) make short

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<PAGE>

sales of securities "against the box," but not more than 15% of its net assets
may be deposited on short sales; and (iii) write call options and purchase and
sell put and call options written by others. For additional information on the
use, risks and costs of the Policies and practices, see "Other Investment Poli-
cies and Techniques," below.

The Portfolio's investment objective cannot be changed without approval by the
holders of a majority of the Portfolio's outstanding voting securities, as de-
fined in the Act. Except as otherwise indicated, the investment policies of the
Portfolio are not "fundamental policies" and may, therefore, be changed by the
Board of Directors without shareholder approval.

Options. The Portfolio may write call options and purchase and sell put and
call options written by others. An option gives the purchaser of the option,
upon payment of a premium, the right to deliver to (in the case of a put) or
receive from (in the case of a call) the writer a specified amount of a secu-
rity on or before a fixed date at a predetermined price. A call option written
by the Portfolio is "covered" if the Portfolio owns the underlying security,
has an absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or holds a call option on the underlying
security with an exercise price equal to or less than that of the call option
it has written.

In purchasing an option, the Portfolio would be in a position to realize a
gain, if, during the option period, the price of the underlying security in-
creased (in the case of a call) or decreased (in the case of a put)
by an amount in excess of the premium paid; otherwise the portfolio would expe-
rience a loss equal to the premium paid for the option.

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 an option is that, if the option were exercised, the under-
lying security would then be purchased or sold by the Portfolio at a disadvan-
tageous price. These risks could be reduced by entering into a closing transac-
tion (i.e., by disposing of the option prior to its exercise). The Portfolio
retains the premium received from writing a call option whether or not the op-
tion could result in increases in a Fund's portfolio turnover rate, especially
during periods when market prices of the underlying securities appreciate.

The Portfolio will not write a call option if, as a result, 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 or more than 10% of the Portfolio's assets
would be committed to all options that at time of sale have a remaining term of
more than 100 days. The aggregate cost of all outstanding options purchased and
held by the Portfolio will at no time exceed 10% of the Portfolio's total
assets.

Short Sales. The Portfolio may only make short sales of securities "against the
box". A short sale is effected by selling a security that 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

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<PAGE>

extent that the Portfolio contemporaneously owns or has the right to obtain
securities identical to those sold short without payment. If the price of the
security sold short increases between the time of the short sale and the time
the Portfolio replaces the borrowed security, the Portfolio will incur a loss;
conversely, if the price declines, the Portfolio will realize a capital gain.
Certain special federal income tax considerations may apply to short sales en-
tered into by the Portfolio. See "Dividends, Distributions and Taxes" in the
Statement of Additional Information.

Foreign Securities. The Portfolio may invest in foreign securities. To the ex-
tent the Portfolio invests in foreign securities, consideration 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, including withholding
taxes, changes in governmental administration or economic, taxation or mone-
tary policy (in the United States and abroad) or changed circumstances in
dealings between nations. 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.

REAL ESTATE INVESTMENT PORTFOLIO

The Real Estate Investment Portfolio's investment objective is to seek a total
return on its assets from long-term growth of capital and from income princi-
pally through investing in a portfolio of equity securities of issuers that
are primarily engaged in or related to the real estate industry.

Under normal circumstances, at least 65% of the Portfolio's total assets will
be invested in equity securities of real estate investment trusts ("REITs")
and other real estate industry companies. A "real estate industry company" is
a company that derives at least 50% of its gross revenues or net profits from
the ownership, development, construction, financing, management or sale of
commercial, industrial or residential real estate or interests therein. The
equity securities in which the Portfolio will invest for this purpose consist
of common stock, shares of beneficial interest of REITs and securities with
common stock characteristics, such as preferred stock or convertible securi-
ties ("Real Estate Equity Securities").

The Portfolio may invest up to 35% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized by
and payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real estate mortgage
investment conduit ("REMIC") certificates and collateralized mortgage obliga-
tions ("CMOs") and (b) short-term investments. These instruments are described
below. The risks associated with the Portfolio's transactions in REMICs, CMOs
and other types of mortgage-backed securities, which are considered to be de-
rivative securities, may include some or all of the following: market risk,
leverage and volatility risk, correlation risk, credit risk and liquidity and
valuation risk. See "Certain Risk Considerations --

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<PAGE>

Mortgage-Backed Securities" below for a description of these and other risks.

As to any investment in Real Estate Equity Securities, the Adviser's analysis
will focus on determining the degree to which the company involved can achieve
sustainable growth in cash flow and dividend paying capability. The Adviser
believes that the primary determinant of this capability is the economic via-
bility of property markets in which the company operates and that the second-
ary determinant of this capability is the ability of management to add value
through strategic focus and operating expertise. The Portfolio will purchase
Real Estate Equity Securities when, in the judgment of the Adviser, their mar-
ket price does not adequately reflect this potential. In making this determi-
nation, the Adviser will take into account fundamental trends in underlying
property markets as determined by proprietary models, site visits conducted by
individuals knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and stability, the
relationship between asset value and market price of the securities, dividend
payment history, and such other factors which the Adviser may determine from
time to time to be relevant. The Adviser will attempt to purchase for the
Portfolio Real Estate Equity Securities of companies whose underlying portfo-
lios are diversified geographically and by property type.

The Portfolio may invest without limitation in shares of REITs. REITs are
pooled investment vehicles which invest primarily in income producing real es-
tate or real estate related loans or interests. REITs are generally classified
as equity REITs, mortgage REITs or a combination of equity and mortgage REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs invest the majority of their assets in real estate mortgages
and derive income from the collection of interest payments. Similar to invest-
ment companies such as the Portfolio, REITs are not taxed on income distrib-
uted to shareholders provided they comply with several requirements of the In-
ternal Revenue Code of 1986, as amended ("the Code"). The Portfolio will indi-
rectly bear its proportionate share of expenses incurred by REITs in which the
Portfolio invests in addition to the expenses incurred directly by the
Portfolio.

Investment Process for Real Estate Equity Securities. The Portfolio's invest-
ment strategy with respect to Real Estate Equity Securities is based on the
premise that property market fundamentals are the primary determinant of
growth underlying the success of Real Estate Equity Securities. Value added
management will further distinguish the most attractive Real Estate Equity Se-
curities. The Portfolio's research and investment process is designed to iden-
tify those companies with strong property fundamentals and strong management
teams. This process is comprised of real estate market research, specific
property inspection and securities analysis.

The universe of property-owning real estate industry firms consists of approx-
imately 115 companies of sufficient size and quality to merit consideration
for investment by the Portfolio. In implementing the Portfolio's research and
investment process, the Ad-

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viser will avail itself of the consulting services of Koll Investment Manage-
ment, a division of Koll Real Estate Services ("Koll"), a national real estate
investment and property manager that oversees a 1,000 property portfolio. As
consultant to the Adviser, Koll provides access to a proprietary model (Koll's
National Real Estate Index) that analyzes the approximately 9,000 properties
owned by these companies. Using proprietary databases and algorithms, Koll ana-
lyzes local market rent, expense and occupancy trends, market specific transac-
tion pricing, demographic and economic trends, and leading indicators of real
estate supply such as building permits. Over 300 asset-type specific geographic
markets are analyzed and ranked on a relative scale by Koll in compiling its
REIT . Score database. The relative attractiveness of these real estate indus-
try companies is similarly ranked based on the composite rankings of the prop-
erties they own. See "Management of the Fund" for more information about Koll.

Once the universe of real estate industry companies has been distilled through
the market research process, Koll's local market presence provides the capabil-
ity to perform site specific inspections of key properties. This analysis exam-
ines specific property location, condition, and sub-market trends. Koll's use
of locally based real estate professionals provides the Adviser with a window
on the operations of the portfolio companies as information gathered can imme-
diately be put in the context of local market events. Only those companies
whose specific property portfolios reflect the promise of their general markets
will be considered for initial and continued investment by the Portfolio.

The Adviser further screens the universe of real estate industry companies by
using rigorous financial models and by engaging in regular contact with manage-
ment of targeted companies. Each management's strategic plan and ability to ex-
ecute the plan are determined and analyzed. The Adviser will make extensive use
of Koll's network of industry analysts in order to assess trends in tenant in-
dustries. This information is then used to further interpret management's stra-
tegic plans. Financial ratio analysis is used to isolate those companies with
the ability to make value-added acquisitions. This information is combined with
property market trends and used to project future earnings potential.

The Adviser believes that this process will result in a portfolio that will
consist of Real Estate Equity Securities of companies that own assets in the
most desirable markets across the country, diversified geographically and by
property type.

Mortgage-Backed Securities and Associated Risks. Mortgage-Backed Securities in-
clude mortgage pass-through certificates and multiple-class pass-through secu-
rities, such as REMIC pass-through certificates, CMOs and stripped mortgage-
backed securities ("SMBS"), and other types of Mortgage-Backed Securities that
may be available in the future.

Guaranteed Mortgage Pass-Through Securities. The Portfolio may invest in guar-
anteed mortgage pass-through securities which represent participation interests
in pools of residential mortgage loans and are issued by U.S. governmental or
private lenders and guaranteed by the U.S. Government or one of its agencies or
instrumentalities, including but not limited to the Govern-

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<PAGE>

ment National Mortgage Association ("Ginnie Mae"), the Federal National Mort-
gage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac"). Ginnie Mae certificates are guaranteed by the full faith and
credit of the United States Government for timely payment of principal and in-
terest on the certificates. Fannie Mae certificates are guaranteed by Fannie
Mae, a federally chartered and privately-owned corporation for full and timely
payment of principal and interest on the certificates. Freddie Mac certifi-
cates are guaranteed by Freddie Mac, a corporate instrumentality of the United
States Government, for timely payment of interest and the ultimate collection
of all principal of the related mortgage loans.

Multiple-Class Pass-Through Securities and Collateralized Mortgage Obliga-
tions. Mortgage-Backed Securities also include CMOs and REMIC pass-through or
participation certificates, which may be issued by, among others, U.S. Govern-
ment agencies and instrumentalities as well as private lenders. CMOs and REMIC
certificates are issued multiple classes and the principal of and interest on
the mortgage assets may be allocated among the several classes of CMOs or
REMIC certificates in various ways. Each class of CMOs or REMIC certificates,
often referred to as a "tranche," is issued at a specific adjustable or fixed
interest rate and must be fully retired no later than its final distribution
date. Generally, interest is paid or accrues on all classes of CMOs or REMIC
certificates on a monthly basis. The Portfolio will not invest in the lowest
tranche of CMOs and REMIC certificates.

Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac certificates
but also may be collateralized by other mortgage assets such as whole loans or
private mortgage pass-through securities. Debt service on CMOs is provided
from payments of principal and interest on collateral of mortgaged assets and
any reinvestment income thereon.

A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property
and other permitted investments. Investors may purchase "regular" and "residu-
al" interest shares of beneficial interest in REMIC trusts although the Port-
folio does not intend to invest in residual interests.

Risks. Investing in Mortgage-Backed Securities involves certain unique risks
in addition to those generally associated with investing in the real estate
industry in general. These unique risks include the failure of a counterparty
to meet its commitments, adverse interest rate changes and the effects of pre-
payments on mortgage cash flows. See "Certain Risk Considerations" below for a
more complete description of the characteristics of Mortgage-Backed Securities
and associated risks.

Short-Term Investments. The short-term investments in which the Portfolio may
invest are: corporate commercial paper and other short-term commercial obliga-
tions, in each case rated or issued by companies with similar securities out-
standing that are rated Prime-1, Aa or better by Moody's Investors Service,
Inc. ("Moody's") or A-1, AA or better by Standard & Poor's Ratings Services
("S&P"); obligations (including certificates of deposit, time deposits, demand
deposits and bankers' acceptances) of banks with securities outstanding that
are rated Prime-1,

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Aa or better by Moody's or A-1, AA or better by S&P; and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities with
remaining maturities not exceeding 18 months.

The Portfolio may invest in debt securities rated BBB or higher by S&P or Baa
or higher by Moody's or, if not so rated, of equivalent credit quality as de-
termined by the Adviser. Securities rated BBB by S&P or Baa by Moody's are
considered to have speculative characteristics. Sustained periods of deterio-
rating 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 is downgraded below BBB or Baa or, if unrated,
determined by the Adviser to have undergone similar credit quality deteriora-
tion, subsequent to purchase by the Portfolio.

The Portfolio may also engage in the following investment practices to the ex-
tent indicated: (i) invest up to 10% of its net assets in rights or warrants;
(ii) invest up to 15% of its net assets in the convertible securities of com-
panies whose common stocks are eligible for purchase by the Portfolio; (iii)
lend portfolio securities on a short or long term basis equal in value to not
more than 25% of total assets; (iv) enter into repurchase agreements of up to
seven days' duration; (v) enter into forward commitment transactions as long
as the Portfolio's aggregate commitments under such transactions are not more
than 30% of the Portfolio's total assets; (vi) enter into standby commitment
agreements; (vii) make short sales of securities or maintain a short position
but only if at all times when a short position is open not more than 25% of
the Portfolio's net assets (taken at market value) is held as collateral or
placed in a segregated account for such sales; and (viii) invest in illiquid
securities unless, as a result, more than 15% of its net assets would be so
invested.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

Convertible Securities. Prior to 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 price of a convertible security
will normally vary with changes in the price of the underlying stock, although
the higher yield tends to make the convertible security less volatile than the
underlying common stock. As with debt securities, the market value of convert-
ible securities tends to decline as interest rates increase and increase as
interest rates decline. While convertible securities generally offer lower in-
terest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price
of the underlying common stock.

Rights and Warrants. The Portfolio will invest in rights or warrants only if
the underlying equity securities are themselves deemed appropriate by the Ad-
viser for inclusion in the Portfolio's portfolio. Rights and warrants entitle
the holder to buy equity securities at a specific price for a specific period
of time. Rights are similar to warrants except that they have a substantially
shorter duration. Rights and warrants may be consid-

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ered 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 under-
lying securities nor do they represent any rights in the assets of the issuing
company. The value of a right or warrant does not necessarily change with the
value of the underlying security, although the value of a right or warrant may
decline because of a decrease in the value of the underlying security, the
passage of time or a change in perception as to the potential of the under-
lying security, or any combination thereof. If the market price of the under-
lying security is below the exercise price set forth in the warrant on the ex-
piration date, the warrant will expire worthless.

Short Sales. A short sale is a transaction in which the Portfolio sells a se-
curity it does not own but has borrowed in anticipation that the market price
of that security will decline. When the Portfolio makes a short sale of a se-
curity that it does not own, it must borrow from a broker-dealer the security
sold short and deliver the security to the broker-dealer upon conclusion of
the short sale. The Portfolio may be required to pay a fee to borrow particu-
lar securities and is often obligated to pay over any payments received on
such borrowed securities. The Portfolio's obligation to replace the borrowed
security will be secured by collateral deposited with a broker-dealer quali-
fied as a custodian and will consist of cash or securities. Depending on the
arrangements the Portfolio makes with the broker-dealer from which it borrowed
the security regarding remittance of any payments received by the Portfolio on
such security, the Portfolio may not receive any payments (including interest)
on its collateral deposited with the broker-dealer.

If the price of the security sold short increases between the time of the
short sale and the time the Portfolio replaces the borrowed security, the
Portfolio will incur a loss; conversely, if the price declines, the Portfolio
will realize a short-term capital gain. Any gain will be decreased, and any
loss increased, by the transaction costs described above. Although the Portfo-
lio's gain is limited to the price at which it sold the security short, its
potential loss is theoretically unlimited. In order to defer realization of
gain or loss for U.S. federal income tax purposes, the Portfolio may also make
short sales "against the box." In this type of short sale, at the time of the
sale, the Portfolio owns or has the immediate and unconditional right to ac-
quire at no additional cost the identical security.

The Portfolio may not make a short sale unless at all times when a short posi-
tion is open not more than 25% of the Portfolio's net assets (taken at market
value) is held as collateral for such sales at any one time. Certain special
federal income tax considerations may apply to short sales entered into by the
Portfolio. See "Dividends, Distributions and Taxes."

CERTAIN RISK CONSIDERATIONS

Risk Factors Associated with the Real Estate Industry. Although the Portfolio
does not invest directly in real estate, it does invest primarily in Real Es-
tate Equity Securities and does have a policy of concentration of its invest-
ments in the real estate industry. Therefore, an investment in the Portfolio
is subject to certain risks associated with the direct ownership of real es-
tate and with the real estate industry in general. These risks include, among
others: possible declines in

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the value of real estate; risks related to general and local economic condi-
tions; possible lack of availability of mortgage funds; overbuilding; extended
vacancies of properties; increases in competition, property taxes and operating
expenses; changes in zoning laws; costs resulting from the clean-up of, and li-
ability to third parties for damages resulting from, environmental problems;
casualty or condemnation losses; uninsured damages from floods, earthquakes or
other natural disasters; limitations on and variations in rents; and changes in
interest rates. To the extent that assets underlying the Portfolio's invest-
ments are concentrated geographically, by property type or in certain other re-
spects, the Portfolio may be subject to certain of the foregoing risks to
greater extent.

In addition, if the Portfolio receives rental income or income from the dispo-
sition of real property acquired as a result of a default on securities the
Portfolio owns, the receipt of such income may adversely affect the Portfolio's
ability to retain its tax status as a regulated investment company. See "Divi-
dends, Distributions and Taxes." Investments by the Portfolio in securities of
companies providing mortgage servicing will be subject to the risks associated
with refinancings and their impact on servicing rights.

REITS. Investing in REITs involves certain unique risks in addition to those
risks associated with investing in the real estate industry in general. Equity
REITs may be affected by changes in the value of the underlying property owned
by the REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs may be affected by the quality of any credit extended. REITs
are dependent upon management skills, are not diversified, are subject to heavy
cash flow dependency, default by borrowers and self-liquidation. REITs are also
subject to the possibilities of failing to qualify for tax free pass-through of
income under the Code and failing to maintain their exemptions from registra-
tion under the Act.

REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate obliga-
tions can be expected to rise. Conversely, when interest rates rise, the value
of a REIT's investment in fixed rate obligations can be expected to decline. In
contrast, as interest rates on adjustable rate mortgage loans are reset period-
ically, yields on a REIT's investments in such loans will gradually align them-
selves to reflect changes in market interest rates, causing the value of such
investments to fluctuate less dramatically in response to interest rate fluctu-
ations than would investments in fixed rate obligations.

Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P Index of 500 Common Stocks.

Mortgage-Backed Securities. As discussed above, investing in Mortgage-Backed
Securities involves certain unique risks in addition

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to those risks associated with investment in
the real estate industry in general. These risks include the failure of a
counterparty to meet its commitments, adverse interest rate changes and the ef-
fects of prepayments on mortgage cash flows. When interest rates decline, the
value of an investment in fixed rate obligations can be expected to rise. Con-
versely, when interest rates rise, the value of an investment in fixed rate ob-
ligations can be expected to decline. In contrast, as interest rates on adjust-
able rate mortgage loans are reset periodically, yields on investments in such
loans will gradually align themselves to reflect changes in market interest
rates, causing the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed rate ob-
ligations.

Further, the yield characteristics of Mortgage-Backed Securities, such as those
in which the Portfolio may invest, differ from those of traditional fixed in-
come securities. The major differences typically include more frequent interest
and principal payments (usually monthly), the adjustability of interest rates,
and the possibility that prepayments of principal may be made substantially
earlier than their final distribution dates.

Prepayment rates are influenced by changes in current interest rates and a va-
riety of economic, geographic, social and other factors, and cannot be pre-
dicted with certainty. Both adjustable rate mortgage loans and fixed rate mort-
gage loans may be subject to a greater rate of principal prepayments in a de-
clining interest rate environment and to a lesser rate of principal prepayments
in an increasing interest rate environment. Early payment associated with Mort-
gage-Backed Securities causes these securities to experience significantly
greater price and yield volatility than that experienced by traditional fixed-
income securities. Under certain interest rate and prepayment rate scenarios,
the Portfolio may fail to recoup fully its investment in Mortgage-Backed Secu-
rities notwithstanding any direct or indirect governmental or agency guarantee.
When the Portfolio reinvests amounts representing payments and unscheduled pre-
payments of principal, it may receive a rate of interest that is lower than the
rate on existing adjustable rate mortgage pass-through securities. Thus, Mort-
gage-Backed Securities, and adjustable rate mortgage pass-through securities in
particular, may be less effective than other types of U.S. Government securi-
ties as a means of "locking in" interest rates.

Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps
Credit Rating Co. ("Duff & Phelps") and Fitch Investors Service, Inc. ("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 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 de-
grees of difference in credit risk of securities within each rating category.

OTHER INVESTMENT POLICIES AND TECHNIQUES

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

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REPURCHASE AGREEMENTS

Any Portfolio, except the Total Return Portfolio, Technology Portfolio and the
Quasar Portfolio may enter into agreements pertaining to U.S. Government Secu-
rities or, in the case of the North American Government Income Portfolio, the
Global Dollar Government Portfolio, the Utility Income Portfolio, the Conser-
vative Investors Portfolio, the Growth Investors Portfolio and the Growth
Portfolio, pertaining to the types of securities in which it invests, with
member banks of the Federal Reserve System or "primary 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 Company, the Fund's Custodian, in
such securities. The Real Estate Investment Portfolio may enter into repur-
chase agreements pertaining to U.S. Government Securities with member banks of
the Federal Reserve System or primary dealers. There is no percentage restric-
tion on the ability of the Global Dollar Government Portfolio, the North Amer-
ican Government Income Portfolio, the Utility Income Portfolio, the Worldwide
Privatization Portfolio and the Real Estate Investment Portfolio to enter into
repurchase agreements. The North American Government Income Portfolio, the
Utility Income Portfolio and the Real Estate Investment Portfolio currently
intend to enter into repurchase agreements only with the Fund's Custodian 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 agreed-upon interest rate. Such agreements permit
the Portfolio to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investment of a longer-term nature. Each Portfolio
requires 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
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 es-
tablished 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.
Government/High Grade Securities Portfolio, the High-Yield Portfolio and the
Total Return Portfolio may each 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 spec-
ified security on or before a fixed date, at a predetermined price. A Portfo-
lio 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 ac-

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quire the optioned securities at no additional cost. None of the above listed
Portfolios may write covered call options 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 in-
creases 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 asset
value, the North American Government Income Portfolio, the Global Dollar Gov-
ernment 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 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 specified
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 under-
lying 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 Custodian) 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 exer-
cise price of the put held is equal to or greater than the exercise price of
the put written. The premium paid by the pur chaser 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

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<PAGE>

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 market value of the underlying security. If this occurred, the option
could be exercised and the underlying security would then be sold by the op-
tion holder 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. If this occurred, the option
could be exercised and the underlying security would then be sold by the Port-
folio at a lower price than its current market value. These risks could be re-
duced by entering into a closing transaction. See Appendix D to the Statement
of Additional Information. A Portfolio retains the premium received from writ-
ing 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
monitoring the creditworthiness of such entities. Options purchased or written
by a Portfolio in negotiated transactions are illiquid and it may not be pos-
sible for the Portfolio to effect a closing transaction at a time when the Ad-
viser believes it would be advantageous to do so. See "Illiquid Securities."
See Appendix D to the Statement of Additional Information for a further dis-
cussion 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

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<PAGE>

of securities in which it may invest. An option on a securities index is simi-
lar 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 either Portfolio's purchasing
and selling of options on securities indices.

LOANS OF PORTFOLIO SECURITIES

Each Portfolio of the Fund, except the Money Market Portfolio and the Quasar
Portfolio, may make secured loans of its portfolio securities to brokers,
dealers and financial institutions provided that cash, U.S. Government securi-
ties, 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 depos-
ited 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 (25% in the case of the Worldwide
Privatization Portfolio and the Real Estate Investment 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 Portfo-
lio) 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 Portfo-
lio, the Worldwide Privatization Portfolio and the Quasar Portfolio with re-
spect to foreign securities, see above. Each of the other Portfolios, except
the U.S. Government/High Grade Securities Portfolio and the Real Estate In-
vestment Portfolio, may invest in listed and unlisted foreign securities sub-
ject 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 Portfolios of
the Fund may

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<PAGE>

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 total assets in
the equity securities of American companies, the Growth and Income Portfolio
intends to restrict its investment in foreign securities to issues of high
quality and the Money Market Portfolio is limited to investing in those for-
eign securities described above in "Investment Objectives and Policies --
Money Market Portfolio." The Technology Portfolio will not purchase a foreign
security if such purchase at the time thereof would cause 10% or more of the
value of that Portfolio's total assets to be invested in foreign securities.
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, except the Technology Portfo-
lio and The U.S. Government/High Grade Securities Portfolio, may enter into
forward foreign currency exchange contracts in order to protect against uncer-
tainty in the level of future foreign exchange rates.

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 affected by re-
statements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Securities of some foreign issuers are

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<PAGE>

less liquid and more volatile than securities of comparable domestic 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. Invest-
ments in foreign countries could be affected by other factors not present in
the United States, including expropriation, confiscatory taxation, lack of
uniform accounting and auditing standards and potential difficulties in en-
forcing 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. As of October 27, 1995, the TOPIX had declined by ap-
proximately 11% from the end of 1994. 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 markets. 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. In June, 1995, the two countries agreed in principle to
increase Japanese imports of American automobiles and automotive parts. Never-
theless, it is expected that the continuing friction between the U.S. and Ja-
pan with respect to trade issues will thus continue for the foreseeable fu-
ture.

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-
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.

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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, the
Worldwide Privatization Portfolio and the Real Estate Investment 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. How- ever, 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 receive or deliver a security subject to a
forward commitment prior to the settlement date of the transaction, it may in-
cur 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 in-
vest money at favorable rates or to dispose of securities at favorable prices.

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STANDBY COMMITMENT AGREEMENTS

The Global Dollar Government Portfolio, Utility Income Portfolio, Worldwide
Privatization Portfolio and the Real Estate Investment Portfolio may from time
to time enter into standby commitment agreements. Such agreements commit a
Portfolio, for a stated period of time, to purchase a stated amount of a secu-
rity 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. Except for the
Real Estate Investment Portfolio, none of the Portfolios will enter into a
standby commitment with a remaining term in excess of 45 days. Each Portfolio
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
Portfolio, 25% in the case of the Real Estate Investment Portfolio, and 20%, in
the case of the Utility Income Portfolio, of their respective 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 American Government Income
Portfolio and the Utility Income Portfolio. In addition, (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 uti-

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lize futures contracts 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 "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 main-

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tain in such account cash not available for investment or U.S. Government Se-
curities 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
Portfolio 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 incurring of a contractual obligation to acquire the secu-
rities 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 deliv-
ery 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.

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 Portfo-
lio.

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

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of securities which the Portfolio intends to purchase at a later date. See Ap-
pendix C to the Fund's Statement of Additional Information for further discus-
sion of the use, 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 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 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 each 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

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cross-rate fluctuations, the Portfolio may enter into various hedging transac-
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

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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 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 pur-

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poses of this limitation. The Adviser will monitor the liquidity of such secu-
rities 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 share some of the same characteristics as lower-rated securities, as de-
scribed below. Sustained periods of deteriorating economic conditions or of
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.

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 than 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

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<PAGE>

be more susceptible to real or perceived adverse economic conditions than in-
vestment grade securities, although the market values of securities rated be-
low 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 characteristics.

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.

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.

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.

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NON-RATED SECURITIES

Non-rated securities will also be considered for investment by the High-Yield
Portfolio, North American Government Income Portfolio and Global Dollar Gov-
ernment 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 objec-
tive and policies.

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 regulated investment company, the North American Government Income Portfolio
will be required to diversify its portfolio of Canadian Government Securities,
Mexican Government Securities and other foreign government securities in a
manner which would not be necessary if the Portfolio had made similar invest-
ments 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 sav-
ings deposits of banks having total assets of more than $1 billion and which
are members of the Federal Deposit 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.

For temporary defensive purposes, the Global Dollar Government Portfolio may

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<PAGE>

vary from its investment policies during periods in which economic or political
conditions warrant. Under such circumstances, the Portfolio may invest without
limit in (i) Government Securities and (ii) the following U.S. dollar-denomi-
nated investments: (a) indebtedness rated Aa or better by Moody's or AA or bet-
ter 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 bet-
ter by Moody's or, if not so rated, issued by companies which have an outstand-
ing 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 total assets, temporarily invest funds awaiting reinvestment or held for
reserves for dividends and other distributions to shareholders in such U.S.
dollar-denominated 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 instrumen-
talities ("U.S. Government Securities"), bank deposits, money market
instruments, short-term (for this purpose, securities with a remaining maturity
of one year or less) debt securities, including notes and bonds, and short-term
foreign currency denominated 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 cur-
rencies in which the Portfolio 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.

For temporary defensive purposes, the Real Estate Investment Portfolio may in-
crease without limit its position in short-term, liquid, high-grade debt secu-
rities, which may include securities issued or guaranteed by the U.S. Govern-
ment, its agencies or instrumentalities ("U.S. Government securities"), bank
deposits, money market instruments, short-term debt securities, including notes
and bonds. For a description of the types of securities in which the Portfolio
may invest while in a temporary defensive position, see the Statement of Addi-
tional Information.

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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.

Because the Money Market Portfolio invests in securities with short maturi-
ties, 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 primarily with issuers, underwriters or major dealers in money market
investments acting as principals at net prices in which the Fund incurs little
or no brokerage 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, the Interna-
tional Portfolio and the Technology 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 period of one year. A 100% turnover rate is
greater than that of most other investment companies, including those which
emphasize capital appreciation as a basic policy, and may result in corre-
spondingly 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 turnover rate of the Growth and Income
Portfolio may be in excess of 50% but less than 100%. See "Dividends, Distri-
butions 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
future 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 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 turn-
over 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 re-
placed 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."

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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 periods
of fluctuating interest rates, or for other reasons. Such trading will increase
each Portfolio's rate of turnover and the incidence of short-term capital 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 securities in the
portfolio are replaced five times in a period of one year. The Adviser antici-
pates that the annual turnover in the Global Dollar Government Portfolio will
not be in excess of 300% (excluding turnover of securities having 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 securities in the Portfolio
are replaced four times in a period of one year. Management anticipates that
the annual turnover in the Utility Income Portfolio will not be in excess of
200%. An annual turnover rate of 200% occurs, for example, when all the securi-
ties in the Portfolio are replaced twice in a period 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 "Dividends, Distributions and Taxes") and to
hold its securities for six months or longer. However, it is also the Portfo-
lio'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 were
replaced twice within a period of one year.

Generally, the Quasar Portfolio's policy with respect to turnover of securities
held in the Portfolio is to purchase securities for investment purposes and not
for the purpose of realizing short-term trading profits or for the purpose of
exercising control. When circumstances warrant, however, securities may be sold
without regard to the length of time held. The Adviser anticipates that the
Portfolio's annual rate of portfolio turnover generally will not be in excess
of 200%.

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The Adviser anticipates that the Real Estate Investment Portfolio's annual
rate of turnover will not exceed 100%. A 100% annual turnover rate would occur
if all of the securities in the Portfolio's portfolio are replaced once in a
period of one year. A higher rate of portfolio turnover involves correspond-
ingly greater brokerage and other expenses than a lower rate, which 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."

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 described 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

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Growth Portfolio, as described above; (vi) invest in illiquid securities if
immediately after such investment more than 10% of the Portfolio's total as-
sets (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 fi-
nancing such as that associated with leveraged buyout transactions, and (ii)
participation interests in loans to domestic companies, or to foreign compa-
nies 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
Portfolio, 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 assets (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 securities if immediately after such investment more
than 10% of the Portfolio's total assets (taken at market value) would be in-
vested 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 as-
sets in securities of companies engaged principally in any one industry except
that this restriction does not apply to U.S. Government Securities; (ii) bor-
row money, except (a) the North American Government Income Portfolio and the
Global Dollar Government Portfolio may, in accordance with provisions of the
Act, borrow money from banks for 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) 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 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.

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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 as the Portfolio notifies its
shareholders of any decision by the Board of Directors to permit or cease to
permit the Portfolio to invest more than 25% of its total assets in those se-
curities, 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 de-
termination; (ii) borrow money except from banks for temporary or emer-

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gency purposes, including the meeting of redemption requests which might re-
quire 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 encumber its as-
sets, except to secure permitted borrowings.

With respect to the Technology Portfolio, these fundamental policies provide
that the Portfolio may not: (i) with respect to 75% of its total assets, have
such assets represented by other than: (a) cash and cash items, (b) U.S. Gov-
ernment securities, or (c) securities of any one issuer (other than the U.S.
Government and its agencies or instrumentalities) not greater in value than 5%
of the Technology Portfolio's total assets, and not more than 10% of the out-
standing voting securities of such issuer; (ii) purchase the securities of any
one issuer, other than the U.S. Government and its agencies or instrumentali-
ties, if as a result (a) the value of the holdings of the Technology Portfolio
in the securities of such issuer exceeds 25% of its total assets, or (b) the
Technology Portfolio owns more than 25% of the outstanding securities of any
one class of securities of such issuer; (iii) concentrate its investments in
any one industry, but the Technology Portfolio has reserved the right to in-
vest up to 25% of its total assets in a particular industry; and (iv) invest
in the securities of any issuer which has a record of less than three years of
continuous operation (including the operation of any predecessor) if such pur-
chase would cause 10% or more of its total assets to be invested in the secu-
rities of such issuers.

With respect to the Quasar Portfolio these fundamental policies provide that
the Portfolio may not: (i) purchase the securities of any one issuer, other
than the U.S. Government or any of its agencies or instrumentalities, if as a
result more than 5% of its total assets would be invested in such issuer or
the Portfolio would own more than 10% of the outstanding voting securities of
such issuer, except that up to 25% of its total asset may be invested without
regard to these 5% and 10% limitations; (ii) invest more than 25% of its total
assets in any particular industry; and (iii) borrow money except for temporary
or emergency purposes in an amount not exceeding 5% of its total assets at the
time the borrowing is made.

With respect to the Real Estate Investment Portfolio these fundamental poli-
cies provide that the Portfolio may not: (i) with respect to 75% of its total
assets, have such assets represented by other than: (a) cash and cash items,
(b) U.S. Government securities, or (c) securities of any one issuer (other
than the U.S. Government and its agencies or instrumentalities) not greater in
value than 5% of the Portfolio's total assets, and not more than 10% of the
outstanding voting securities of such issuer; (ii) purchase the securities of
any one issuer, other than the U.S. Government and its agencies or instrumen-
talities, if as a result (a) the value of the holdings of the Portfolio in the
securities of such issuer exceeds 25% of its total assets, or (b) the Portfo-
lio owns more than

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25% of the outstanding securities of any one class of securities of such issu-
er; (iii) 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 real estate industry, in which the Portfolio will invest at least 25% or
more of its total assets, except that this restriction does not apply to U.S.
Government securities; (iv) purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real estate or inter-
ests therein, including Real Estate Equity Securities; or (v) borrow money ex-
cept for temporary or emergency purposes or to meet redemption requests, in an
amount not exceeding 5% of the value of its total assets at the time the bor-
rowing is made.

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 and Chief
Operating Officer, the Chief Financial Officer and a Director of Alliance Cap-
ital Management Corporation ("ACMC"), the sole general partner of the Adviser,
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. He is
currently an independent consultant.

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. is an investment adviser and an independent consultant.
He was formerly a Senior Manager of Barrett Associates, Inc., a registered in-
vestment 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

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1991. He is president and Chief Executive Officer of Wenonah Development Com-
pany (investments) and a Director of Placer Dome, Inc. (mining).

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 prior to 1991. The employee of the Adviser principally respon-
sible for the Premier Growth Portfolio's investment program since its incep-
tion is Alfred Harrison, who is Vice Chairman of ACMC, with which he has been
associated since prior to 1991. The employee of the Adviser principally re-
sponsible 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 1991. The employee of the Adviser principally
responsible for the U.S. Government/High Grade Securities Portfolio's invest-
ment program since its inception 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 1991. The em-
ployee 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 1991. The
employee of the Adviser principally responsible for the International Portfo-
lio's investment program since its inception is Kelly Morgan, a Vice President
of ACMC with which she has been associated since prior to 1991. The employee
of the Adviser principally responsible for the Short-Term Multi-Market Portfo-
lio'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 1991.
The person principally 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 Ex-
ecutive Vice President of ACMC, with which he has been associated since prior
to 1991. The employee of the Adviser principally responsible for the invest-
ment program since December 1994 of the Utility Income Portfolio is Gregory
Allison, an Equity Analyst of ACMC. Prior to joining the Adviser in December
1994, Mr. Allison was an equity analyst at Gabelli & Company Inc. since 1993
and prior thereto he was a institutional bond salesman at Dean Witter since
prior to 1991. The employee of the Adviser principally responsible for the in-
vestment program since February 1996 of the Conservative Investors Portfolio
and Growth Invest-

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ors Portfolio is Robert G. Heisterberg, who is Senior Vice President of the Ad-
viser, with which he has been associated since prior to 1991. 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 1991. 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 associ-
ated since prior to 1991. The employees of the Adviser principally responsible
for the investment program since inception of the Technology Portfolio are Pe-
ter Anastos and Gerald T. Malone. Mr. Anastos has been associated with the Ad-
viser since prior to 1991 and Mr. Malone has been associated with the Adviser
since 1992. Prior thereto, Mr. Malone was associated with College Retirement
Equities Fund since prior to 1991. The employees of the Adviser principally re-
sponsible for the Quasar Portfolio's investment program since its inception are
Alden M. Stewart and Randall E. Haase. Mr. Stewart and Mr. Haase have each been
associated with the Adviser since 1993. Prior hereto, Mr. Stewart and Mr. Haase
each was associated with Equitable Capital Management Corporation since prior
to 1991. The employee of the Adviser principally responsible for the Real Es-
tate Investment Portfolio's investment program since its inception is Daniel G.
Pine. Mr. Pine, who is a Senior Vice President and Research Analyst of ACMC,
with which he has been associated since May of 1996. Prior thereto, Mr. Pine
was Senior Vice President of Desai Capital Management since prior to 1991.

The Adviser has retained under a subadvisory agreement a sub-adviser, AIGAM In-
ternational 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 Portfo-
lio. In 1994, the Sub-Adviser changed its name from Dempsey & Company Interna-
tional Limited, which was founded in 1988.

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.

In providing advisory services to the Real Estate Investment Portfolio and
other clients investing in real estate securities, the Adviser has access to
the research services of Koll Investment Management, the Investment Management
Division of Koll, which acts as a consultant to the Adviser with respect to the
real estate market. As a consultant, Koll provides to the Adviser, at the
Adviser's expense, such in-depth information regarding the real-estate market,
the factors influencing regional valuations and analysis of recent transactions
in office, retail, industrial and multi-family properties as the Adviser shall
from time to time request. Koll will not furnish investment advice or

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<PAGE>

make recommendations regarding the purchase or sale of securities by the Port-
folio nor will it be responsible for making investment decisions involving
Portfolio assets.

Koll is one of the largest fee-based property management firms in the United
States as well as one of the largest publishers of real estate research, with
approximately 2,600 employees nationwide. Koll will provide the Adviser with
exclusive access to its REIT . Score model which ranks approximately 115 REITs
based on the relative attractiveness of the property markets in which they own
real estate. This model scores the approximately 9,000 individual properties
owned by these companies. REIT . Score is in turn based on Koll's National
Real Estate Index which gathers, analyzes and publishes targeted research data
for the 65 largest U.S. real estate markets based on a variety of public- and
private-sector sources as well as Koll's proprietary database of 45,000 com-
mercial property transactions representing over $250 billion of investment
property and over 2,000 tracked properties which report rent and expense data
quarterly. Koll has previously provided access to its REIT . Score model re-
sults primarily to the institutional market through subscriptions. The model
is no longer provided to any research publications, and the Portfolio and an-
other mutual fund managed by the Adviser are currently the only mutual funds
available to retail investors that have access to Koll's REIT . Score model.

The Adviser is a leading international investment manager supervising client
accounts with assets as of September 30, 1996 totaling more than $173 billion
(of which approximately $59 billion represented the assets of investment com-
panies). The Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 52 registered investment companies managed by the Ad-
viser comprising 110 separate investment portfolios currently have over two
million shareholders. As of September 30, 1996, the Adviser was retained as an
investment 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 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 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 Ad-
viser or its affiliates also furnish the Fund, without charge, management su-
pervision and assistance and office facilities and provide persons satisfac-
tory 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:

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<PAGE>

<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%
Technology Portfolio 1.000%
Quasar Portfolio 1.000%
Real Estate Investment
Portfolio .900%
</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 U.S. Government/High
Grade Securities Portfolio, the Total Return Portfolio, the International Port-
folio, the North American Government Income Portfolio, the Utility Income Port-
folio, the Global Dollar Government Portfolio, the Conservative Investors Port-
folio, the Growth Investors Portfolio, the Worldwide Privatization Portfolio
and the Global Bond Portfolio. For the year ended December 31, 1995 the Adviser
received an advisory fee from each of the Money Market Portfolio, the Premier
Growth Portfolio, the Growth and Income Portfolio, the Short-Term Multi-Market
Portfolio and the Growth Portfolio so that each such Portfolio paid an advisory
fee equal to .38%, .76%, .63%, .20% and .43% of each such Portfolio's average
net assets, respectively.

For the year ended December 31, 1995, 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 Pre-
mier Growth Portfolio, the International Portfolio, the Utility Income Portfo-
lio, the Global Dollar Government Portfolio, the Conservative Investors Portfo-
lio, the Growth Investors Portfolio, the Growth Portfolio, the Worldwide
Privatization Portfolio, the Technology Portfolio, the Quasar Portfolio and the
Real Estate Investment Portfolio are higher than those paid by most other in-
vestment 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 Agree-
ment 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, ac-
counting and other office costs, (e) costs of printing the Fund's prospectuses
and shareholder reports, (f) cost

109
<PAGE>

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 reg-
ulatory authorities, and (j) cost of certain personnel 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, 1995, the ordinary operating expenses of the
Growth and Income Portfolio were .79%, the Short-Term Multi-Market Portfolio
were .95%, 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
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.

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

110
<PAGE>

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 weekday 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 (in the case of the Money Market Portfolio, am-
ortized cost value is used) determined on the basis of market quotations or,
if such quotations are not readily available, such other methods as the Direc-
tors 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. In the case of the Money Market Portfolio, per share net as-
set 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. For information regarding how to redeem shares in the Fund please see
your insurance company separate account prospectus.

- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

The Money Market Portfolio declares income dividends each business day at 4:00
p.m. Eastern time and such dividends are paid monthly via automatic investment
in additional full and fractional shares in each shareholders' account. As
such additional shares are entitled to dividends, a compounding growth of in-
come occurs. Net income consists of all accrued interest income on Portfolio
assets less the Portfolio's ex-

111
<PAGE>

penses (including accrued expenses 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 of the other Portfolios will declare and distribute dividends from net in-
vestment income and will distribute its net capital gains, if any, at least an-
nually. Such income and capital gains distributions will be made in shares of
such Portfolios.

The Fund will distribute the return of capital it receives from the REITs in
which the Fund invests. The REITs pay distributions based on cash flow, without
regard to depreciation and amortization. As a result, a portion of the distri-
butions paid to the Fund and subsequently distributed to shareholders is a re-
turn of capital. The final determination of the amount of the Fund's return of
capital distributions for the period will be made after the end of each calen-
dar year.

Each Portfolio of the Fund qualified and intends to continue to qualify to be
taxed as a regulated investment company under Subchapter M of the Internal Rev-
enue 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 cap-
ital 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 insurance contract. Distributions of net in-
vestment income and net short-term capital gain will be treated as ordinary in-
come 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 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 af-
forded holders of annuities or life insurance policies under the Code. The De-
partment 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 appli-
cable diversification requirements. Under the Regulations, if a regulated in-
vestment company satisfies certain conditions, a segregated asset account own-
ing 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 com-
pany. 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 insur-
ance 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.

112
<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
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 In-
come Portfolio and the Global Dollar Government Portfolio occur primarily with
issuers, underwriters or major dealers acting as principals, while transactions
for the Premier Growth Portfolio, the Growth and Income Portfolio, the Interna-
tional Portfolio, the Growth Portfolio, the Worldwide Privatization Portfolio,
the Technology Portfolio and the Quasar Portfolio are normally effected by bro-
kers, and transactions for the Conservative Investors, the Growth Investors,
Total Return Portfolio and the Real Estate Investment Portfolio are normally
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 transac-
tions with the Fund.

The Fund may from time to time place orders for the purchase or sale of securi-
ties on an agency basis with Donaldson, Lufkin & Jenrette Securities Corpora-
tion, an affiliate of the Adviser, and with brokers which may have their trans-
actions cleared or settled, or both, by the Pershing Division of Donaldson,
Lufkin and Jenrette Securities Corporation, for which Donaldson, Lufkin and
Jenrette Securities Corporation may receive a portion of the brokerage commis-
sion. 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 Corpo-
ration 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 10,000,000,000 shares of
Common Stock having a par value of $.001 per share,

113
<PAGE>

which may, without shareholder approval, be divided into an unlimited number
of series. Such shares are currently divided into 19 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 election of Directors, that affect all Portfolios in sub-
stantially the same manner. Maryland law does not require a registered
investment company to hold annual meetings of shareholders and it is antici-
pated that shareholder meetings will be 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 liq-
uidation of the Fund, are entitled to receive the net assets of that Portfo-
lio. Shareholders have no preference, pre-emptive or conversion rights. In ac-
cordance with current law, it is anticipated that an insurance company issuing
a variable annuity contract or variable life insurance policy that partici-
pates in the Fund will request voting instructions from contract or policy-
holders and will vote shares in the separate 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.

PERFORMANCE INFORMATION

From time to time the Fund advertises its "total return." The Fund's "total
return" is its average annual compounded total return for its most recently
completed one, five, and ten-year periods (or the period since the Fund's in-
ception). The Fund's total return for such a period is computed by finding,
through the use of a formula prescribed by the Commission, the average annual
compounded rate of return over the 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 distri-
butions paid on shares of the Fund are assumed to have been reinvested when
paid and the maximum sales charge applicable to purchases of Fund shares is
assumed to have been paid.

The Fund's total return is not fixed and will fluctuate in response to pre-
vailing market conditions or as a function of the type and quality of the se-
curities in the Fund's portfolio and the Fund's expenses. Total return infor-
mation is useful in reviewing the Fund's performance but such information may
not

114
<PAGE>

provide a basis for comparison with bank deposits or other investments which
pay a fixed yield for a stated period of time. An investor's principal in-
vested in the Fund is not fixed and will fluctuate in response to prevailing
market conditions.

Advertisements quoting performance rankings of the Fund as measured by finan-
cial publications or by independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc., and advertisements presenting the his-
torical record of payments of income dividends by the Fund may also from time
to time be sent to investors or placed in newspapers, magazines such as the
Wall Street Journal, The New York Times, Barrons, Investor's Daily, Money Mag-
azine, Changing Times, Business Week and Forbes or other media on behalf of
the Fund.

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.

115
<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 modi-
fier 1 indicates that the security ranks in the higher end of its generic rat-
ing category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.

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 al-
though 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 pre-
dominantly speculative characteristics with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation and CCC the
highest. While such debt will likely

A-2
<PAGE>

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 credit quality. Risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is
modest, but may vary slightly from time to time because of economic condi-
tions.

A+, A, A-: Protection factors are average but adequate. However, risk fac-
tors are more variable and greater in periods of economic stress.

BBB+, BBB, BBB-: Below average protection factors but still considered suf-
ficient for prudent investment. Considerable variability in risk during eco-
nomic cycles.

BB+, BB, BB-: Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate ac-
cording to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.

B+, B, B-: Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely ac-
cording to economic cycles, industry conditions and/or company fortunes. Po-
tential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.

CCC: Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal or interest. Protection factors are narrow
and risk can be substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.

DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.

A-3
<PAGE>

FITCH INVESTORS SERVICE, INC.

AAA: Bonds considered to be investment grade and of the highest credit qual-
ity. 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 de-
velopments, 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
quality. The obligor's ability to pay interest and repay principal is consid-
ered 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.
However, business and financial alternatives can be identified which could as-
sist 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 through-
out 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 recovery value

A-4
<PAGE>

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

This is filed pursuant to Rule 497(c).
File Nos. 33-18647 and 811-5398.

<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
December 30, 1996
_________________________________________________________________

This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the Fund's current Prospectus dated December 30, 1996. 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............................ 30
Total Return Portfolio.......................... 38
International Portfolio......................... 40
Short-Term Multi-Market Portfolio
and Global Bond Portfolio..................... 46
North American Government Income
Portfolio..................................... 50
Global Dollar Government Portfolio.............. 90
Utility Income Portfolio........................ 103
Conservative Investors Portfolio,
Growth Investors Portfolio and
Growth Portfolio.............................. 110
Worldwide Privatization Portfolio............... 139
Technology Portfolio............................ 151
Quasar Portfolio................................ 160
Real Estate Investment Portfolio................ 167
Other Investment Policies....................... 175
Management of the Fund............................... 179
Purchase and Redemption of Shares.................... 190
Net Asset Value...................................... 190

<PAGE>

Portfolio Transactions............................... 192
Dividends, Distributions and Taxes................... 193
General Information.................................. 195
Report of Independent Accountants
and Financial Statements........................ 202

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
nineteen 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
for investors whose principal objective is assured income or

<PAGE>

conservation of capital. Ordinarily, the annual portfolio
turnover rate may be in excess of 100%. For the fiscal years
ended December 31, 1994 and December 31, 1995, the portfolio
turnover rates were 38% and 97%, 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
the United States, and (ii) the equity securities of which are
traded principally in the United States securities markets.

<PAGE>

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

<PAGE>

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.

<PAGE>

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
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.

<PAGE>

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 rates for the fiscal years
ended December 31, 1994 and December 31, 1995 were 95% and 150%,
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.

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

<PAGE>

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.

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,

<PAGE>

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
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.

<PAGE>

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
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

<PAGE>

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
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

<PAGE>

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
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.

<PAGE>

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

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

<PAGE>

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.

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
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) investment grade corporate debt
securities of a type other than the high grade debt securities
described above (including collateralized mortgage obligations),
(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) put and call options, futures
contracts and options thereon. 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

<PAGE>

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.

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
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

<PAGE>

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. 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 that are traded on United States 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.

<PAGE>

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.

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 that are traded on United States 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 contracts based on
financial indices including any index of U.S. 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. 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

<PAGE>

forecast interest rate movements correctly. Should interest
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 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 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 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

<PAGE>

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.

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
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

<PAGE>

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
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

<PAGE>

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 years ended December 31, 1994 and December 31,
1995 the portfolio turnover rates were 32% and 68%, 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;

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

<PAGE>

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
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;

<PAGE>

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
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

<PAGE>

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.
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.

<PAGE>

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
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,

<PAGE>

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.

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

<PAGE>

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
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.

<PAGE>

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.

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.

<PAGE>

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
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

<PAGE>

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
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

<PAGE>

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,
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

<PAGE>

years ended December 31, 1994 and December 31, 1995 the portfolio
turnover rates were 83% and 30%, 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.

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;

<PAGE>

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.

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 years ended December 31, 1994 and

<PAGE>

December 31, 1995 the portfolio turnover rates were 95% and 87%,
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
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, 1995, 87% 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

<PAGE>

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.

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

<PAGE>

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
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.

<PAGE>

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
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

<PAGE>

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:

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;

<PAGE>

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
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

<PAGE>

diversified portfolio of high quality debt securities denominated
in the U.S. dollar and a range of foreign currencies.

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
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

<PAGE>

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
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.

<PAGE>

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, 1994 and December 31, 1995 were 134% and 379%,
respectively. The annual portfolio turnover rates of securities
of the Global Bond Portfolio for the fiscal years ended
December 31, 1994 and December 31, 1995 were 102% and 262%,
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;

<PAGE>

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

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, 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

<PAGE>

States, Canada, Mexico and Argentina, 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
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.

<PAGE>

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.

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

<PAGE>

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.

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.

<PAGE>

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
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

<PAGE>

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.

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 restricted the
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

<PAGE>

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
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.

<PAGE>

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.

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 rates of securities of the Portfolio for
the fiscal period ended December 31, 1994 and the fiscal year
ended December 31, 1995 were 15% and 35%, respectively.
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:

<PAGE>

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);

<PAGE>

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.

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 9.22 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

<PAGE>

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
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 recent 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 was 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 included a call for a referendum
supporting independence. If the referendum had been approved,
Quebec would have become a separate country, but would have
retained formal political and economic links with Canada similar

<PAGE>

to those that join members of the European Union. On October 30,
1995, the referendum was defeated in a close ballot, in which
50.6% voted against secession and 49.4% voted for secession. It
is expected that the closeness of the vote will result in
federally-sponsored legislation or the proposal of constitutional
amendments with regard to the relationship between the federal
government and the provinces. It is also a possibility that
another referendum will take place within the next few years.
Therefore, it is expected that 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
("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. Talks between Chile and the three existing NAFTA
partners were formally started on June 7, 1995. It is expected
that Chile will become a party to the agreement. 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, Mexico and
future parties to NAFTA.

<PAGE>

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. The deterioration in the
government's fiscal position, which started during the 1990-1992
recession, has since been aggravated by a reluctance to decrease
expenditures or increase taxes. In its 1995 budget, the Liberal
Party introduced new spending cuts, the largest in over thirty
years, to reduce Canada's budget deficit. Canada's budget
deficit is one of the largest for any of the Organization for
Economic Cooperation and Development ("OECD") members. For the
fiscal year 1994-95, its budget deficit is estimated to be more
than 5% of gross domestic product ("GDP"), compared to 2.5% for
the United States. The Government has stated its commitment to
reduce the deficit to approximately 3% of GDP in the 1996-1997
fiscal year. While the Government's budget deficit objectives
can be achieved, it will require continued economic growth, lower
interest rates and additional reductions in government spending.

In addition to the growth of the federal government
deficit, provincial government debt has risen rapidly. Several
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
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 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 lead to a weakening of its
currency and higher interest rates. During the first two
quarters of 1995, however, in an attempt to increase domestic
growth, the Bank of Canada decreased interest rates. The easing
of monetary policy has also been facilitated by a renewed
strength in the Canadian dollar. This decrease in interest rates
since the beginning of 1995 has improved the government's
prospects of meeting its fiscal targets. From October 1991
through February 15, 1996, the Canadian Dollar decreased in value
compared to the U.S. Dollar by approximately 18%. On January 20,
1995, the Canadian dollar fell to 70.2, its lowest rate in almost

<PAGE>

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
from 70.2 against the U.S. Dollar on January 20, 1995 to 72.5 on
February 15, 1996.

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
GDP 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.

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:

<PAGE>

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
1995 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
twelve months ended December 31 for the years 1981 through 1994
and for the eight months ended August 31, 1995 (1986 = 100).

<PAGE>

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
1994 . . . . . . . . . . . . . . . 0.2
1995(1). . . . . . . . . . . . . . 2.3(2)

(1) For the eight months ended August 31.
(2) Annualized.

Source: BANK OF CANADA REVIEW Autumn 1995; Statistics Canada.

CANADIAN GROSS DOMESTIC PRODUCT. The following table
sets forth Canada's GDP for the years 1981 through 1994 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 676,477 555,052 (1.8)
1992 690,122 559,305 0.8
1993 712,855 571,722 2.2
1994 750,053 597,936 4.6

Source: BANK OF CANADA REVIEW Autumn 1995; Statistics Canada.

<PAGE>

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 from January 1994 through
September 1995.

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

1995
____

January 8.10 8.47 9.18 9.34
February 8.11 8.15 8.46 8.76
March 8.29 8.35 8.23 8.57
April 7.87 7.87 7.93 8.31
May 7.40 7.36 7.41 7.88
June 6.73 6.65 7.33 7.81
July 6.65 6.87 7.79 8.27
August 6.34 6.62 7.58 8.00
September 6.58 6.80 7.54 7.89

Source: BANK OF CANADA REVIEW Autumn 1995; Statistics Canada.

ADDITIONAL INFORMATION ABOUT THE UNITED MEXICAN STATES

Territory and Population

The United Mexican States ("Mexico") occupies a
territory of approximately 1.97 million square kilometers (759
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

<PAGE>

most populous nation in Latin America, with an estimated
population of 92 million.

Mexico's three largest cities are Mexico City,
Guadalajara and Monterrey, with estimated populations in 1990 of
15 million, 2.8 million and 2.5 million, respectively. In the
1980s, Government efforts concerning family planning and birth
control, together with declining birth rates among women under 35
and those living in urban areas have resulted in a reduction of
such rate to a projected 1.7% in 1995.

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 17 Ministries, the office of the Attorney General,
the Federal District Department and the office of 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
neither Senators nor Deputies may serve consecutive terms in the
same chamber. The Senate has 128 members, four from each state
and four from 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, the Circuit and District courts, and the Federal
Judicial Board. The Supreme Court has 11 members who are
selected by the Senate from a pool of candidates nominated by the
President. Its members serve for 15 year terms, except for the
current members of the Court, whose appointments range from eight
to 20 years.

Mexico has diplomatic relations with more than 170
countries. It is a charter member of the United Nations, a
founding member of the Organization of American States, the IMF
and the World Bank. Mexico became a member of the Organization
for Economic Cooperation and Development on April 14, 1994 and

<PAGE>

the World Trade Organization ("WTO") on January 1, 1995 (the date
on which the WTO superseded the General Agreement on Trade and
Tariffs ("GATT")).

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"). As of December 1995, the PAN
held four governorships. 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 48.77% of the votes, the candidate of the PAN was second
with 25.94% of the votes and the PRD candidate was third with
16.6% of the votes. With respect to the Congressional elections,
the PRI maintained its majority in both chambers, with 93 seats
in the Senate and 298 seats in the Chamber of Deputies. The PAN
had the second largest representation with 25 seats in the Senate
and 118 seats in the Chamber of Deputies and the PRD the third
largest representation with 10 seats in the Senate and 70 seats
in the Chamber of Deputies. The PRI won two seats pursuant to
proportional representation and the PAN and the PRD each won one
seat in extraordinary elections held on April 30, 1995.

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
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. In
February 1995, the Mexican military, 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

<PAGE>

peaceful settlement. On April 9, 1995, representatives of the
insurgents and Government representatives held meetings. In mid-
February 1996, representatives of the Zapatista National
Liberation Army and the federal government signed an agreement
recognizing new rights for indigenous communities in Mexico.

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. The
investigation into the death of Ruiz Massieu has led to Mr. Raul
Salinas, a former president's brother, being accused of offering
a large sum of money to a PRI deputy to kill Mr. Massieu.
Investigations into both murders are still continuing.

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.

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 was only the
third time in the PRI's history that it accepted a defeat in a
state-wide election. Two gubernatorial elections were held on
May 28, 1995 with the PRI and the PAN each winning one election.

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

<PAGE>

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 GATT since 1986 and a member
of the WTO since January 1, 1995. 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 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

<PAGE>

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.

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

<PAGE>

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
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

<PAGE>

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
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. As of
July 1995, of the approximately $40 billion made available to
Mexico under the international support package, approximately $22
billion is outstanding and approximately $18 billion is available
for future use.

The effects of the government's response to the economic
crisis and the devaluation of the Mexican Peso are reflected in
the performance of the Mexican economy during the first six
months of 1995, with improvements in the trade balance, current
account deficit, the level of Tesobonos debt and international
reserves. The stabilization of the economy is reflected by the
reduction in the principal amount of Tesobonos outstanding from
approximately $29.2 billion on December 31, 1994 to approximately
$3.1 billion on August 31, 1995, the increase of international
gross reserves from approximately $3.5 billion on March 31, 1995
to approximately $15.1 billion on August 31, 1995 and the
increase of value of the Mexican Peso against the U.S. Dollar
from 7.588 on March 31, 1995 to 6.276 on August 31, 1995.
Nonetheless, the economy is still suffering from a decrease in
GDP, increased unemployment and inflation and a reduction in the
availability of credit.

On May 31, 1995, President Zedillo announced the 1995-
2000 National Development Plan, which continues the economic
policy initiatives of promoting vigorous and sustainable economic
growth. The Plan calls for measures to increase domestic savings
and to encourage more direct foreign investment. The Plan
further requires that the Mexican government seek to maintain
fiscal discipline and maintain an exchange rate policy that
avoids overvaluation and is conducive to price stability.
Although the Mexican economy has stabilized, there can be no
assurance that the government's plan will lead to a full
recovery.

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 GDP

<PAGE>

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 will 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 for each of the eleven months ended November
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 3.222 -- --

1995
January . . . . . 5.695 5.513 -- --
February. . . . . 5.838 5.685 -- --
March . . . . . . 6.818 6.702 -- --
April . . . . . . 5.785 6.300 -- --
May . . . . . . . 6.178 5.963 -- --
June. . . . . . . 6.309 6.223 -- --
July. . . . . . . 6.088 6.139 -- --
August. . . . . . 6.311 6.191 -- --
September . . . . 6.420 6.302 -- --
October . . . . . 7.172 6.691 -- --
November. . . . . 7.652 7.658 -- --

* 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

<PAGE>

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, 8.0% in 1993, and 7.1% in
1994.

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

<PAGE>

creation of tax benefits for workers receiving certain minimum
salaries; and (viii) a reduction of asset taxes to 1.8% (together
with other benefits relating to asset taxes).

On January 2, 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.

On March 9, 1995, President Zedillo announced a modification
of the plan adopted on January 2, 1995. The major provisions of
the plan as modified are: maintenance of the floating exchange
rate policy announced in December 1994; an inflation target of
42% for 1995, a projected current account account deficit of $2.4
billion and a decline in real GDP of 2% during 1995; a commitment
in principle by business to increase prices only to the extent
that products sold in Mexico comprise imported components; a
commitment by the Government to take the steps necessary to
increase public revenues and decrease public expenditures with a
view to achieving a budget surplus of 0.5% of GDP and sharply
lowering the current account deficit and mitigating the
inflationary impact of the devaluation; and an increase in the
minimum wage by 12%.

On October 29, 1995, the Mexican government announced a new
accord among business, labor and the government that establishes
certain guidelines for the Mexican economy for the next fourteen
months. The government is seeking to encourage economic growth
by providing tax incentives for business and controlling wage
increases and government spending. The accord, known as the
Alliance for Economic Recuperation, projects economic growth of
3% and inflation of 20% during 1996.

The accord provides investment tax credits to certain
businesses and tax incentives for companies that hire more
workers between the date of the accord and the end of 1996 than
they did during the first 10 months of 1995. The accord also
increases the minimum wage by 20% during the next 14 months. The
wage increase will occur in two stages, with a 10% increase in
December and another 10% increase in April 1995. In the accord,
the government pledged to maintain a balanced budget by reducing
spending by 4.75% in real terms during 1996. The government also
renewed its commitment to maintaining a floating exchange rate.

<PAGE>

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 the year ended
December 31 for the years 1981 through 1994 and for the ten
months ended October 31, 1995.

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
1995(1) . . . . . . . . . . . . . . . 37.2

(1) For the ten months ended October 31.

Source: Banco de Mexico.

MEXICAN GROSS DOMESTIC PRODUCT. The following table sets
forth certain information concerning Mexico's GDP for the years
1990 through 1994 and for the nine months ended September 30,
1995 at historical and constant prices.

<PAGE>

Gross Change from
Gross Domestic Product Prior Year at
Domestic Product at 1980 Prices(1) Constant Prices
________________ _________________ _______________

(millions of Mexican New Pesos) (percentage)

1990. . . . 686,406 5,272 4.4
1991. . . . 865,166 5,463 3.6
1992. . . . 1,019,156 5,616 2.8
1993. . . . 1,146,382 5,659 0.7
1994(2) . . 1,272,798 5,858 3.5
1995(2)(3). 1,511.921 5,475 (7.0)

(1) Constant peso with purchasing power at December 31, 1980,
expressed in new pesos.
(2) Preliminary.
(3) Annualized.

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. 13.5 13.6 4.0 5.1
1994:
Jan.-June 13.0 13.5 7.0 6.0
July-Dec. 15.2 15.7 --- 8.0
1995:
January 37.3 39.2 --- 25.0
February 41.7 41.7 ---(1) 17.0(1)
March 69.5 71.2 --- ---
April 74.8 71.5 --- ---
May 59.2 54.7 --- ---
June 47.3 47.3 --- ---
July 40.9 39.7 --- ---
August 35.1 35.9 --- ---
September 33.5 34.3 --- ---
October 40.3 41.2 --- ---
November 53.2 54.2 --- ---

(1) February 28 was the last date Tesobonos were issued.

Source: Banco de Mexico

<PAGE>

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,
Uruguay and the South Atlantic Ocean. Argentina consists of 23
provinces and the federal capital of Buenos Aires. It has a
population of approximately 35 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 79% of the country's population is urban. During
the period 1980-1990, Argentina's population grew at a 1.4%
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
directly elected by the voters and may serve for two consecutive
three-year terms. The next election for the Presidency is
scheduled to take place in 1999. 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 72-member 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 six-year terms, and serve in staggered
terms so that one-third of the Senate's seats are subject to
elections every two years. The Chamber of Deputies consists of
257 seats which are allocated according to each province's

<PAGE>

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
Justice, which has nine members who are appointed for life by the
President (subject to ratification by the Senate). In addition,
in 1994 Argentina's two largest political parties entered into an
agreement whereby future Supreme Court justices will be selected
from a list of nominees mutually agreed upon by both parties.

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. As of
December 10, 1995, the date new Deputies take office, the PJ held
130 seats and the UCR held 70 seats in the Chamber of Deputies
and 36 seats and 14 seats in the Senate, respectively.

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.

<PAGE>

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
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. President Menem won reelection in May 1995.

Argentina has diplomatic relations with more than 135
countries. It is a charter member of the United Nations, a
founding member of the Organization of American States. It is
also a member of the IMF and the World Bank. Argentina became a
member of the World Trade Organization ("WTO") on January 1, 1995
(the date on which the WTO superseded the General Agreement on
Trade and Tariffs ("GATT")).

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

<PAGE>

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
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.

On October 31, 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
investors from Asia, Europe, North America and Latin America.
The Government completed 32 major privatizations in 1993, and 11
additional privatizations in 1994. On August 31, 1994, Economy
Minister Cavallo announced the start of a round of privatizations
and state reforms, in which the Government planned to sell all
remaining major state-owned concerns.

<PAGE>

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
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. Under
the Convertibility Law, the Central Bank of Argentina must
maintain a reserve in foreign currencies, gold and certain public
bonds denominated in foreign currencies equal to the amount of
outstanding Argentine currency and is obliged to sell dollars to
any person who so requires at a rate of one peso to one 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.

Free Rate
_____________
1990 . . . . . . . . . . . . .5590
1991 . . . . . . . . . . . . .9990
1992 . . . . . . . . . . . . .9990
1993 . . . . . . . . . . . . .9990
1994 . . . . . . . . . . . . 1.0000
1995(1). . . . . . . . . . . 1.0000

(1) Through October 31.
Source: Banco Central de la Republica Argentina

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

<PAGE>

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
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

<PAGE>

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") 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.

<PAGE>

The International Monetary Fund ("IMF") has supported the
implementation of the Convertibility Plan and designed a
financial program for the Argentine public sector. 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. In the second half of 1994, the Government decided to
seek private financing rather than utilize its EFF allotment for
that period. After the onset of the Mexican currency crisis,
however, , the Government determined that it was necessary to
seek further funding through the EFF program, including drawing
down on its unused quota for the later part of 1994.
Negotiations with the IMF lead to approval in April 1995 of
economic performance waivers for the last two quarters of 1994,
an extension of the EFF credit for a fourth year through March
30, 1996, and an increase in the amount of the EFF credit by the
equivalent of approximately US $2.4 billion to a total of
approximately US $6.3 billion.

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 7.4% 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.

1989. . . . . . . . . . . . 4,923.6
1990. . . . . . . . . . . . 1,343.9
1991. . . . . . . . . . . . 84.0
1992. . . . . . . . . . . . 17.5
1993. . . . . . . . . . . . 7.4
1994. . . . . . . . . . . . 3.9
1995(1) . . . . . . . . . . 1.8(2)

(1) Through October 31.
(2) Annualized.

___________________

Source: Banco Central de la Republica Argentina

<PAGE>

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
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

<PAGE>

assets in the securities or obligations of issuers 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.

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.

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.

<PAGE>

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.

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,

<PAGE>

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
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

<PAGE>

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
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.

<PAGE>

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
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

<PAGE>

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).

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. The Portfolio may also write
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

<PAGE>

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.

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).

<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 rates of securities of the Portfolio for
the fiscal period ended December 31, 1994 and for the fiscal year
ended December 31, 1995 were 9% and 13%, respectively.
Management anticipates that the annual turnover in the Fund will
not be in excess of 300%. An annual turnover rate of 300%
occurs, for example, when all of the securities in the
Portfolio's portfolio are replaced three times in a period of one
year. Such high rate 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.

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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.

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

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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
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.

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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.

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.

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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
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

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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

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%

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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
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

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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
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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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

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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
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 rates of the securities of the Portfolio for the fiscal
period ended December 31, 1994 and the fiscal year ended
December 31, 1995 were 31% and 138%, respectively. 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.

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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
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.

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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
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;

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(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) 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.

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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
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

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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
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.

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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
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

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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
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

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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
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.

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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.

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

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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
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 of 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

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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,
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.

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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
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

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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.

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

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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
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

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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.

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

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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
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

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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
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

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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.

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

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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,
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

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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
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

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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.

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

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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
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.

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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
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

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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.

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.

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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
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.

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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
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

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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.

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

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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
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. The
portfolio turnover rate for each Portfolio for their respective
fiscal years ended December 31, 1995 was 61% for Conservative
Investors Portfolio, 50% for Growth Investors Portfolio and 86%
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.

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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
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.

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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
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

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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%.

(g) Invest more than 5% of its assets in the
securities of any one investment company, own more than
3% of any one investment company's outstanding voting
securities or have total holdings of investment company
securities in excess of 10% of the value of the
Portfolio's assets except that the Growth Portfolio will
not 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 the
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 the 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.

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(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.

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

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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.

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 particular, because
privatization programs are an important part of a country's
economic restructuring, equity securities that are brought to the
market by means of initial equity offerings frequently are priced
to attract investment in order to secure the issuer's successful
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

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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
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.

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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.

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

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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,
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 rates for the fiscal period ended December 31, 1994 and
the fiscal year ended December 31, 1995 were 0% and 23%,
respectively.

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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
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

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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.
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

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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
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.

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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.

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

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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.

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

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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.

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.

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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;

(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

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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.

TECHNOLOGY PORTFOLIO

General

The primary investment objective of the Portfolio
is to emphasize growth of capital, and investments will be
made based upon their potential for capital appreciation.
Therefore, current income will be incidental to the
objective of capital growth. However, subject to the
limitations referred to under "Options" below, the Portfolio
may seek to earn income through the writing of listed call
options. In seeking to achieve its objective, the Portfolio
will invest primarily in securities of companies which are
expected to benefit from technological advances and
improvements (i.e., companies which use technology
extensively in the development of new or improved products
or processes). The Portfolio will have at least 80% of its
assets invested in the securities of such companies except
when the Portfolio assumes a temporary defensive position.
There obviously can be no assurance that the Portfolio's
investment objective will be achieved, and the nature of the
Portfolio's investment objective and policies may involve a
somewhat greater degree of risk than would be present in a
more conservative investment approach.

Except as otherwise indicated, the investment
policies of the Portfolio are not "fundamental policies" and
may, therefore, be changed by the Board of Directors without
a shareholder vote. However, the Portfolio will not change
its investment policies without contemporaneous written
notice to its shareholders. The Portfolio's investment
objective, as well as the Portfolio's 80% investment policy
described above, may not be changed without shareholder
approval.

The Portfolio expects under normal circumstances to
have substantially all of its assets invested in equity
securities (common stocks or securities convertible into
common stocks or rights or warrants to subscribe for or
purchase common stocks). When business or financial
conditions warrant, the Portfolio may take a defensive
position and invest without limit in investment grade debt

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securities or preferred stocks or hold its assets in cash.
The Portfolio at times may also invest in debt securities
and preferred stocks offering an opportunity for price
appreciation (e.g., convertible debt securities).

Critical factors which will be considered in the
selection of securities will include the economic and
political outlook, the value of individual securities
relative to other investment alternatives, trends in the
determinants of corporate profits, and management capability
and practices. Generally speaking, disposal of a security
will be based upon factors such as (i) actual or potential
deterioration of the issuer's earning power which the
Portfolio believes may adversely affect the price of its
securities, (ii) increases in the price level of the
security or of securities generally which the Portfolio
believes are not fully warranted by the issuer's earning
power, and (iii) changes in the relative opportunities
offered by various securities.

Companies in which the Portfolio will invest
include those whose processes, products or services are
anticipated by Alliance Capital Management L.P., the
Portfolio's investment adviser (the "Investment Adviser"),
to be significantly benefited by the utilization or
commercial application of scientific discoveries or
developments in such fields as, for example, aerospace,
aerodynamics, astrophysics, biochemistry, chemistry,
communications, computers, conservation, electricity,
electronics (including radio, television and other media),
energy (including development, production and service
activities), geology, health care, mechanical engineering,
medicine, metallurgy, nuclear physics, oceanography and
plant physiology.

The Portfolio will endeavor to invest in companies
where the expected benefits to be derived from the
utilization of technology will significantly enhance the
prospects of the company as a whole (including, in the case
of a conglomerate, affiliated companies). The Portfolio's
investment objective permits the Portfolio to seek
securities having potential for capital appreciation in a
variety of industries.

Certain of the companies in which the Portfolio
invests may allocate greater than usual amounts to research
and product development. The securities of such companies
may experience above-average price movements associated with
the perceived prospects of success of the research and
development programs. In addition, companies in which the
Portfolio invests could be adversely affected by lack of

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commercial acceptance of a new product or products or by
technological change and obsolescence.

INVESTMENT POLICIES

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.

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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 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.

OPTIONS ON MARKET INDICES. Options on securities
indices are similar to options 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.

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

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of the hedged portfolio securities are greater than gains
realized from the options.

RIGHTS AND WARRANTS. The Portfolio may invest up
to 10% of its total assets in rights and warrants which
entitle the holder to buy equity securities at a specific
price for a specific period of time. 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.

FOREIGN INVESTMENTS. The Portfolio will not
purchase a foreign security if such purchase at the time
thereof would cause 10% or more of the value of the
Portfolios total assets to be invested in foreign
securities. 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 may
invest and could adversely affect the Portfolio's assets
should these conditions or events recur.

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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 may 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.

ILLIQUID SECURITIES. The Portfolio will not
maintain more than 15% of its total assets (taken at market
value) in illiquid 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 of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or
other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience
difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted
securities in order to dispose of them resulting in

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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.

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 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 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.

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.

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PORTFOLIO TURNOVER. The investment activities
described above are likely to result in the Portfolio
engaging in a considerable amount of trading of securities
held for less than one year. Accordingly, it can be expected
that the Portfolio will have a higher turnover rate than
might be expected from investment companies which invest
substantially all of their funds on a long-term basis.
Correspondingly heavier brokerage commission expenses can be
expected to be borne by the Portfolio. Management
anticipates that the Portfolio's annual rate of portfolio
turnover will not be in excess of 100% in future years. A
100% annual turnover rate would occur, for example, if all
the stocks in the Portfolio's portfolio were replaced once
in a period of one year.

Within this basic framework, the policy of the
Portfolio is to invest in any company and industry and in
any type of security which are believed to offer
possibilities for capital appreciation. Investments may be
made in well-known and established companies as well as in
new and unseasoned companies. Since securities fluctuate in
value due to general economic conditions, corporate earnings
and many other factors, the shares of the Portfolio will
increase or decrease in value accordingly, and there can be
no assurance that the Portfolio will achieve its investment
goal or be successful.

INVESTMENT RESTRICTIONS

The following restrictions may not be changed
without approval of a majority of the outstanding voting
securities of the Portfolio, which means the vote of (i) 67%
or more of 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.

To maintain portfolio diversification and reduce
investment risk, as a matter of fundamental policy, the
Portfolio may not:

(i) with respect to 75% of its total assets, have
such assets represented by other than: (a) cash and cash
items, (b) securities issued or guaranteed as to
principal or interest by the U.S. Government or its
agencies or instrumentalities, or (c) securities of any
one issuer (other than the U.S. Government and its
agencies or instrumentalities) not greater in value than
5% of the Portfolio's total assets, and not more than
10% of the outstanding voting securities of such issuer;

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(ii) purchase the securities of any one issuer,
other than the U.S. Government and its agencies or
instrumentalities, if immediately after and as a result
of such purchase (a) the value of the holdings of the
Portfolio in the securities of such issuer exceeds 25%
of the value of the Portfolio's total assets, or (b) the
Portfolio owns more than 25% of the outstanding
securities of any one class of securities of such
issuer;

(iii) concentrate its investments in any one
industry, but the Portfolio has reserved the right to
invest up to 25% of its total assets in a particular
industry;

(iv) invest in the securities of any issuer which
has a record of less than three years of continuous
operation (including the operation of any predecessor)
if such purchase at the time thereof would cause 10% or
more of the value of the total assets of the Portfolio
to be invested in the securities of such issuer or
issuers;

(v) make short sales of securities or maintain a
short position or write put options;

(vi) mortgage, pledge or hypothecate or otherwise
encumber its assets, except as may be necessary in
connection with permissible borrowings mentioned in
investment restriction (xiv) listed below;

(vii) purchase the securities of any other
investment company or investment trust, except when such
purchase is part of a merger, consolidation or
acquisition of assets;

(viii) purchase or sell real property (including
limited partnership interests but excluding readily
marketable interests in real estate investment trusts or
readily marketable securities of companies which invest
in real estate) commodities or commodity contracts;

(ix) purchase participations or other direct
interests in oil, gas, or other mineral exploration or
development programs;

(x) participate on a joint or joint and several
basis in any securities trading account;

(xi) invest in companies for the purpose of
exercising control;

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(xii) purchase securities on margin, but it may
obtain such short-term credits from banks as may be
necessary for the clearance of purchases and sales of
securities;

(xiii) make loans of its assets to any other person,
which shall not be considered as including the purchase
of portion of an issue of publicly-distributed debt
securities; except that the Portfolio may purchase non-
publicly distributed securities subject to the
limitations applicable to restricted or not readily
marketable securities and except for the lending of
portfolio securities as discussed under "Other
Investment Policies and Techniques - Loans of Portfolio
Securities" in the Prospectus;

(xiv) borrow money except for the short-term credits
from banks referred to in paragraph (xii) above and
except for temporary or emergency purposes and then only
from banks and in an aggregate amount not exceeding 5%
of the value of its total assets at the time any
borrowing is made. Money borrowed by the Portfolio will
be repaid before the Portfolio makes any additional
investments;

(xv) act as an underwriter of securities of other
issuers, except that the Portfolio may acquire
restricted or not readily marketable securities under
circumstances where, if sold, the Portfolio might be
deemed to be an underwriter for purposes of the
Securities Act of 1933 (the Portfolio will not invest
more than 10% of its net assets in aggregate in
restricted securities and not readily marketable
securities); and

(xvi) purchase or retain the securities of any
issuer if, to the knowledge of the Portfolio's
management, those officers and directors of the
Portfolio, and those employees of the Investment
Adviser, who each owns beneficially more than one-half
of 1% of the outstanding securities of such issuer
together own more than 5% of the securities of such
issuer.

QUASAR PORTFOLIO

General

The investment objective of the Portfolio is growth of
capital by pursuing aggressive investment policies. Investments
will be made based upon their potential for capital appreciation.

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Therefore, 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. Moreover, to the extent the Portfolio seeks to achieve its
objective through the more aggressive investment policies
described below, risk of loss increases. The Portfolio is
therefore not intended for investors whose principal objective is
assured income or preservation of capital.

Except as otherwise indicated, the investment policies
of the Portfolio are not "fundamental policies" and may,
therefore, be changed by the Board of Directors without a
shareholder vote. However, the Portfolio will not change its
investment policies without contemporaneous written notice to its
shareholders. The Portfolio's investment objective, may not be
changed without shareholder approval.

Within this basic framework, the policy of the Portfolio
is to invest in any companies and industries and in any types of
securities which are believed to offer possibilities for capital
appreciation. Investments may be made in well-known and
established companies as well as in new and unseasoned companies.
Critical factors considered in the selection of securities
include the economic and political outlook, the values of
individual securities relative to other investment alternatives,
trends in the determinants of corporate profits, and management
capability and practices.

It is the policy of the Portfolio to invest principally
in equity securities (common stocks, securities convertible into
common stocks or rights or warrants to subscribe for or purchase
common stocks); however, it may also invest to a limited degree
in non-convertible bonds and preferred stocks when, in the
judgment of Alliance Capital Management L.P., the Portfolio's
adviser (the "Adviser"), such investments are warranted to
achieve the Fund's investment objective. When business or
financial conditions warrant, a more defensive position may be
assumed and the Portfolio may invest in short-term fixed-income
securities, in investment grade debt securities, in preferred
stocks or hold its assets in cash.

The Portfolio may invest in both listed and unlisted
domestic and foreign securities, in restricted securities, and in
other assets having no ready market, but not more than 15% 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 Rule 144 or 144A promulgated under
the Securities Act of 1933, as amended (the "Securities Act").

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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 manner as the Board of
Directors of the Fund in good faith deems appropriate to reflect
their fair market value.

The Portfolio intends to invest in special situations
from time to time. A special situation arises when, in the
opinion of the Fund'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
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, the following:
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.
The Portfolio will not, however, purchase securities of any
company with a record of less than three years continuous
operation (including that of predecessors) if such purchase would
cause the Portfolio's investments in such companies, taken at
cost, to exceed 25% of the value of the Portfolio's total assets.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

The following additional investment policies supplement
those set forth above.

GENERAL. In seeking to attain its investment objective
of growth of capital, the Portfolio will supplement customary
investment practices by engaging in a broad range of investment
techniques including short sales "against the box," writing call
options, purchases and sales of put and call options written by
others and investing in special situations. These techniques are
speculative, may entail greater risk, may be considered of a more
short-term nature, and to the extent used, may result in greater
turnover of the Portfolio's portfolio and a greater expense than
is customary for most investment companies. Consequently, the
Portfolio is not a complete investment program and is not a
suitable investment for those who cannot afford to take such
risks or whose objective is income or preservation of capital.
No assurance can be given that the Portfolio will achieve its

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investment objective. However, by buying shares in the Portfolio
an investor may receive advantages he would not readily obtain as
an individual, including professional management and continuous
supervision of investments. The Portfolio will be subject to the
overall limitation (in addition to the specific restrictions
referred to below) that the aggregate value of all restricted and
not readily marketable securities of the Portfolio, and of all
cash and securities covering outstanding call options written or
guaranteed by the Portfolio, shall at no time exceed 15% of the
value of the total assets of the Portfolio.

There is also no assurance that the Portfolio will at
any particular time engage in all or any of the investment
activities in which it is authorized to engage. In the opinion
of the Portfolio's management, however, the power to engage in
such activities provides an opportunity which is deemed to be
desirable in order to achieve the Portfolio's investment
objective.

SHORT SALES. The Portfolio may only make short sales of
securities "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. Short 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 the period 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 gain on short sales "against the box" by covering the short
position through a subsequent purchase. 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 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. When calls written by the Portfolio are

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exercised, the Portfolio will be obligated to sell stocks below
the current market price.

The writing of call options will, therefore, involve a
potential loss of opportunity to sell securities at higher
prices. In exchange for the premium received, 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 is higher, and consequently the risks are
greater 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. (For a discussion
regarding certain tax consequences of the writing of call options
by the Fund, see "Dividends, Distributions and Taxes".)

Writing, purchasing and selling call options are highly
specialized activities and entail greater than ordinary
investment risks. 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 option would not produce an annualized
return of at least 15% of the then market value of the securities
subject to option. Commissions, stock transfer taxes and other
expenses of the Fund 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 whom are members of a national
securities exchange on which options are traded, and will in such
cases be endorsed or guaranteed by a member of a national
securities exchange or qualified broker-dealer, which may be
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), 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. A call written by the Portfolio will not be sold unless
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 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 portfolio 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

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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. 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.

In buying a call, the Portfolio would be in a position
to realize a gain if, during the option period, the price of the
shares increased by an amount in excess of the premium paid and
commissions payable on exercise. 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
and commissions payable on exercise. By buying a put, the
Portfolio would be in a position to realize a gain if, during the
option period, the price of the shares declined by an amount in
excess of the premium paid and commissions payable on exercise.
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 and commissions payable on
exercise. In addition, the Portfolio could realize a gain or
loss on such options by selling them.

As noted above, the Portfolio may purchase and sell put
and call options written by others, combinations thereof, or
similar options. 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.

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
long-term capital gains treatment upon their sale and not for
trading purposes. 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. This policy may result in the Portfolio
realizing short-term capital gains or losses on the sale of
certain securities. See "Dividends, Distributions and Taxes". It
is anticipated that the Portfolio's rate of portfolio turnover
will not exceed 200% during the current fiscal year. A 200%
annual turnover rate would occur, for example, if all the stocks
in the Portfolio's portfolio were replaced twice within a period
of one year. A portfolio turnover rate approximating 200%
involves correspondingly greater brokerage commission expenses
than would a lower rate, which expenses must be borne by the
Portfolio and its shareholders.

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INVESTMENT RESTRICTIONS

The following restrictions may not be changed without
approval of a majority of the outstanding voting securities of
the Portfolio, which means the vote of (i) 67% or more of 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.

As a matter of fundamental policy, the Portfolio may
not:

(i) purchase the securities of any one issuer, other
than the U.S. Government or any of its agencies or
instrumentalities, if immediately after such
purchase more than 5% of the value of its total
assets would be invested in such issuer or the
Portfolio would own more than 10% of the
outstanding voting securities of such issuer,
except that up to 25% of the value of the
Portfolio's total assets may be invested without
regard to such 5% and 10% limitations;

(ii) invest more than 25% of the value of its total
assets in any particular industry;

(iii) borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its total
assets at the time the borrowing is made;

(iv) purchase or sell real estate;

(v) participate on a joint or joint and several basis
in any securities trading account;

(vi) invest in companies for the purpose of exercising
control;

(vii) purchase or sell commodities or commodity
contracts;

(viii) 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;

(ix) make loans of its funds or assets to any other
person, which shall not be considered as including
the purchase of a portion of an issue of publicly
distributed bonds, debentures, or other securities,
whether or not the purchase was made upon the

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original issuance of the securities; except that
the Portfolio may not purchase non-publicly
distributed securities subject to the limitations
applicable to restricted securities;

(x) except as permitted in connection with short sales
of securities or writing of call options, described
under the headings "Short Sales" and "Puts and
Calls" above, pledge, mortgage or hypothecate any
of its assets;

(xi) except as permitted in connection with short sales
of securities "against the box" described under the
heading "Additional Investment Policies and
Practices" above, make short sales of securities;
and

(xii) 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.

REAL ESTATE INVESTMENT PORTFOLIO

GENERAL

The investment objective of the Portfolio is to seek a
total return on its assets from long-term growth of capital and
from income principally through investing in a portfolio of
equity securities of issuers that are primarily engaged in or
related to the real estate industry.

Except as otherwise indicated, the investment policies
of the Portfolio are not "fundamental policies" and may,
therefore, be changed by the Board of Directors without a
shareholder vote. However, the Portfolio will not change its
investment policies without contemporaneous written notice to its
shareholders. The Portfolio's investment objective may not be
changed without shareholder approval.

Under normal circumstances, at least 65% of the
Portfolio's total assets will be invested in equity securities of
real estate investment trusts ("REITs") and other real estate
industry companies. A "real estate industry company" is a
company that derives at least 50% of its gross revenues or net
profits from the ownership, development, construction, financing,
management or sale of commercial, industrial or residential real
estate or interests therein. The equity securities in which the
Portfolio will invest for this purpose consist of common stock,
shares of beneficial interest of REITs and securities with common
stock characteristics, such as preferred stock or convertible
securities ("Real Estate Equity Securities").

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The Portfolio may invest up to 35% of its total assets
in (a) securities that directly or indirectly represent
participations in, or are collateralized by and payable from,
mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real
estate mortgage investment conduit ("REMIC") certificates and
collateralized mortgage obligations ("CMOs") and (b) short-term
investments. These instruments are described below. The risks
associated with the Portfolio's transactions in REMICs, CMOs and
other types of mortgage-backed securities, which are considered
to be derivative securities, may include some or all of the
following: market risk, leverage and volatility risk, correlation
risk, credit risk and liquidity and valuation risk. See "Certain
Risk Considerations--Risk Factors Associated with the Real Estate
Industry" in the Prospectus for a description of these and other
risks.

As to any investment in Real Estate Equity Securities,
the analysis of the Adviser will focus on determining the degree
to which the company involved can achieve sustainable growth in
cash flow and dividend paying capability. The Adviser believes
that the primary determinant of this capability is the economic
viability of property markets in which the company operates and
that the secondary determinant of this capability is the ability
of management to add value through strategic focus and operating
expertise. The Portfolio will purchase Real Estate Equity
Securities when, in the judgment of the Adviser, their market
price does not adequately reflect this potential. In making this
determination, the Adviser will take into account fundamental
trends in underlying property markets as determined by
proprietary models, site visits conducted by individuals
knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and
stability, the relationship between asset value and market price
of the securities, dividend payment history, and such other
factors which the Adviser may determine from time to time to be
relevant. The Adviser will attempt to purchase for the Portfolio
Real Estate Equity Securities of companies whose underlying
portfolios are diversified geographically and by property type.

The Portfolio may invest without limitation in shares of
REITs. REITs are pooled investment vehicles which invest
primarily in income producing real estate or real estate related
loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage
REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection
of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to

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investment companies such as the Portfolio, REITs are not taxed
on income distributed to shareholders provided they comply with
several requirements of the Internal Revenue Code of 1986, as
amended (the "Code"). The Portfolio will indirectly bear its
proportionate share of expenses incurred by REITs in which the
Portfolio invests in addition to the expenses incurred directly
by the Portfolio. The Portfolio may invest up to 5% of its
total assets in Real Estate Equity Securities of non-U.S.
issuers.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

To the extent not described in the Portfolio's
Prospectus, set forth below is additional information regarding
the Portfolio's investment policies and practices. Except as
otherwise noted, the Portfolio's investment policies are not
designated "fundamental policies" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act") and,
therefore, may be changed by the Directors of the Fund without a
shareholder vote. However, the Portfolio will not change its
investment policies without contemporaneous written notice to
shareholders.

CONVERTIBLE SECURITIES. The Portfolio may invest up to
15% of its net assets in convertible securities of issuers whose
common stocks are eligible for purchase by the Portfolio under
the investment policies described above. Convertible securities
include bonds, debentures, corporate notes and preferred stocks.
Convertible securities are 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 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 convertible 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.

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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.

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. The
Portfolio's right to receive or deliver a security under a
forward commitment may be sold prior to the settlement date, but
the Fund 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 Fund's
custodian will maintain, in a segregated account of the Fund,
cash and/or 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 Fund, the portfolio securities themselves. If
the Fund, however, chooses to dispose of the right to receive or
deliver a security subject to a forward commitment prior to the
settlement 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 Fund might lose the opportunity to invest
money at favorable rates or to dispose of securities at favorable
prices.

STANDBY COMMITMENT AGREEMENTS. 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 thereafter 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
recorded as income on the expiration date of the standby
commitment. The Portfolio will at all times maintain a
segregated account with its custodian of cash and/or 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, the
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.

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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. There is no percentage restriction on the
Portfolio's ability to enter into repurchase agreements.
Currently, the Portfolio intends to enter into repurchase
agreements only with its custodian and such primary dealers. A
repurchase agreement arises when a buyer purchases a security and
simultaneously 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 which is effective for the period of
time the buyer's money is invested in the security and which is
related to the current market rate rather than the coupon rate on
the purchased security. This results in a fixed rate of return
insulated from market fluctuations during such period. Such
agreements permit the Portfolio to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Portfolio requires continual
maintenance by its Custodian 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 Portfolio enters into repurchase agreement transactions.

SHORT SALES. When engaging in a short sale, in addition
to depositing collateral with a broker-dealer, the Portfolio is
currently required under the 1940 Act to establish a segregated
account with its custodian and to maintain therein cash or
securities in an amount that, when added to cash or securities
deposited with the broker-dealer, will at all times equal at
least 100% of the current market value of the security sold
short.

ILLIQUID SECURITIES. Historically, illiquid securities
have included securities subject to contractual or legal
restrictions on resale because they have not been registered
under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. 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

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or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. 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.

The Portfolio may invest 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 to
institutional investors and in private transactions; 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 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 this
regulation and the consequent inception of the PORTAL System, an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers sponsored
by the National Association of Securities Dealers, Inc.

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The Adviser, under the supervision of the Fund's Board
of Directors, will monitor the liquidity of restricted securities
in the Portfolio's portfolio. In reaching liquidity decisions,
the Adviser will consider, among other factors, the following:
(1) the frequency of trades and quotes for the security; (2) the
number of dealers making quotations to purchase or sell the
security; (3) the number of other potential purchasers of the
security; (4) the number of dealers undertaking to make a market
in the security; (5) 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 the transfer);
and (6) any applicable Securities and Exchange Commission (the
"Commission") interpretation or position with respect to such
type of security.

DEFENSIVE POSITION. For temporary defensive purposes,
the Portfolio may vary from its investment objectives during
periods in which conditions in securities markets or other
economic or political conditions warrant. During such periods,
the Portfolio may 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,
instrumentalities ("U.S. Government Securities"), bank deposit,
money market instruments, short-term (for this purpose,
securities with a remaining maturity of one year or less) debt
securities, including notes and bonds, and short-term foreign
currency denominated debt securities rated A or higher by Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings
Services ("S&P") Duff & Phelps Credit Rating Co. ("Duff &
Phelps") or Fitch Investors Service, Inc. ("Fitch") or, if not so
rated, of equivalent investment quality as determined by the
Adviser.

Subject to its policy of investing at least 65% of its
total assets in equity securities of real estate investment
trusts and other real estate industry companies, 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.

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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 100%. A 100% annual turnover rate would occur if all the
securities in the Portfolio's portfolio were replaced once 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. In order to continue to
qualify as a regulated investment company for Federal tax
purposes, less than 30% of the annual gross income of the
Portfolio must be derived from the sale of securities held by the
Portfolio for less than three months. See "Dividends,
Distributions and Taxes."

INVESTMENT RESTRICTIONS

The following restrictions may not be changed without
approval of a majority of the outstanding voting securities of
the Portfolio, which means the vote of (i) 67% or more of 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.

As a matter of fundamental policy, the Portfolio may
not:

(i) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted
borrowings;

(ii) make loans except through (a) the purchase of
debt obligations in accordance with its investment
objectives and policies; (b) the lending of portfolio
securities; or (c) the use of repurchase agreements;

(iii) participate on a joint or joint and several
basis in any securities trading account;

(iv) invest in companies for the purpose of
exercising control;

(v) issue any senior security within the meaning
of the 1940 Act;

(vi) make short sales of securities or maintain a
short position, unless at all times when a short
position is open not more than 25% of the Portfolio's
net assets (taken at market value) is held as collateral
for such sales at any one time;

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(vii) (a) purchase or sell commodities or commodity
contracts including futures contracts; (b) invest in
interests in oil, gas, or other mineral exploration or
development programs; (c) purchase securities on margin,
except for such short-term credits as may be necessary
for the clearance of transactions; and (d) 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 and the Technology 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 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, Utility Income Portfolio, Technology
Portfolio, Quasar Portfolio and the Real Estate Investment

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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
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

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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.

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, among others, 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.

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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
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.

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_________________________________________________________________

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*, 51, Chairman of the Board and
President, is the President, Chief Operating Officer, the Chief
Financial 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 1991.

RUTH BLOCK, 66, 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, 67, was formerly Chairman and
President of the Fund and a Senior Vice President of ACMC with
which he had been associated since prior to 1991. He is
currently an independent consultant. His address is P.O. Box
167, Spring Lake, New Jersey 07762.

JOHN H. DOBKIN, 54, is the President of Historic Hudson
Valley (historic preservation) since prior to 1991. 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., 64, is an investment adviser and
an independent consultant. He was formerly a Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1991. His address is
521 Fifth Avenue, New York, New York 10175.

______________
* An "interested person" of the Fund as defined in the 1940 Act.

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DR. JAMES M. HESTER, 72, 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. His address is 525 East 72nd Street,
New York, New York 10021.

CLIFFORD L. MICHEL, 57, is a member of the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1991. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.

OFFICERS

ALFRED L. HARRISON, SENIOR VICE PRESIDENT, 58, is a Vice
Chairman of ACMC with which he has been associated with since
prior to 1991.

WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 55, is an
Executive Vice President of ACMC with which he has been
associated with since prior to 1991.

KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 36, has been
a Senior Vice President of ACMC since July 1993. Previously, she
held various responsibilities as head of Equitable Capital
Management Corporation's Fixed Income Management Department,
Private Placement Secondary Trading and Fund Management since
prior to 1991.

EDMUND P. BERGAN, JR., SECRETARY, 46, is a Vice
President and Assistant General Counsel of ACMC with which he has
been associated since prior to 1991.

MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER,
46, is a Senior Vice President of Alliance Fund Services, Inc.
("AFS") with which he has been associated since prior to 1991.

ANDREW GANGOLF, ASSISTANT SECRETARY, 41, 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
Society of the United States since prior to 1991.

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
1991.

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THOMAS R. MANLEY, ASSISTANT CONTROLLER, 43, has been an
Assistant Vice President of ACMC since July 1993. Previously he
was associated with ECMC since 1991.

STEVEN YU, ASSISTANT CONTROLLER, 35, has been an
Assistant Vice President of ACMC since 1993. Previously he was
associated with ECMC since prior to 1991.

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, 1995 and the aggregate compensation paid to each of
the Directors during calendar year 1995 by all of the registered
investment companies to which the Adviser provides investment
advisory services (collectively, the "Alliance Fund Complex")
and the total number of registered investment companies in the
Alliance Fund Complex with respect to which each of the
Directors served as a director or trustee, are set forth below.
Neither the Fund nor any other fund in the Alliance Fund Complex
provides compensation in the form of pension or retirement
benefits to any of its directors or trustees.

Total Number
of Funds in
the Alliance
Total Complex,
Compensation Including the
from the Fund, as to
Alliance Fund which the
Aggregate Complex, Director is a
Name of Director Compensation Including the Director or
of the Fund from the Fund Fund* Trustee
_______________ _____________ _____________ _____________

John D. Carifa $-0- $-0- 49
Ruth Block $3,165 $ 159,000 36
David H. Dievler $3,165 $ 179,200 42
John H. Dobkin $3,300 $ 117,200 29
William H. Foulk, Jr. $3,300 $ 143,500 30
Dr. James M. Hester $3,165 $ 156,000 37
Clifford L. Michel $3,165 $ 131,500 36

___________________________

* The information in this column represents amounts actually paid during
calendar year 1995.

As of March 23, 1996, the Directors and officers of the Fund as a
group owned less than 1% of the shares of the Fund.

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ADVISER

Alliance Capital Management L.P., a New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an advisory agreement (the "Advisory Agreement") to provide
investment advice and, in general, to conduct the management and
investment program of the Fund under the supervision and control
of the Fund's Board of Directors.

The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1996 of more than $173 billion (of which more than
$59 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 September 30,
1996, 33 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
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 52
registered investment companies comprising 110 separate
investment portfolios managed by the Adviser currently have more
than two 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 June 30, 1996,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 57% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1996, approximately 33% and
10% 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.

As of September 6, 1996, AXA and its subsidiaries own
approximately 60.7% of the issued and outstanding shares of
capital stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations include activities in life
insurance, property and casualty insurance and reinsurance. The
insurance operations are diverse geographically with activities

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<PAGE>

in France, the United States, Australia, the United Kingdom,
Canada and other countries, principally in Europe and the
Asia/Pacific area. AXA is also engaged in asset management,
investment banking, securities trading, brokerage, real estate
and other financial services activities in the United States,
Europe and the Asia/Pacific area. Based on information provided
by AXA, as of September 9, 1996, 36.3% of the issued ordinary
shares (representing 49.1% of the voting power) of AXA were owned
directly or indirectly by Finaxa, a French holding company
("Finaxa"). As of September 6, 1996, 61.3% of the voting shares
(representing 73.5% 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 34.8% of the
voting shares representing 40.6% of the voting power), and 23.7%
of the voting shares of Finaxa (representing 10.5% of the voting
power) of Finaxa were owned by Banque Paribas, a French bank.
Including the ordinary shares directly or indirectly owned by
Finaxa, the Mutuelles AXA directly or indirectly owned 42.0% of
the issued ordinary shares (representing 56.8% of the voting
power) of AXA as of September 9, 1996. Acting as a group, the
Mutuelles AXA control AXA and Finaxa. In addition, as of
September 9, 1996, 7.8% of the issued ordinary shares of the AXA
without the power to vote were owned by subsidiaries of AXA.

The Investment Advisory Agreement became effective on
July 22, 1992. 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 that purpose and held on June 14, 1994.
The Investment Advisory Agreement was amended as of February 1,
1996 to provide for the addition of the Technology Portfolio.
The amendment to the Investment Advisory Agreement was approved
by the unanimous vote, cast in person, of the disinterested

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Directors at a meeting called for that purpose and held on
November 28, 1995.

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%
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%
Technology Portfolio 1.000%
Quasar Portfolio 1.000%
Real Estate Investment Portfolio .900%

For 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- and for the fiscal year ended
December 31, 1995, the advisory fee paid was $62,062; for the
fiscal years ended December 31, 1993, December 31, 1994 and
December 31, 1995, the advisory fees paid by the Premier Growth
Portfolio to the Adviser were $10,976, $128,361 and $434,845,
respectively; for the fiscal years ended December 31, 1993,
December 31, 1994 and December 31, 1995, the advisory fees paid
to the Adviser by the Growth and Income Portfolio were $79,930,
$200,454 and $362,532, respectively; for each of the fiscal years
ended December 31, 1993, December 31, 1994 and December 31, 1995,

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the advisory fee paid by the U.S. Government/High Grade
Securities Portfolio to the Adviser was $-0-; for each of the
fiscal years ended December 31, 1993, December 31, 1994 and
December 31, 1995, the advisory fee paid by the Total Return
Portfolio to the Adviser was $-0-; for each of the fiscal years
ended December 31, 1993, December 31, 1994 and December 31, 1995,
the advisory fee paid by the International Portfolio to the
Adviser was $-0-; for the fiscal years ended December 31, 1993,
December 31, 1994 and December 31, 1995, the advisory fees paid
by the Short-Term Multi Market Portfolio to the Adviser were
$86,361, $127,682 and $32,003, respectively; and for each of the
fiscal years ended December 31, 1993, December 31, 1994 and
December 31, 1995, the advisory fee paid by the Global Bond
Portfolio to the Adviser was $-0-; for the period May 3, 1994
(commencement of operations) through December 31, 1994 and the
fiscal year ended December 31, 1995, 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 and for the fiscal year ended
December 31, 1995, 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 and for the fiscal year ended December 31, 1995, 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 and for the fiscal year
ended December 31, 1995, 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 and for the fiscal year ended December 31,
1995, 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 and for
the fiscal year ended December 31, 1995, the advisory fees paid
by the Growth Portfolio to the Adviser were $-0- and $89,502,
respectively; for the period September 23, 1994 (commencement of
operations) through December 31, 1994 and for the fiscal year
ended December 31, 1995, the advisory fee paid by the Worldwide
Privatizations Portfolio to the Advisor was $-0-.

The Commission takes the position that the rates of the
advisory fees applicable to the Growth Portfolio, the
International Portfolio, the Global Dollar Government Portfolio,
the Utility Income Portfolio, the Conservative Investors
Portfolio, the Growth Portfolio, the Worldwide Privatization
Portfolio, the Technology Portfolio, the Quasar Portfolio and the
Real Estate Investment Portfilio 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.

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<PAGE>

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.

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 Investment 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
Investment 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 All-Asia
Investment Fund, Inc., Alliance Balanced Shares, Inc., Alliance

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<PAGE>

Bond Fund, Inc., Alliance Capital Reserves, Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Fund, Alliance Global Small Cap Fund, Inc.,
Alliance Global Strategic Income Trust, Inc., Alliance Government
Reserves, Alliance Growth and Income Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance International Fund, Alliance Limited
Maturity Government Fund, Inc., Alliance Managed Dollar Income
Fund, Inc., Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, 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 Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity 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 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 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 Korean Investment
Fund, Inc., The Southern Africa Fund, Inc. and The Spain Fund,
Inc., all registered closed-end 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

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<PAGE>

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 fiscal years ended December 31, 1993, 1994 and
1995, the Sub-Adviser received sub-advisory fees in the amounts
of $7,573, $27,175 and $36,383, 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 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.

In providing advisory services to the Fund and other
clients investing in real estate securities, Alliance has access
to the research services of Koll Investment Management the
Investment Management Division of Koll ("Koll"), which acts as a
consultant to Alliance with respect to the real estate market.
As a consultant, Koll provides to Alliance, at Alliance's
expense, such in-depth information regarding the real estate
market, the factors influencing regional valuations and analysis
of recent transactions in office, retail, industrial and
multi-family properties as Alliance shall from time to time
request. Koll will not furnish investment advice or make
recommendations regarding the purchase or sale of securities by
the Fund nor will it be responsible for making investment
decisions involving Fund assets.

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Koll is one of the largest fee-based property management
firms in the United States as well as one of the largest
publishers of real estate research, with approximately 2,600
employees nationwide. Koll will provide Alliance with exclusive
access to its REIT*Score model which ranks approximately 115
REITs based on the relative attractiveness of th property markets
in which they own real estate. This model scores the
approximately 9,000 individual properties owned by these
companies. REIT*Score is in turn based on Koll's National Real
Estate Index which gathers, analyzes and publishes targeted
research data for the 65 largest U.S. real estate markets based
on a variety of public- and private-sector sources as well as
Koll's proprietary database of 45,000 commercial property
transactions representing over $250 billion of investment
property and over 2,000 tracked properties which report rent and
expense data quarterly. Koll has previously provided access to
its REIT*Score model results primarily to the institutional
market through subscriptions. The model is no longer provided to
any research publications and the Fund is currently the only
mutual fund available to retail investors that has access to
Koll's REIT*Score model.

_________________________________________________________________

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."

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.

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_________________________________________________________________

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. 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 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 days on which the
New York Stock Exchange is closed (most national holidays 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
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

190

<PAGE>

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.

_________________________________________________________________

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.

191

<PAGE>

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
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 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 with
respect to 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

192

<PAGE>

Portfolio, respectively. Brokerage commissions paid for the
fiscal year ended December 31, 1995 on securities transactions
amounted to $1,373, $3,055, $104,323, $229,432, $64,196,
$148,418, $7,479, $22,347 and $11,055 with respect to The
Conservative Investors Portfolio, The Growth Investors Portfolio,
The Growth Portfolio, The Growth and Income Portfolio, The
International Portfolio, The Premier Growth Portfolio, The Total
Return Portfolio, The Utility Portfolio and The Worldwide
Privatization Portfolio, respectively. The Global Bond
Portfolio, The Global Dollar Government Portfolio, The Money
Market Portfolio, The North American Government Income, The
Short-Term Multi-Market Portfolio and the U.S. Government/High
Grade Securities Portfolio did not incur any brokerage
commissions for the fiscal year ended December 31, 1995. During
the fiscal years ended December 31, 1993, 1994 and 1995, 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
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

193

<PAGE>

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.

________________________________________________________________

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

194

<PAGE>

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 31, 1996 consisted of
45,537,283 shares of common stock of the Money Market Portfolio,
2,417,224 shares of common stock of the Premier Growth Portfolio,
3,666,462 shares of common stock of the Growth and Income
Portfolio, 1,927,296 shares of common stock of the U.S.
Government/High Grade Securities Portfolio, 1,618,669 shares of
common stock of the International Portfolio, 935,050 shares of
common stock of the Total Return Portfolio, 402,800 shares of
common stock of the Short-Term Multi-Market Portfolio, 1,116,780
shares of common stock of the Global Bond Portfolio, 858,867
shares of common stock of the North American Government Income
Portfolio, 361,887 shares of common stock of the Global Dollar
Government Portfolio, 729,555 shares of common stock the Utility
Income Portfolio, 972,827 shares of common stock of the
Conservative Investors Portfolio, 550,364 shares of common stock
of the Growth Investors Portfolio, 4,380,082 shares of common
stock of the Growth Portfolio, 678,624 shares of common stock of
the Worldwide Privatization Portfolio and 321,760 shares of
common stock of the Technology 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 31, 1996.

195

<PAGE>

NUMBER OF % OF
PORTFOLIO NAME AND ADDRESS SHARES SHARES

Money Market AIG Life Insurance 34,223,349 75%
Company ("AIG")
One ALICO Plaza
600 Kings Street
Wilmington, DE 19801

American International 7,212,956 16%
Life Assurance Company
of New York ("American")
80 Pine Street
New York, NY 10005

American Skandia Life 2,717,169 6%
Assurance Corporation
("Skandia")
One Corporate Drive
Shelton, CT 06484

Premier Growth Skandia 289,329 12%

AIG 1,582,003 65%

American 545,614 23%

Growth and Income Skandia 315,261 9%

AIG 2,245,259 61%

Bankers Life Insurance 366,105 10%
Society ("Bankers Life")
4601 Fairfax Drive
Arlington, VA 22203

American 739,838 20%

U.S. Government/ AIG 1,215,320 63%
High Grade
American 464,984 24%

Skandia 246,992 13%

Total Return AIG 505,175 54%

Skandia 270,142 29%

American 159,733 17%

International AIG 1,117,542 69%

196

<PAGE>

American 280,408 17%

Skandia 220,339 14%

Short-Term Skandia 25,354 6%
Multi-Market
Bankers Life 82,552 20%

AIG 206,462 51%

American 88,433 22%

Global Bond American 115,988 10%

AIG 342,491 31%

North American AIG 654,047 76%
Government Income

American 135,865 16%

Skandia 68,954 8%

Global Dollar AIG 277,573 77%
Government

Skandia 66,125 18%

American 18,187 5%

Utility Income AIG 508,245 70%

American 139,599 19%

Conservative AIG 601,903 62%
Investors
American 287,136 30%

Skandia 83,787 7%

Growth Investors AIG 371,684 68%

American 98,660 18%

Skandia 80,017 15%

Growth AIG 3,075,308 70%

American 997,949 23%

Skandia 306,822 7%

197

<PAGE>

Worldwide AIG 498,660 73%
Privatization
American 78,814 12%

Skandia 101,149 15%

Technology AIG 251,139 78%

American 70,621 22%

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
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.

198

<PAGE>

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
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, 1995 was 4.62%. The U.S. Government/High
Grade Securities Portfolio's yield for the month ended
December 31, 1995 was 5.74%. The Short-Term Multi-Market
Portfolio's yield for the month ended December 31, 1995 was
6.26%. The Global Bond Portfolio's yield for the month ended
December 31, 1995 was 5.72%. The North American Government
Income Portfolio's yield for the month ended December 31, 1995
was 11.38%. The Global Dollar Government Portfolio's yield for
the month ended December 31, 1995 was 8.12%. The actual
distribution rate for such period for the Money Market Portfolio
was .46%, 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, 1995 and for the fiscal year
ended December 31, 1995 were 2.76% and 3.27%, respectively. The
Premier Growth Portfolio's average annual total returns for the

199

<PAGE>

period June 26, 1992 (commencement of operations) through
December 31, 1995 and for the fiscal year ended December 31, 1995
were 18.20% and 44.85%, respectively. The Growth and Income
Portfolio's average annual total returns for the period
January 14, 1991 (commencement of operations) through
December 31, 1995 and for the fiscal year ended December 31, 1995
were 11.13% and 35.76%, 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, 1995 and for the fiscal year ended December 31, 1995
were 6.65% and 19.26%, respectively. The Total Return
Portfolio's average annual total returns for the period
December 28, 1992 (commencement of operations) through
December 31, 1995 and for the fiscal year ended December 31, 1995
were 9.26% and 23.67%, respectively. The International
Portfolio's average annual total returns for the period
December 28, 1992 (commencement of operations) through
December 31, 1995 and for the fiscal year ended December 31, 1995
were 12.50% and 9.86%, respectively. The Short-Term Multi-Market
Portfolio's average annual total returns for the period
November 28, 1990 (commencement of operations) through
December 31, 1995, for the five years ended December 31, 1995 and
for the fiscal year ended December 31, 1995 were 2.82%, 2.79%
and 6.76%, respectively. The Global Bond Portfolio's average
annual total returns for the period July 15, 1991 (commencement
of operations) through December 31, 1995 and for the fiscal year
ended December 31, 1995 were 9.99% and 24.73%, respectively. The
North American Government Income Portfolio's average annual total
return for the period May 3, 1994 (commencement of operations)
through December 31, 1995 and for the fiscal year ended
December 31, 1995 were 4.63% and 22.71%, respectively. The
Global Dollar Government Portfolio's average annual total return
for the period May 2, 1994 (commencement of operations) through
December 31, 1995 and for the fiscal year ended December 31, 1995
were 12.10% and 22.98%, respectively. The Utility Income
Portfolio's average annual total return for the period May 10,
1994 (commencement of operations) through December 31, 1995 and
for the fiscal year ended December 31, 1995 were 12.23% and
21.45%, respectively. The Conservative Investors Portfolio's
average annual total return for the period October 28, 1994
(commencement of operations) through December 31, 1995 and for
the fiscal year ended December 31, 1995 were 14.90% and 16.99%,
respectively. The Growth Investors Portfolio's average annual
total return for the period October 28, 1994 (commencement of
operations) through December 31, 1995 and for the fiscal year
ended December 31, 1995 were 15.71% and 20.48%, respectively.
The Growth Portfolio's average annual total return for the period
September 15, 1994 (commencement of operations) through
December 31, 1995 and for the fiscal year ended December 31, 1995
were 31.24% and 35.23%, respectively. The Worldwide
Privatization Portfolio's average annual total return for the

200

<PAGE>

period September 23, 1994 (commencement of operations) through
December 31, 1995 and for the fiscal year ended December 31, 1995
were 9.32% and 10.87%, respectively.

-201-
00250292.BA4

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
PREMIER GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS AND
OTHER INVESTMENTS--75.3%
CONSUMER SERVICES--17.3%
AIRLINES--4.5%
KLM Royal Dutch Airlines ......... 8,629 $ 304,172
Northwest Airlines Corp. Cl.A ....... 7,400 376,938
UAL Corp.* .......................... 3,600 642,600
----------
1,323,710
----------
BROADCASTING &
CABLE--6.0%
AirTouch Communications, Inc.* ......24,500 692,125
Cox Communications, Inc. Cl.A .......11,600 226,200
Liberty Media Group Cl.A* ........... 8,625 231,258
Tele-Communications, Inc. Cl.A* .....30,500 608,093
----------
1,757,676
----------
ENTERTAINMENT &
LEISURE--3.8%
ITT Corp............................ 10,600 561,800
Walt Disney Co...................... 9,100 536,900
----------
1,098,700
----------
RESTAURANTS &
LODGING--1.9%
McDonald's Corp..................... 12,200 550,525
----------

RETAILING--1.1%
Home Depot, Inc..................... 7,033 336,705
----------
5,067,316
----------
CONSUMER STAPLES--8.7%
COSMETICS--1.0%
Gillette Co......................... 5,800 302,325
-----------

FOOD--2.6%
Coca-Cola Co........................ 2,400 178,200
PepsiCo, Inc........................ 10,300 575,512
-----------
753,712
-----------
TOBACCO--5.1%
Philip Morris Cos., Inc............. 16,300 1,475,150
-----------
2,531,187
-----------
FINANCE--18.0%
BANKING & CREDIT--8.8%
Citicorp............................ 4,900 329,525
First Bank Systems, Inc. ........... 6,400 317,600
First Chicago NBD Corp. ............ 11,251 444,414
First Interstate Bancorp ........... 1,600 218,400
NationsBank Corp.................... 5,500 382,938
Norwest Corp........................ 26,400 871,200
-----------
2,564,077
-----------
BROKERAGE & MONEY
MANAGEMENT--2.4%
Merrill Lynch & Co., Inc. .......... 14,100 $ 719,100
------------

INSURANCE--3.3%
American International Group, Inc. . 4,300 397,750
General Reinsurance Corp. .......... 1,800 279,000
ITT Hartford Group, Inc. ........... 6,100 295,087
-------------
971,837
-------------
MORTGAGE BANKING--2.3%
Federal National Mortgage Assn. .... 5,500 682,688
-------------

OTHER--1.2%
MBNA Corp. ......................... 9,200 339,250
-------------
5,276,952
-------------
HEALTH CARE--7.4%
DRUGS--4.0%
Amgen, Inc.*........................ 7,600 450,775
Merck & Co., Inc.................... 5,800 381,350
Pfizer, Inc......................... 5,300 333,900
-----------
1,166,025
-----------
MEDICAL SERVICES--3.4%
Columbia/HCA Healthcare Corp. ...... 8,600 436,450
United Healthcare Corp. ............ 8,700 569,850
-------------
1,006,300
-------------
2,172,325
-------------
TECHNOLOGY--22.0%
COMMUNICATIONS
EQUIPMENT--5.2%
Cisco Systems, Inc.*................ 9,500 709,531
Ericsson (L.M.) Telephone Co. ...... 10,990 214,305
Nokia Corp. (ADR)................... 15,100 587,013
-----------
1,510,849
-----------
COMPUTER HARDWARE--4.4%
Compaq Computer Corp.* ............. 8,700 417,600
Hewlett-Packard Co. ................ 10,400 871,000
-------------
1,288,600
-------------
COMPUTER SOFTWARE &
SERVICES--4.2%
First Data Corp..................... 3,700 247,437
General Motors Corp. Cl.E .......... 5,500 286,000
Microsoft Corp.*.................... 4,800 421,500
Oracle Corp.*....................... 6,600 279,675
-----------
1,234,612
-----------
SEMI-CONDUCTORS &
RELATED--8.2%
Applied Materials, Inc.*............ 20,000 786,250

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
PREMIER GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES OR
PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
---------- -----------
Intel Corp. ........................ 3,500 $ 198,844
warrants expiring 3/14/98* 42,400 1,131,550
Micron Technology, Inc. ............ 7,600 301,150
-------------
2,417,794
-------------
6,451,855
-------------
UTILITIES--1.9%
TELEPHONE--1.9%
AT & T Corp......................... 6,800 440,300
MCI Communications Corp. ........... 3,800 99,513
------------
539,813
------------
Total Common Stocks and
Other Investments
(cost $18,722,128) .............. 22,039,448
------------

SHORT-TERM INVESTMENTS--150.0%
TIME DEPOSIT--39.6%
State Street Bank and Trust Co.
5.50%, 1/02/96...................$11,594 11,594,000
-----------

COMMERCIAL PAPER--110.4%
American Express Co.
5.60%, 1/02/96................... 5,005 5,004,221
AT & T Capital Corp.
5.78%, 1/02/96................... 3,465 3,464,443

PRINCIPAL
AMOUNT
(000)
---------
Exxon Imperial U.S. Inc.
5.85%, 1/02/96................... $3,465 $ 3,464,437
Ford Motor Credit Corp.
5.85%, 1/02/96................... 5,005 5,004,187
General Electric Capital Corp.
5.95%, 1/02/96................... 5,003 5,002,173
Goldman Sachs Group L.P.
6.10%, 1/02/96................... 3,465 3,464,413
Nestle Capital Corp.
5.80%, 1/02/96................... 3,465 3,464,442
Prudential Funding
5.80%, 1/02/96................... 3,465 3,464,442
-----------
32,332,758
-----------
Total Short-Term Investments
(amortized cost $43,926,758) .... 43,926,758
-----------

TOTAL INVESTMENTS--225.3%
(cost $62,648,886)............... 65,966,206
Other assets less liabilities--(125.3%) (36,687,912)
-----------

NET ASSETS--100.0%.................. $29,278,294
===========

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

* Non-income producing security.
See Notes to Financial Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GLOBAL BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
---------- -----------
BELGIUM--9.5%
GOVERNMENT/AGENCY--9.5%
Kingdom of Belgium
6.25%, 10/06/03 .......... DEM 850 $ 604,688
7.25%, 4/29/04 ........... BFR 14,000 497,397
-----------

Total Belgian Securities
(cost $1,088,820)......... 1,102,085
-----------

DENMARK--4.1%
GOVERNMENT/AGENCY--4.1%
Kingdom of Denmark
8.00%, 5/15/03 ........... DKK 1,000 191,464
9.00%, 11/15/00 .......... 1,400 280,504
-----------

Total Danish Securities
(cost $412,880) .......... 471,968
-----------

FINLAND--4.5%
GOVERNMENT/AGENCY--4.5%
Government of Finland
9.50%, 3/15/04
(cost $535,477) .......... FIM 2,000 524,348
-----------

IRELAND--4.4%
GOVERNMENT/AGENCY--4.4%
Republic of Ireland
8.00%, 10/18/00
(cost $487,385) .......... IEP 300 504,803
-----------

ITALY--4.6%
GOVERNMENT/AGENCY--4.6%
Republic of Italy
10.50%, 4/01/05
(cost $504,652) ......... LIRA 850,000 531,958
-----------

JAPAN--8.4%
CORPORATE OBLIGATIONS--8.4%
Export Import Bank of Japan
4.375%, 10/01/03 ......... JPY 55,000 585,290
International Bank for
Reconstruction & Development
4.50%, 6/20/00 ........... 35,000 378,602
-----------

Total Japanese Securities
(cost $978,240) .......... $ 963,892
-----------

SPAIN--9.1%
GOVERNMENT/AGENCY--9.1%
Government of Spain
11.30%, 1/15/02 ESP 60,000 530,256
Kingdom of Spain
8.00%, 5/30/04 ........... 70,000 523,124
-----------

Total Spanish Securities
(cost $1,029,689)......... 1,053,380
-----------

SWEDEN--4.9%
GOVERNMENT/AGENCY--4.9%
Kingdom of Sweden
10.25%, 5/05/03
(cost $505,309)........... SEK 3,400 564,897
-----------

UNITED KINGDOM--4.8%
GOVERNMENT/AGENCY--4.8%
U.K. Treasury
8.00%, 6/10/03
(cost $545,235) .......... GBP 340 551,958
-----------

UNITED STATES--42.4%
GOVERNMENT/AGENCY--41.3%
U.S. Treasury Notes
6.375%, 8/15/02 (a)....... US$ 2,150 2,254,469
7.875%, 8/15/01 .......... 2,250 2,512,957
-----------
4,767,426
-----------
TIME DEPOSIT--1.1%
State Street Bank and Trust Co.
5.4375%, 1/02/96 ......... 133 133,000
-----------

Total United States Securities
(cost $4,774,643) ........ 4,900,426
-----------

TOTAL INVESTMENTS--96.7%
(cost $10,862,330)........ 11,169,715
Other assets less liabilities--3.3% 383,262
-----------
NET ASSETS--100.0%............ $11,552,977
===========

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

(a) Security segregated to collateralize forward exchange currency contracts
with an aggregate market value of $2,254,469. See Notes to Financial
Statements.
26

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES U.S.$ VALUE
COMMON STOCKS--84.3%
BASIC INDUSTRIES--5.5%
CHEMICALS--4.1%
Monsanto Co. ....................... 6,700 $ 820,750
Rohm & Haas Co. .................... 2,750 177,031
Union Carbide Corp. ................ 19,100 716,250
-----------
1,714,031
-----------
POLLUTION CONTROL--1.4%
WMX Technologies, Inc. ............. 20,400 609,450
-----------
2,323,481
-----------
CAPITAL GOODS--4.2%
ELECTRICAL EQUIPMENT--1.4%
General Electric Co. ............... 8,200 590,400
-----------

MACHINERY--2.8%
Allied-Signal, Inc.................. 7,000 332,500
BWIP Holdings, Inc. Cl.A............ 18,450 299,812
Coltec Industries, Inc.* ........... 36,950 429,544
Giddings & Lewis, Inc., Wisconsin... 7,800 127,725
-----------
1,189,581
-----------
1,779,981
-----------
CONSUMER
MANUFACTURING--3.7%
AUTO & RELATED--3.7%
Goodyear Tire & Rubber Co. ......... 33,950 1,540,481
------------

CONSUMER SERVICES--8.6%
BROADCASTING &
CABLE--3.1%
Comcast Corp. Cl.A SPL ............. 9,900 180,056
Liberty Media Group Cl.A*........... 14,000 375,375
Tele-Communications, Inc. Cl.A*..... 20,000 398,750
Vodafone Group PLC (ADR)............ 9,450 333,113
-----------
1,287,294
-----------
ENTERTAINMENT &
LEISURE--0.8%
Eastman Kodak Co.................... 5,100 341,700
-----------

RETAILING--4.7%
Federated Department Stores, Inc.*.. 12,650 347,875
Kroger Co.*......................... 9,050 339,375
Lowes Cos., Inc..................... 24,950 835,825
Nordstrom, Inc...................... 7,500 302,812
Pep Boys Manny, Moe & Jack.......... 5,900 151,188
-----------
1,977,075
-----------
3,606,069
-----------

CONSUMER STAPLES--11.6%
FOOD--8.6%
Campbell Soup Co.................... 13,000 $ 780,000
Nabisco Holdings Corp............... 42,450 1,384,931
PepsiCo, Inc........................ 26,150 1,461,132
-----------
3,626,063
-----------

TOBACCO--3.0%
Philip Morris Cos., Inc............. 13,650 1,235,325
-----------
4,861,388
-----------
ENERGY--4.8%
DOMESTIC INTEGRATED--1.0%
Atlantic Richfield Co............... 3,700 409,775
-----------

DOMESTIC PRODUCERS--0.8%
Renaissance Energy Ltd.* .......... 13,500 336,141
-----------

OIL & GAS SERVICES--0.9%
Western Atlas, Inc.*................ 7,350 371,175
-----------

PIPELINES--2.1%
Enron Corp.......................... 23,500 895,937
-----------
2,013,028
-----------
FINANCE--11.1%
BANKING & CREDIT--5.6%
BankAmerica Corp.................... 5,600 362,600
First Chicago NBD Corp. ............ 17,648 697,096
Fleet Financial Group, Inc.......... 18,100 737,575
NationsBank Corp.................... 7,750 539,594
-----------
2,336,865
-----------
BROKERAGE & MONEY
MANAGEMENT--1.2%
Merrill Lynch & Co., Inc. .......... 10,200 520,200
-----------

INSURANCE--4.3%
Allstate Corp....................... 15,150 621,150
Travelers, Inc...................... 18,900 1,188,337
-----------
1,809,487
-----------
4,666,552
-----------
HEALTH CARE--9.7%
BIOTECHNOLOGY--1.3%
Centocor, Inc....................... 17,600 545,600
-----------

DRUGS--4.3%
AB Astra (ADR)...................... 14,400 575,807
Lilly (Eli) & Co.................... 8,498 478,013
Schering-Plough Corp................ 13,650 747,337
-----------
1,801,157
-----------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES U.S.$ VALUE
------ -----------
MEDICAL SERVICES--4.1%
Columbia/HCA Healthcare Corp. 13,200 $ 669,900
U.S. Healthcare, Inc. ....... 23,100 1,072,706
----------
1,742,606
-----------
4,089,363
-----------
TECHNOLOGY--12.8%
AEROSPACE & DEFENSE--1.6%
Boeing Co. .................. 4,250 333,094
General Motors Corp. Cl.H ... 7,150 351,244
----------
684,338
-----------
COMMUNICATIONS
EQUIPMENT--4.9%
DSC Communications Corp.* ... 18,000 666,000
General Instrument Corp.* ... 27,550 643,981
Nokia Corp. (ADR) ........... 18,800 730,850
----------
2,040,831
-----------
COMPUTER HARDWARE--2.6%
Compaq Computer Corp.* ...... 7,050 338,400
International Business
Machines Corp. ........... 8,050 738,588
----------
1,076,988
-----------
SEMI-CONDUCTORS &
RELATED--3.7%
Intel Corp. ................. 14,800 840,825
National Semiconductor Corp.* 32,373 720,299
----------
1,561,124
-----------
5,363,281
-----------
TRANSPORTATION--0.9%
TRUCKING--0.9%
Xtra Corp. .................. 9,000 382,500
----------

UTILITIES--11.4%
ELECTRIC & GAS--2.4%
FPL Group, Inc. ............. 6,650 308,394
Houston Industries, Inc. .... 15,100 366,175
Portland General Corp. ...... 11,900 346,587
----------
1,021,156
-----------

SHARES OR
PRINCIPAL
AMOUNT
(000)
-----------
TELEPHONE--9.0%
ALLTEL Corp. ................ 34,750 $1,025,125
AT & T Corp. ................ 12,700 822,325
Century Telephone
Enterprises, Inc. ........ 32,000 1,016,000
Sprint Corp. ................ 22,400 893,200
----------
3,756,650
-----------
4,777,806
-----------
Total Common Stocks
(cost $30,937,072) ....... 35,403,930
----------

SHORT-TERM INVESTMENTS--101.4%
U.S. GOVERNMENT
OBLIGATIONS--79.5%
Federal Agricultural
Mortgage Corp. ...........
5.45%, 1/02/96 .............. 3,400 3,399,485
Federal Home Loan Bank
5.75%, 1/02/96 ........... 10,000 9,998,403
Federal Home Loan Mortgage Corp.
5.75%, 1/02/96 ........... 10,000 9,998,403
Student Loan Marketing Assn .
5.65%, 1/02/96 ........... 10,000 9,998,431
----------
33,394,722
-----------
COMMERCIAL PAPER--21.9%
American Express Co. ........
5.65%, 1/02/96 ........... 9,200 9,198,556
----------

Total Short-Term Investments
(amortized cost $42,593,278) 42,593,278
----------

TOTAL INVESTMENTS--185.7%
(cost $73,530,350) ....... 77,997,208
Other assets less liabilities--(85.7%) (36,004,380)
-----------

NET ASSETS--100.0% .......... $41,992,828
==========

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

* Non-income producing security.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
SHORT-TERM MULTI-MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
---------- -----------
AUSTRALIA--3.5%
GOVERNMENT/AGENCY--3.5%
Commonwealth of Australia
7.00%, 8/15/98 (a)
(cost $111,897) ....... AUD 150 $ 110,494
----------

CANADA--1.7%
GOVERNMENT/AGENCY--1.7%
Government of Canada
6.50%, 9/01/98 (a)
(cost $53,412) ....... CAD 75 55,414
-----------

DENMARK--7.5%
GOVERNMENT/AGENCY--7.5%
Kingdom of Denmark
9.00%, 11/15/98 (a)
(cost $236,626)......... DKK 1,200 235,418
-----------

FRANCE--2.6%
GOVERNMENT/AGENCY--2.6%
Government of France
5.75%, 11/12/98 (a)
(cost $82,319) ......... FRF 400 82,671
-----------

GERMANY--7.1%
GOVERNMENT/AGENCY--7.1%
Federal Republic of Germany
6.875%, 12/02/98 (a)
(cost $223,648) ........ DEM 300 223,876
-----------

IRELAND--4.4%
GOVERNMENT/AGENCY--4.4%
Republic of Ireland
9.75%, 6/01/98 (a)
(cost $137,617) ........ IEP 80 138,264
-----------

NEW ZEALAND--8.5%
GOVERNMENT/AGENCY--8.5%
New Zealand Treasury Bonds
10.00%, 7/15/97 (a)
(cost $278,005) ........ NZD 400 $ 268,698
-----------

SPAIN--8.0%
GOVERNMENT/AGENCY--8.0%
Kingdom of Spain
9.90%, 10/31/98 (a)
(cost $245,397) ........ ESP 30,000 251,674
----------

UNITED KINGDOM--3.3%
GOVERNMENT/AGENCY--3.3%
U.K. Treasury
7.25%, 3/30/98 (a)
(cost $103,521) ........ GBP 65 102,840
----------

UNITED STATES--290.0%
TIME DEPOSIT--290.0%
State Street Bank and Trust Co.
5.50%, 1/02/96
(amortized cost
$9,140,000)............. US$ 9,140 9,140,000
-----------

TOTAL INVESTMENTS--336.6%
(cost $10,612,442) 10,609,349
Other assets less liabilities--(236.6%) (7,457,271)
-----------
NET ASSETS--100.0%.......... $3,152,078
==========

- -------------------------------------------------------------------
(a) Securities segregated to collateralize forward exchange currency contracts
with an aggregate market value of $1,469,349.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES OR
PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
---------- -----------
PREFERRED STOCKS--0.3%
FINANCE--0.3%
Banesto Holdings Ltd. cv. pfd.
Series A 10.50% (a)
(cost $49,725) ........... 1,800 $ 55,215
----------

CORPORATE OBLIGATIONS--20.3%
ASSET BACKED--0.6%
MBNA Master Credit Card
Trust Cl.A
5.40%, 9/15/00 ........... $ 100 99,531
----------

FINANCE--18.5%
Abbey National Plc
6.69%, 10/17/05 .......... 500 518,915
BankAmerica Corp. ...........
7.20%, 4/15/06 ........... 100 106,531
Farmers Insurance Exchange
8.625%, 5/01/24 (a) ...... 250 250,668
General Motors Acceptance Corp.
7.125%, 6/01/99 .......... 500 519,205
Goldman Sachs Group L.P. ....
7.25%, 10/01/05 .......... 500 523,450
Merrill Lynch & Co., Inc. ...
6.25%, 10/15/08 .......... 531 519,780
St. George Bank Ltd. ........
7.15%, 10/15/05 .......... 500 517,530
TCI Communications, Inc. ....
8.75%, 8/01/15 ........... 100 110,867
Wachovia Corp. ..............
6.375%, 4/15/03 .......... 75 76,442
----------
3,143,388
-----------
YANKEES--1.2%
Republic of Italy
6.875%, 9/27/23 .......... 200 195,310
----------

Total Corporate Obligations
(cost $3,236,031) ........ 3,438,229
----------

U.S. GOVERNMENT
OBLIGATIONS--65.1%
U.S. TREASURY SECURITIES--42 9%
U.S. Treasury Bonds
7.125%, 2/15/23 (b) ...... 685 783,256

7.625%, 2/15/25 ............. 670 819,283
11.25%, 2/15/15 .......... 500 800,390
U.S. Treasury Notes
7.125%, 9/30/99 .......... 2,380 2,523,538
7.25%, 8/15/04 ........... 1,790 1,990,533
7.75%, 3/31/96 ........... 350 352,023
----------
7,269,023
-----------
FEDERAL AGENCY-MORTGAGES--4.6%
Federal Home Loan Mortgage Corp./
Government National Mortgage Assn.
4.75%, 7/25/11 ........... 400 394,124
Government National Mortgage Assn.
7.00%, 7/15/23 ........... 88 88,577
8.00%, 1/15/24 ........... 135 140,255
9.00%, 9/15/24 ........... 146 154,321
----------
777,277
-----------

FEDERAL AGENCY--17.6%
AID - Israel
8.00%, 11/15/01 .......... 200 222,884
Federal Home Loan Bank
7.26%, 9/06/01 ........... 300 323,109
Federal Home Loan Mortgage Corp.
6.13%, 8/19/99 ........... 200 204,062
Federal National Mortgage Assn.
6.05%, 1/12/98 ........... 100 101,344
6.85%, 4/05/04 ........... 100 106,656
Overseas Private Investment Corp.
6.08%, 8/15/04 ........... 1,000 1,012,780
Student Loan Marketing Assn .
6.05%, 9/14/00 ........... 1,000 1,018,280
----------
2,989,115
-----------
Total U.S. Government Obligations
(cost $10,684,602)........... 11,035,415
-----------

SOVEREIGN DEBT
OBLIGATIONS--12.4%
AUSTRALIA--3.5%
Commonwealth of Australia
10.00%, 10/15/07 (b)..... AUD 700 586,675
-----------

CANADA--4.8%
Government of Canada
8.75%, 12/01/05 (b) .... CAD 1,000 818,491
-----------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
-------- -----------
GERMANY--4.1%
Federal Republic of Germany
7.375%, 1/03/05.............. DEM 900 $ 685,619
-----------

Total Sovereign Debt Obligations
(cost $2,055,124) ........... 2,090,785
-----------

SHORT-TERM INVESTMENTS--3.4%
TIME DEPOSIT--3.4%
State Street Bank and Trust Co.
5.50%, 1/02/96
(amortized cost $573,000) ... $573 573,000
----------

TOTAL INVESTMENTS--101.5%
(cost $16,598,482)............... $17,192,644
Other assets less liabilities--(1.5%) (246,125)
-----------

NET ASSETS--100.0%................... $16,946,519
===========

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

(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,
1995, the aggregate market value of these securities amounted to $305,883
or 1.8% of net assets.

(b) Securities segregated to collateralize forward exchange currency contracts
with an aggregate market value of $2,188,422. See Notes to Financial
Statements.

<PAGE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES U.S.$ VALUE
COMMON STOCKS--59.0%
BASIC INDUSTRIES--3.8%
CHEMICALS--2.4%
Monsanto Co. ................ 130 $ 15,925
Morton International, Inc. .. 1,300 46,637
Rohm & Haas Co. ............. 700 45,063
Union Carbide Corp. ......... 2,400 90,000
----------
197,625
----------
METALS & MINING--0.2%
Alumax, Inc* ................ 600 18,375
----------

PAPER & FOREST
PRODUCTS--1.0%
Kimberly Clark Corp. ........ 1,000 82,750
----------

OTHER--0.2%
Alco Standard Corp. ......... 400 18,250
----------
317,000
----------
CAPITAL GOODS--3.4%
ELECTRICAL EQUIPMENT--1.3%
General Electric Co. ........ 1,500 108,000
----------

MACHINERY--1.2%
Allied-Signal, Inc. ......... 2,000 95,000
Paccar, Inc. ................ 100 4,212
----------
99,212
----------
POLLUTION CONTROL--0.9%
WMX Technologies, Inc. ...... 2,500 74,688
----------
281,900
----------
CONSUMER
MANUFACTURING--2.7%
AUTO & RELATED--2.7%
Goodyear Tire & Rubber Co. .. 3,600 163,350
Magna International, Inc.* .. 1,400 60,550
----------
223,900
----------
CONSUMER SERVICES--8.2%
BROADCASTING &
CABLE--1.4%
AirTouch Communications, Inc. 3,500 98,875
Cox Communications, Inc. Cl.A 900 17,550
----------
116,425
----------
ENTERTAINMENT &
LEISURE--2.5%
Carnival Corp. Cl.A ......... 3,900 95,062
Eastman Kodak Co. ........... 900 60,300
ITT Corp. ................... 200 10,600
Walt Disney Co. ............. 700 41,300
----------
207,262
----------
RESTAURANTS &
LODGING--1.6%
McDonald's Corp. ............ 1,200 54,150
Wendy's International, Inc. . 3,600 $ 76,500
----------
130,650
----------

RETAILING--2.7%
Federated Department Stores,
Inc*........................ 3,300 90,750
Lowes Cos., Inc. ............ 2,500 83,750
May Department Stores Co. ... 800 33,800
Pep Boys Manny, Moe & Jack .. 400 10,250
----------
218,550
----------
672,887
----------
CONSUMER STAPLES--6.4%
COSMETICS--1.0%
Gillette Co. ................ 1,500 78,188
----------

FOOD--2.9%
Campbell Soup Co. ........... 1,600 96,000
PepsiCo, Inc. ............... 2,600 145,275
----------
241,275
----------
HOUSEHOLD PRODUCTS--0.3%
Colgate-Palmolive Co. ....... 400 28,100
----------

TOBACCO--2.2%
Philip Morris Cos., Inc. .... 2,000 181,000
----------
528,563
----------
ENERGY--3.5%
DOMESTIC INTEGRATED--1.6%
Atlantic Richfield Co. ...... 1,200 132,900
----------

OIL & GAS SERVICES--0.4%
Western Atlas, Inc.* ........ 600 30,300
----------

PIPELINES--1.5%
Enron Corp. ................. 3,200 122,000
----------
285,200
----------
FINANCE--10.7%
BANKING & CREDIT--4.4%
BankAmerica Corp. ........... 900 58,275
First Chicago NBD Corp. ..... 2,672 105,544
MBNA Corp. .................. 1,500 55,312
NationsBank Corp. ........... 1,800 125,325
Republic New York Corp. ..... 300 18,638
----------
363,094
----------
BROKERAGE & MONEY
MANAGEMENT--1.4%
Merrill Lynch & Co., Inc. ... 2,200 112,200
----------

INSURANCE--3.3%
American International Group,
Inc ........................ 900 83,250
ITT Hartford Group, Inc. .... 100 4,838
PMI Group, Inc. ............. 800 36,200
Travelers, Inc. ............. 2,300 144,612
----------
268,900
----------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES U.S.$ VALUE
------ -----------
MORTGAGE BANKING--0.4%
Federal National Mortgage Assn. 300 $ 37,237
----------

OTHER--1.2%
Dean Witter, Discover & Co. . 2,200 103,400
----------
884,831
----------
HEALTH CARE--9.3%
BIOTECHNOLOGY--0.3%
Centocor, Inc. .............. 900 27,900
----------

DRUGS--4.2%
Bristol-Myers Squibb Co. .... 1,100 94,463
Lilly (Eli) & Co. ........... 2,100 118,125
Schering-Plough Corp. ....... 2,400 131,400
----------
343,988
----------
MEDICAL SERVICES--4.8%
Columbia/HCA Healthcare Corp. 2,400 121,800
Healthsource, Inc.* ......... 800 28,800
U.S. Healthcare, Inc. ....... 3,000 139,312
United Healthcare Corp. ..... 1,100 72,050
Value Health, Inc. .......... 1,100 30,250
----------
392,212
----------
764,100
----------
TECHNOLOGY--5.4%
AEROSPACE & DEFENSE--0.9%
Boeing Co. .................. 900 70,537
----------

COMMUNICATIONS
EQUIPMENT--0.2%
General Instrument Corp.* ... 700 16,363
----------

COMPUTER HARDWARE--1.6%
Compaq Computer Corp.* ...... 2,100 100,800
International Business
Machines Corp. ........... 300 27,525
----------
128,325
----------
COMPUTER SOFTWARE--0.6%
General Motors Corp. Cl.E ... 1,000 52,000
----------

ELECTRONICS--0.0%
ITT Industries, Inc. ........ 200 4,800
----------

SEMI-CONDUCTORS &
RELATED--2.1%
Applied Materials, Inc.* .... 200 7,863
----------

SHARES OR
PRINCIPAL
AMOUNT
---------
Intel Corp. ................. 1,700 $ 96,581
National Semiconductor Corp.* 3,200 71,200
----------
175,644
----------
447,669
----------

TRANSPORTATION--0.2%
RAILROADS & EQUIPMENT--0.2%
Conrail, Inc. ............... 100 7,000
Illinois Central Corp. ...... 130 4,989
----------
11,989
----------
UTILITIES--5.4%
ELECTRIC & GAS--2.3%
FPL Group, Inc. ............. 2,000 92,750
Houston Industries, Inc. .... 4,000 97,000
----------
189,750
----------
TELEPHONE--3.1%
AT & T Corp. ................ 3,000 194,250
Century Telephone
Enterprises, Inc. ........ 2,000 63,500
----------
257,750
----------
447,500
----------
Total Common Stocks
(cost $4,501,199) ........ 4,865,539
----------

U.S. GOVERNMENT
OBLIGATIONS--26.7%
U.S. Treasury Notes
4.75%, 8/31/98 ..............$ 817 807,425
7.25%, 8/15/04 ........... 1,255 1,395,597
----------

Total U.S. Government Obligations
(cost $2,151,363) ........ 2,203,022
----------

SHORT-TERM INVESTMENTS--19.5%
TIME DEPOSIT--19.5%
State Street Bank and Trust Co.
5.50%, 1/02/96
(amortized cost $1,604,000) 1,604 1,604,000
----------

TOTAL INVESTMENTS--105.2%
(cost $8,256,562) ........ 8,672,561
Other assets less liabilities--
(5.2%) .................... (430,120)
----------

NET ASSETS--100.0% .......... $8,242,441
==========

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

* Non-income producing security.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS--92.7%
AUSTRALIA--1.7%
Coca Cola Amatil Ltd. ....... 11,086 $ 88,414
Mayne Nickless Ltd. ......... 3,891 17,353
National Australia Bank Ltd. 7,000 62,955
Qantas Airways Ltd. ......... 4,456 7,419
Woolworths Ltd. ............. 43,939 105,814
----------
281,955
----------
BELGIUM--0.5%
Kredietbank S.A ............. 280 76,589
----------

BRAZIL--0.1%
Pan American Beverage ....... 600 19,200
----------

DENMARK--0.9%
Den Danske Bank ............. 2,150 148,303
----------

FINLAND--1.3%
Metsa-Serla Cl.B ............ 1,470 45,289
Nokia AB Cl.A ............... 2,488 97,817
Unitas Bank Ltd.* ........... 29,800 75,367
----------
218,473
----------
FRANCE--9.0%
Banque National de Paris .... 2,218 100,052
Bouygues .................... 710 71,522
Casino Guichard Perrachon ... 1,620 47,207
Compagnie Financiere de
Paribas S.A .............. 1,319 72,320
Compagnie Generale des Eaux . 1,147 114,513
Credit Foncier de France .... 820 11,855
Group Danone (a) ............ 784 129,359
Klepierre ................... 180 21,135
Legris Ind. S.A.* ........... 800 26,041
Peugeot PSA Peugeot Citroen (a) 910 120,045
Salomon S.A ................. 130 75,659
Sanofi S.A .................. 970 62,178
Sefimeg ..................... 495 32,852
Seita ....................... 2,200 79,743
Simco ....................... 560 53,175
Simco (New) ................. 8 697
Societe Centrale des Assurances
Generales de France (a) .. 3,370 112,861
Societe des Immeub .......... 455 27,131
Societe Television Francaise 610 65,397
Total S.A. (ADR) ............ 1,246 42,364
Total S.A. Cl.B ............. 914 61,686
Union du Credit Bail Immobil 640 66,130
Union Immob France .......... 300 25,975
Usinor Sacilor* ............. 5,300 $ 70,079
----------
1,489,976
----------

GERMANY--5.5%
Bayer Motoren Werke AG (a) .. 568 149,870
Deutsche Bank AG (a) ........ 3,430 162,522
Henkel Kgaa, Pfd. ........... 300 112,827
KSB (a) ..................... 105 17,201
KSB AG - Vorzug Pfd. ........ 350 39,038
Lufthansa AG ................ 680 93,621
Schmalbach Lubeca AG ........ 340 47,830
Suedzucker AG ............... 176 95,085
Varta AG* ................... 300 57,511
Veba AG ..................... 3,100 131,607
----------
907,112
----------
HONG KONG--2.3%
Citic Pacific, Ltd. ......... 15,000 51,309
Consolidated Electric Power
Asia Ltd. ................ 34,000 61,778
Dao Heng Bank Group Ltd. .... 15,000 53,928
Hong Kong and China Gas Co. Ltd.10,200 16,423
Hopewell Holdings Ltd. ...... 82,000 47,190
Hysan Development Co. Ltd. .. 7,000 18,513
Johnson Electric Holdings Ltd. 13,000 23,201
New World Development Co. Ltd. 4,165 18,152
Sun Hung Kai Properties Ltd. 3,000 24,539
Television Broadcasts of
Hong Kong Ltd. ........... 12,000 42,755
Yizheng Chemical Fibre ......... 24,303
----------
382,091
----------
INDIA--0.3%
Bajaj Auto Ltd. (GDR)* (b) .. 2,100 53,802
----------

INDONESIA--2.0%
HM Sampoerna ................ 9,500 98,885
Indosat ..................... 55,000 199,650
Perusahaan Persero Part
Telekom* ................... 1,000 25,250
----------
323,785
----------
IRELAND--0.4%
Irish Life Plc .............. 2,000 7,703
Irish Life Plc (Dublin Listing) 17,427 66,126
----------
73,829
ITALY--1.8%
Ente Nazionale Idrocarburi
S.p.A.* .................... 24,500 85,620
La Rinascente S.p.A ......... 15,155 91,705
Societa Italiana Per L'Eserreizio
Delle Telecommunicazioni,
P.A.* .................... 47,700 74,187
Telecom Italia Mobile S.p.A . 37,800 39,749
----------
291,261
----------
34

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES U.S.$ VALUE
------ -----------
JAPAN--36.3%
Amano Corp. ............................ 6,000 $ 75,545
Asahi Bank Ltd. ........................ 15,000 188,862
Asahi Glass Co. Ltd. ................... 11,000 122,518
Bank of Tokyo (a) ...................... 5,000 87,651
Canon, Inc. ............................ 2,000 36,223
Chiba Bank ............................. 3,000 27,022
Dai Nippon Printing Co. Ltd. ........... 4,000 67,797
Daifuku Co. ............................ 4,000 56,562
Daito Trust Construction ............... 300 3,545
Daiwa House Industry Co. Ltd. .......... 2,000 32,930
Daiwa Securities Co. Ltd. .............. 2,000 30,605
DDI Corp. (a) .......................... 37 286,683
East Japan Railway Co. ................. 21 102,102
Fuji Bank Ltd. ......................... 8,000 176,659
Fuji Photo Film Co. (ORD) .............. 1,000 28,862
Furukawa Co. Ltd. ...................... 6,000 29,695
Heiwa Corp. ............................ 3,000 78,160
Hirose Electric Co. .................... 1,000 57,530
Hokkaido Takushoku Bank Ltd. ........... 9,000 26,673
Honda Motor Co. ........................ 3,000 61,889
House Food Industry .................... 2,000 36,029
Hoya Corp. ............................. 1,000 34,383
Ito - Yokado Co. Ltd. .................. 1,000 61,598
Japan Securities Finance ............... 5,000 71,671
Kajima Corp. ........................... 1,000 9,879
Kamigumi Co. Ltd. ...................... 5,000 47,990
Kandenko Co. Ltd. ...................... 3,000 37,482
Kao Corp. .............................. 9,000 111,574
Kirin Brewery Co. Ltd. ................. 4,000 47,264
Kokuyo ................................. 1,000 23,244
Kuraray Co. Ltd. ....................... 8,000 87,554
Long-Term Credit Bank of Japan ......... 2,000 17,046
Mabuchi Motor .......................... 1,000 62,179
Maeda Road Construction ................ 1,000 18,499
Matsushita Electric Works .............. 6,000 63,341
Matsushita Electrical Industries ....... 8,000 130,169
Mitsubishi Bank ........................ 8,000 188,281
Mitsubishi Heavy Industries Ltd. ....... 7,000 55,797
Mitsubishi Materials Corp. ............. 6,000 31,090
Mitsubishi Oil Co. ..................... 6,000 53,288
Mitsui Marine & Fire ................... 7,000 49,898
Mitsui Trust and Banking Co. Ltd. ...... 17,000 186,053
Mori Seiki ............................. 1,000 22,567
National House Industrial Co. .......... 2,000 36,610
NGK Insulators ......................... 4,000 39,903
Nikko Securities Co. Ltd. .............. 5,000 64,407

Nintendo Corp. Ltd. .................... 700 $ 53,220
Nippon Express Co. Ltd. ................ 5,000 48,136
Nippon Light Metal Co. ................. 6,000 34,402
Nippon Paper Industries Co. ............ 2,000 13,889
Nippon Steel Corp. ..................... 16,000 54,857
Nippon Telegraph and
Telephone Corp. ..................... 8 64,697
Nisshin Steel Co. Ltd. ................. 15,000 60,581
NKK Corp.* ............................. 20,000 53,850
Nomura Securities Co. Ltd. ............. 9,000 196,126
Nomura Securities Ltd. (ADR) ........... 226 49,296
Osaka Gas Co. .......................... 15,000 51,864
Rohm Co. ............................... 2,000 112,930
Sakura Bank Ltd. ....................... 15,000 190,315
Sankyo Co. Ltd. ........................ 1,000 22,470
Sega Enterprises ....................... 1,000 55,206
Seven Eleven Japan ..................... 3,000 211,525
Shimano, Inc. .......................... 2,000 35,254
Shimizu Corp. .......................... 6,000 61,017
Shiseido Co. Ltd. ...................... 5,000 59,564
Sumitomo Bank (a) ...................... 12,000 254,528
Sumitomo Electric Industries ........... 4,000 48,039
Sumitomo Marine & Fire ................. 5,000 41,065
Sumitomo Realty & Development .......... 8,000 56,562
Sumitomo Rubber Ind .................... 3,000 25,046
Taisho Pharmaceutical Co. .............. 3,000 59,274
Takeda Chemical Industries ............. 3,000 49,395
Toagosei Co. Ltd. ...................... 3,000 15,922
Tokai Bank ............................. 7,000 97,627
Tokyo Electric Power ................... 3,000 80,194
Tokyo Gas Cos. Ltd. .................... 26,000 91,661
Tokyo Steel Manufacturing .............. 6,000 110,412
Tostem Corp. ........................... 3,000 99,661
Toyo Kanetsu Kk ........................ 5,000 25,617
Toyota Corp. ........................... 10,000 212,106
Ube Industries Ltd.* ................... 4,000 15,109
Yakult Honsha Co. ...................... 2,000 27,312

Yamanouchi Pharmaceutical .............. 2,000 43,002
Yamazaki Baking Co. Ltd. ............... 3,000 55,787
------------
6,002,827
------------
KOREA--0.9%
Korea Electric Power Corp. .............
(ADR) ............................... 2,200 58,300
Korea Mobile Telecommunications
Corp. (GDR) (b) ..................... 1,000 43,500
Pohang Iron & Steel Ltd. (ADR) ......... 2,000 43,750
----------
145,550
----------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES U.S.$ VALUE
MALAYSIA--2.0%
Ammb Holdings Bhd ...................... 5,000 $ 57,093
DCB Holdings Bhd, warrants* ............ 2,750 2,729
Malakoff Bhd ........................... 13,000 46,324
Petronas Gas Bhd* ...................... 10,000 34,059
Rashid Hussain Bhd ..................... 5,000 14,962
Resorts World Bhd ...................... 13,000 69,615
Telekom Malaysia ....................... 13,000 101,351
----------
326,133
----------
MEXICO--0.0%
Telefonos de Mexico S.A ................
Series L (ADR) ...................... 200 6,375
----------

NETHERLANDS--2.8%
European Vinyls Corp. ..................
International N.V.* ................. 800 20,789
Fortis Amev N.V ........................ 3,160 211,691
Heineken N.V ........................... 560 99,353
Internationale Nederlanden
Groep N.V ........................... 2,002 133,741
----------
465,574
----------
NEW ZEALAND--0.9%
Air New Zealand Ltd. Cl.B .............. 1,000 3,400
Fletcher Challenge Ltd. ................ 15,000 21,378
Lion Nathan Ltd. ....................... 22,000 52,497
Telecom Corp. of
New Zealand Ltd. .................... 17,100 73,784
----------
151,059
----------
NORWAY--0.9%
Bergesen D.Y. AS Cl.A .................. 3,100 61,666
Christiania Bank OG Kreditkasse ........ 39,000 91,126
----------
152,792
----------
PHILIPPINES--0.4%
Manila Electric Co. .................... 6,550 53,439
Philippine Commercial
International Bank .................. 1,000 9,226
----------
62,665
----------
SINGAPORE--1.8%
Overseas Chinese Bank .................. 7,000 87,593
Overseas Union Bank Ltd. ............... 16,000 110,286
Singapore Airlines Ltd. ................ 2,000 18,664
Singapore Press Holdings Ltd. ..........
(Foreign) ........................... 5,000 88,370
----------
304,913
----------
SPAIN--2.0%
Banco Intercontinental Espana .......... 1,302 126,658
Repsol S.A ............................. 2,900 95,033
Tabacalera S.A. Series A ............... 2,240 84,946
Uralita S.A ............................ 1,950 $ 17,684
----------
324,321
----------
SWEDEN--2.1%
Astra AB ............................... 5,030 200,755
Marieberg Tidnings AB .................. 3,200 74,220
Stora Kopparbergs Series B ............. 6,115 73,217
----------
348,192
----------

SWITZERLAND--3.1%
Baloise Holdings Ltd. .................. 20 41,613
Ciba Geigy AG .......................... 170 149,588
Forbo Holding .......................... 215 91,890
Nestle S.A ............................. 143 158,186
Winterthur Schweizerische
Versicherungs-Gesellschaft .......... 100 70,741
----------
512,018
----------
TAIWAN--0.3%
Advanced Semiconductor
Engineering (GDR) (b) ............... 2,400 30,840
China Steel Corp. (GDR) ................ 1,000 17,000
----------
47,840
----------
THAILAND--0.5%
Bangkok Bank Public Co. Ltd. ........... 3,000 36,443
Thai Farmers Bank Co. .................. 4,000 40,333
----------
76,776
----------
UNITED KINGDOM--12.9%
Anglian Water Plc ...................... 9,000 84,842
Bat Industries Plc ..................... 19,800 174,353
British Airways Plc .................... 16,695 120,824
British Land Co. Plc ................... 10,800 63,904
British Telecommunications Plc ......... 20,600 112,934
BTR Plc ................................ 22,000 112,067
Enterprise Oil Plc ..................... 5,600 34,440
Forte Plc .............................. 12,000 61,593
General Electric Plc ................... 21,400 117,652
Grand Metropolitan Plc ................. 19,600 141,087
Hazlewood Foods Plc .................... 19,300 29,674
Hepworth Plc ........................... 18,600 92,148
House of Fraser Plc .................... 7,000 19,242
Lex Service Plc ........................ 2,600 12,336
Marley Plc ............................. 28,500 49,130
Mowlem (John) & Co. Plc ................ 41,000 37,568
Peninsular & Oriental Steam
Navigation Co. ...................... 11,150 82,426
Royal Bank of Scotland Group ........... 9,900 90,098
Rugby Group Plc ........................ 51,100 87,296
Sainsbury (J.) Plc ..................... 9,950 60,652
Smith (WH) Group Plc ................... 9,000 59,264
Smithkline Beecham Cl.A ................ 4,536 50,017

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES OR
PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
---------- -----------
Tate & Lyle Plc ........................ 19,200 $ 140,742
Vodafone Group Plc ..................... 42,200 151,393
Wimpey (George) Plc .................... 69,300 154,981
----------
2,140,663
----------
Total Common Stocks
(cost $14,603,364) .................. 15,334,074
----------

SHORT-TERM INVESTMENTS--8.6%
TIME DEPOSIT--8.6%
State Street Bank and Trust Co.
5.50%, 1/02/96
(amortized cost $1,426,000) ......... $1,426 1,426,000
----------

TOTAL INVESTMENTS--101.3%
(cost $16,029,364)............... $16,760,074
Other assets less liabilities--(1.3%) (218,439)
-----------
NET ASSETS--100.0%................... $16,541,635
===========

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

* Non-income producing security.
(a) Securities segregated to collateralize forward exchange currency
contracts with an aggregate market value of $1,320,720.
(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, 1995, the aggregate market value of these securities
amounted to $128,142 or 0.8% of net assets. See Glossary of Terms on
page 52. See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
-------- -----------
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS--115.5%
Federal Farm Credit Bank
5.43%, 1/12/96................... $6,900 $ 6,888,552
Federal Home Loan Bank
5.33%, 5/13/96................... 3,000 2,940,926
5.50%, 1/22/96................... 4,500 4,485,562
5.50%, 1/26/96................... 700 697,326
Federal Home Loan Mortgage Corp.
5.67%, 1/22/96................... 8,000 7,973,540
Federal National Mortgage Assn.
5.58%, 1/25/96................... 1,600 1,594,048
5.59%, 1/30/96................... 1,300 1,294,146
5.62%, 1/05/96................... 1,600 1,599,001
U.S. Treasury Bills
5.35%, 1/25/96................... 5,000 4,982,167
-----------

TOTAL INVESTMENTS--115.5%
(amortized cost $32,455,268) 32,455,268
Other assets less liabilities--(15.5%) (4,362,960)
-----------

NET ASSETS--100.0%................... $28,092,308
===========

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

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GLOBAL DOLLAR GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
---------- -----------
SOVEREIGN DEBT
OBLIGATIONS--52.5%
COLLATERALIZED
BRADY BONDS--25.6%
ARGENTINA--3.2%
Republic of Argentina
Euro Par Bonds
5.00%, 3/31/23 (a)
(cost $102,519) ..................... $ 210 $ 120,094
----------

BULGARIA--2.8%
National Republic of Bulgaria
Series A Disc
6.75%, 7/28/24 (FRN)(b)
(cost $93,845) ...................... 200 106,750
----------

ECUADOR--3.6%
Republic Of Ecuador Disc
6.8125%, 2/28/25 (FRN)(b) ........... 130 66,138
Republic of Ecuador Par Bonds
3.00%, 2/28/25 (a) .................. 190 69,112
----------

Total Ecuadorian Securities
(cost $121,575) ..................... 135,250
----------

MEXICO--4.3%
United Mexican States
6.25%, 12/31/19
(cost $146,372) ..................... 250 163,437
----------

NIGERIA--3.3%
Central Bank of Nigeria
6.25%, 11/15/20 (a)
(cost $104,960) ..................... 250 123,125
----------

PHILIPPINES--3.2%
Central Bank of Philippines
6.25%, 12/01/17 (a)
(cost $114,481) ..................... 165 122,925
----------

POLAND--1.4%
Republic of Poland Disc
6.875%, 10/27/24 (FRN)(b)
(cost $51,232) ...................... 70 53,025
----------

VENEZUELA--3.8%
Republic of Venezuela Series A
6.75%, 3/31/20 (FRN)(b)
(cost $125,017) ..................... 250 143,438
----------

Total Collateralized Brady Bonds
(cost $860,001) ..................... $968,044
----------

OTHER SOVEREIGN DEBT--26.9%
ARGENTINA--9.2%
Hidroelectrica Alicura
8.375%, 3/15/99 ..................... $ 150 139,500
Republic of Argentina (FRN)(b)
6.8125%, 3/31/05 .................... 288 205,920
----------

Total Argentinian Securities
(cost $320,333) ..................... 345,420
----------

BRAZIL--8.8%
Republic of Brazil C-Bonds
8.00%, 4/15/14 (c) .................. 520 298,670
Republic of Brazil Series A IDU
6.6875%, 1/01/01 (FRN)(b) ........... 37 31,909
----------

Total Brazilian Securities
(cost $282,951) ..................... 330,579
----------

MEXICO--0.3%
Desc Sociedad de Fomento
11.00%, 12/15/97
(cost $10,500) ...................... 10 9,963
----------

POLAND--7.2%
Republic of Poland PDI
3.75%, 10/27/14 (FRN)(b)
(cost $267,274) ..................... 420 273,525
----------

TRINIDAD & TOBAGO--1.4%
Republic of Trinidad & Tobago
11.75%, 10/03/04
(cost $49,710) ...................... 50 54,500
----------

Total Other Sovereign Debt
(cost $930,768) ..................... 1,013,987
----------
Total Sovereign Debt Obligations
(cost $1,790,769) ................... 1,982,031
----------
CORPORATE DEBT OBLIGATIONS--17.4%
BROADCASTING & CABLE--1.2%
Tele-Communications, Inc.
9.875%, 6/15/22 ...................... 3 3,689
----------
39

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GLOBAL DOLLAR GOVERNMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
---------- -----------
Viacom, Inc.
8.00%, 7/07/06 ...................... $ 40 $ 40,700
----------

Total Broadcasting & Cable
(cost $36,511) ...................... 44,389
----------

FINANCIAL SERVICES--0.9%
Dine S.A. de CV
8.125%, 10/15/98
(cost $37,040) ...................... 40 35,750
----------

INDUSTRIAL--6.5%
Hylsa S.A. de CV
11.00%, 2/23/98
(cost $246,406) ..................... 250 245,313
----------

YANKEES--8.8%
Centragas
10.65%, 12/01/10 (d) ................ 48 51,038
Centragas Columbia
10.65%, 12/01/10 .................... 48 51,039
Grupo Mexicano de Desarrollo
8.25%, 2/17/01 ...................... 40 16,600
Philippine Long Distance
9.875%, 8/01/05 ..................... 100 106,375
Polysindo Eka Perkasa
13.00%, 6/15/01 ..................... 75 77,625
Telefonica de Argentina
8.375%, 10/01/00 .................... 20 19,025

Transportacion Maritima
Mexicana S.A
9.25%, 5/15/03 ...................... $ 12 $ 10,590
----------

Total Yankees
(cost $330,010) ..................... 332,292
----------

Total Corporate Debt Obligations
(cost $649,967) ..................... 657,744
----------

U.S. GOVERNMENT
OBLIGATIONS--17.7%
U.S. Treasury Notes
6.50%, 4/30/99 ...................... 55 57,011
7.25%, 8/15/04 ...................... 550 611,616
----------

Total U.S. Government Obligations
(cost $603,125) ..................... 668,627
----------

P
SHORT-TERM INVESTMENTS--10.7%
TIME DEPOSIT--10.7%
State Street Bank and Trust Co.
5.50%, 1/02/96
(amortized cost $406,000) ........... 406 406,000
----------

TOTAL INVESTMENTS--98.3%
(cost $3,449,861) ................... 3,714,402
Other assets less liabilities--1.7% .... 63,693
----------

NET ASSETS--100.0% ..................... $3,778,095
==========

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

(a) Coupon will increase periodically based upon a predetermined schedule.
Stated interest rate in effect at December 31, 1995.
(b) Coupon will fluctuate based upon an interest rate index. Stated interest
rate in effect at December 31, 1995.
(c) Coupon consists of 4.00% cash payment and 4.00% paid-in-kind.
(d) 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,
1995, the aggregate market value of these securities amounted to $51,038 or
1.4% of net assets.

See Glossary of Terms on page 52.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
---------- ----------
ARGENTINA--23.2%
GOVERNMENT OBLIGATIONS--23.2%
Republic of Argentina
Pensioner-Bocon Series I
3.46%, 4/01/01 (FRN)(a) . ARS 331 $ 216,472
3.46%, 4/01/07 (FRN)(a) . 2,988 1,442,858
Republic of Argentina
Pensioner-Bocon Series II
3.46%, 9/01/02 (FRN)(a) . 58 31,322
-------

Total Argentinian Securities
(cost $1,485,032) ....... 1,690,652
----------

CANADA--16.6%
GOVERNMENT/AGENCY--16.6%
Government of Canada
6.50%, 6/01/04 (b) ...... CAD 1,250 884,584
Manitoba Province Canada
7.75%, 12/22/25 ......... 450 323,123
-------

Total Canadian Securities
(cost $1,172,819) ....... 1,207,707
---------

MEXICO--14.2%
GOVERNMENT/AGENCY--14.2%
Mexican Treasury Bills
Zero Coupon, 1/04/96 ....... MXP 1,976 254,144
Zero Coupon, 1/11/96 ....... 2,615 333,376
Zero Coupon, 1/18/96 ....... 700 88,435
Zero Coupon, 1/25/96 ....... 339 42,441
Zero Coupon, 2/15/96 ....... 634 77,369
Zero Coupon, 3/20/96 ....... 2,000 234,408
--------

Total Mexican Securities
(cost $1,181,718) 1,030,173
---------

UNITED STATES--40.8%
U.S. TREASURY SECURITIES--28.8%
U.S. Treasury Notes
6.50%, 4/30/99 ............ US$ 85 $ 88,108
7.125%, 9/30/99 ........... 320 339,299
7.125%, 9/30/99 ........... 1,500 1,668,045
----------
2,095,452
----------
FEDERAL AGENCY-MORTGAGES--2.8%
Government National Mortgage Assn.
9.00%, 9/15/24 ............ 194,231 205,762
----------

FEDERAL AGENCY--9.2%
Federal Home Loan Bank
7.26%, 9/06/01 ............ 200 215,406
Federal Home Loan Mortgage Corp.
6.13%, 8/19/99 ............ 150 153,046
Federal National Mortgage Assn.
5.05%, 11/10/98 ........... 305 302,237
-----------
670,689
----------
Total United States Securities
(cost $2,743,055).......... 2,971,903
----------

TOTAL INVESTMENTS--94.8%
(cost $6,582,624) ........... 6,900,435
Other assets less liabilities--5.2% 377,492
----------

NET ASSETS--100.0%............. $ 7,277,927
===========

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

(a) Coupon will fluctuate based upon an interest rate index. Stated interest
rate in effect at December 31, 1995.

(b) Security segregated to collateralize forward exchange currency contracts
with an aggregate market value of $884,584.

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
UTILITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES U.S.$ VALUE
------ -----------
COMMON AND
PREFERRED STOCKS--91.7%
UNITED STATES INVESTMENTS--81.8%
CONSUMER SERVICES--8.7%
BROADCASTING &
CABLE--8.7%
AirTouch Communications, Inc.* ......... 10,896 $ 307,812
Tele-Communications, Inc. Cl.A* ........ 7,700 153,519
U.S. West Media Group .................. 4,200 79,800
----------
541,131
----------
ENERGY--3.1%
OIL & GAS SERVICES--1.9%
Western Atlas, Inc.* ................... 2,300 116,150
----------

PIPELINES--1.2%
Enron Corp. ............................ 2,000 76,250
----------
192,400
----------
TECHNOLOGY--12.4%
COMMUNICATIONS
EQUIPMENT--12.4%
DSC Communications Corp. ............... 5,400 199,800
General Instrument Corp.* .............. 3,600 84,150
Glenayre Technologies, Inc.* ........... 1,300 80,925
Motorola, Inc. ......................... 3,000 171,000
Northern Telecom, Ltd. ................. 3,600 154,800
Scientific-Atlanta, Inc. ............... 3,100 46,500
Tellabs, Inc.* ......................... 1,100 40,838
----------
778,013
----------
TRANSPORTATION--5.1%
RAILROADS--5.1%
Southern Pacific Rail Corp.* ........... 5,900 141,600
Union Pacific Corp. .................... 2,700 178,200
----------
319,800
----------
UTILITIES--52.5%
ELECTRIC & GAS--35.3%
Allegheny Power Systems ................ 7,800 223,275
Baltimore Gas & Electric Co. ........... 4,800 136,800
CMS Energy Corp. ....................... 2,300 68,713
DPL, Inc. .............................. 1,700 42,075
FPL Group, Inc. ........................ 4,100 190,137
Houston Industries, Inc. ............... 6,600 160,050
New York State Electric &
Gas Corp. ........................... 9,800 253,575
Oklahoma Gas & Electric Co. ............ 5,000 215,000
Peco Energy Capital L.P.
9.00% Series A pfd .................. 430 11,449

Pinnacle West Capital Corp. ............ 7,400 $ 212,750
Portland General Corp. ................. 4,980 145,042
Public Service Co. of New Mexico ....... 14,800 260,850
Texas Utilities Co. .................... 7,000 287,875
----------
2,207,591
----------
TELEPHONE--17.2%
AT & T Corp. ........................... 5,860 379,435
MCI Communications Corp. ............... 10,800 282,825
Nynex Corp. ............................ 1,900 102,600
Telephone and Data Systems, Inc. ....... 900 35,550
U.S. Cellular Corp.* ................... 3,600 121,500
U.S. West Communications, Inc. ......... 4,200 150,150
----------
1,072,060
----------
3,279,651
----------

Total United States Investments
(cost $4,777,183) ................... 5,110,995
----------

FOREIGN INVESTMENTS--9.9%
ARGENTINA--1.2%
Metrogas (ADR) ......................... 5,100 49,725
Telecom Argentina
Stet France (ADR) ................... 500 23,813
----------
73,538
----------
CANADA--0.2%
Canadian National Railway Co.* ......... 800 12,000
----------

CHILE--2.4%
Enersis S.A. (ADR) ..................... 2,100 59,850
Compania de Telefonos Chile (ADR) ...... 1,100 91,162
----------
151,012
----------
FINLAND--3.1%
Nokia Corp. (ADR) ...................... 5,100 198,262
----------

HONG KONG--1.7%
Consolidated Electric Power
Asia (ADR) .......................... 58,800 106,840
----------

INDONESIA--0.7%
Indonesian Satellite Corp. (ADR) ....... 1,170 42,705
----------

KOREA--0.6%
Korea Electric Power Corp. (ADR) ....... 1,400 37,450
----------

Total Foreign Investments
(cost $652,426) ..................... 621,807
----------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
UTILITY INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
--------- -----------
Total Common and Preferred Stocks
(cost $5,429,609) ................... $5,732,802
----------

SHORT-TERM INVESTMENTS--8.0%
U.S. GOVERNMENT
OBLIGATIONS--8.0%
Federal Home Loan Bank
5.50%, 1/05/96
(amortized cost $499,694) ........... $ 500 499,694
----------

TOTAL INVESTMENTS--99.7%
(cost $5,929,303) ................... 6,232,496
Other assets less liabilities--0.3% .... 18,045
----------
NET ASSETS--100.0% ..................... $6,250,541
==========

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

* Non-income producing security.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS--95.1%
BASIC INDUSTRIES--5.7%
CHEMICALS--2.7%
Grace (W.R.) & Co. ..................... 7,200 $ 425,700
Great Lakes Chemical Corp. ............. 6,900 496,800
Monsanto Co. ........................... 2,500 306,250
----------
1,228,750
----------
METALS & MINING--2.1%
Freeport McMoRan, Inc. ................. 25,650 949,050
----------

PAPER & FOREST
PRODUCTS--0.9%
Louisiana-Pacific Corp.* ............... 16,000 388,000
----------
2,565,800
----------
CAPITAL GOODS--1.1%
MACHINERY--1.1%
Mannesmann AG (ADR) .................... 1,600 510,537
----------

CONSUMER SERVICES--15.4%
BROADCASTING &
CABLE--8.0%
AirTouch Communications, Inc.* ......... 30,900 872,925
Argyle Television, Inc. ................ 66,600 1,148,850
Liberty Media Group Cl.A* .............. 11,325 303,652
Tele-Communications, Inc. Cl.A* ........ 58,300 1,162,356
Turner Broadcasting
Systems, Inc., Cl.B ................. 5,000 130,000
----------
3,617,783
----------
ENTERTAINMENT &
LEISURE--2.1%
ITT Corp. .............................. 17,900 948,700
----------

PRINTING & PUBLISHING--1.1%
Donnelley (R.R.) & Sons Co. ............ 12,800 504,000
----------

RESTAURANTS &
LODGING--0.3%
Triarc Cos., Inc.* ..................... 12,000 132,000
----------

RETAILING--3.9%
Home Depot, Inc. ....................... 13,000 622,375
Lowes Cos., Inc. ....................... 25,100 840,850
Talbots, Inc. .......................... 11,000 316,250
----------
1,779,475
----------
6,981,958
----------

CONSUMER STAPLES--5.2%
FOOD--0.7%
Coca-Cola Femsa S.A. (ADR) ............. 18,000 $ 333,000
----------

TOBACCO--4.5%
Loews Corp. ............................ 10,800 846,450
Philip Morris Cos., Inc. ............... 13,000 1,176,500
----------
2,022,950
----------
2,355,950
----------
ENERGY--2.2%
OIL & GAS SERVICES--2.2%
Gulf Canada Resources Ltd.* ............ 244,000 1,006,500
----------

FINANCE--22.5%
BANKING & CREDIT--1.2%
Union Acceptance Corp. ................. 37,700 541,938
----------

INSURANCE--12.0%
American International Group, Inc. ..... 7,550 698,375
Capmac Holdings Inc.* .................. 16,000 402,000
Guarantee Life Cos., Inc.* ............. 7,600 120,175
ITT Hartford Group, Inc. ............... 16,000 774,000
Meadowbrook Insurance Group, Inc.* ..... 6,100 204,350
Penncorp Financial Group, Inc. ......... 20,000 587,500
PMI Group, Inc. ........................ 11,000 497,750
Progressive Corp. (Ohio) ............... 11,000 537,625
Travelers, Inc. ........................ 25,500 1,603,312
----------
5,425,087
----------
MORTGAGE BANKING--1.1%
Federal National Mortgage Assn ......... 4,000 496,500
----------

REAL ESTATE--6.9%
Amli Residential Properties Trust ...... 5,900 118,000
CBL & Associates Properties, Inc. ...... 6,500 141,375
Essex Property Trust ................... 20,500 394,625
First Industrial Realty Trust, Inc. .... 8,500 191,250
Gables Residential Trust ............... 5,000 114,375
Highwoods Properties, Inc. ............. 5,900 166,675
JP Realty, Inc. ........................ 28,000 612,500
Macerich Co. ........................... 15,500 310,000
Patriot American Hospitality, Inc. ..... 17,000 437,750
Saul Centers, Inc. ..................... 9,000 122,625
Shurgard Storage Center, Inc. .......... 2,000 54,000
Storage USA, Inc. ...................... 6,000 195,750
Summit Properties, Inc. ................ 13,600 270,300
----------
3,129,225
----------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES U.S.$ VALUE
------- -----------
OTHER--1.3%
Americredit Corp.* ..................... 9,000 $ 122,625
Mercury Finance Co. .................... 28,500 377,625
MS Financial, Inc. ..................... 12,200 81,587
----------
581,837
----------
10,174,587
----------
HEALTH CARE--4.6%
BIOTECHNOLOGY--0.3%
Gensia, Inc.* (a) ...................... 8,000 116,000
----------

DRUGS--2.9%
AB Astra Series A ...................... 4,500 179,601
Amgen, Inc.* ........................... 4,000 237,250
Healthsource, Inc.* .................... 5,000 180,000
Merck & Co., Inc. ...................... 5,700 374,775
Pfizer, Inc. ........................... 5,500 346,500
----------
1,318,126
----------
MEDICAL PRODUCTS--0.5%
Abbott Laboratories, Inc. .............. 6,000 250,500
----------

MEDICAL SERVICES--0.9%
Quest Medical, Inc.* ................... 38,000 394,250
----------
2,078,876
----------
TECHNOLOGY--29.7%
COMMUNICATIONS
EQUIPMENT--14.4%
Cisco Systems, Inc.* ................... 25,000 1,867,187
DSC Communications Corp.* .............. 8,800 325,600
EMC Corp.* ............................. 48,000 738,000
Millicom International
Cellular S.A.* ...................... 8,500 260,313
Motorola, Inc. ......................... 6,600 376,200
Newbridge Networks Corp.* .............. 18,000 744,750
Nokia Corp. (ADR) ...................... 28,000 1,088,500
Westinghouse Electric Corp. ............ 68,000 1,122,000
----------
6,522,550
----------
COMPUTER HARDWARE--3.6%
3Com Corp.* (a) ........................ 15,700 732,994
Bay Networks, Inc.* .................... 14,250 585,140
Cabletron Systems, Inc.* ............... 4,000 324,000
----------
1,642,134
----------

COMPUTER SOFTWARE &
SERVICES--5.1%
General Motors Corp. Cl.E .............. 12,000 $ 624,000
Microsoft Corp.* ....................... 3,000 263,438
Oracle Corp.* .......................... 23,000 974,625
Sterling Software Inc.* ................ 7,000 436,625
----------
2,298,688
----------
ELECTRONICS--2.8%
ITT Industries, Inc. ................... 16,000 384,000
Tandy Corp. ............................ 1,700 70,550
Texas Instruments, Inc. ................ 15,500 802,125
----------
1,256,675
----------

SEMI-CONDUCTORS &
RELATED--3.8%
Applied Materials, Inc.* ............... 2,000 78,625
Intel Corp. ............................ 5,200 295,425
Micron Technology, Inc. ................ 6,000 237,750
National Semiconductor Corp.* .......... 48,400 1,076,900
----------
1,688,700
----------
13,408,747
----------
TRANSPORTATION--3.6%
AIR FREIGHT--0.7%
Pittston Services Group ................ 10,000 313,750
----------

RAILROADS--2.9%
Canadian National Railway Co.* ......... 10,000 150,000
Conrail, Inc. .......................... 2,000 140,000
Southern Pacific Rail Corp.* ........... 6,000 144,000
Union Pacific Corp. .................... 13,200 871,200
----------
1,305,200
----------
1,618,950
----------
UTILITIES--5.1%
TELEPHONE--5.1%
MCI Communications Corp. ............... 7,000 183,313
Rogers Cantel Mobile
Communications, Inc. Cl.B* .......... 5,300 139,456
Telephone & Data Systems, Inc. ......... 42,900 1,694,550
U.S. Cellular Corp.* ................... 5,000 168,750
Vodafone Group Plc (ADR) ............... 3,000 105,750
----------
2,291,819
----------
Total Common Stocks
(cost $39,339,278) .................. 42,993,724
----------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
--------- -----------
CONVERTIBLE BONDS--1.9%
3Com Corp.
10.25%, 11/01/01 (a) ................ $ 400 $ 615,000
Altera Corp. ...........................
5.75%, 6/15/02 (a) .................. 225 262,125
----------

Total Convertible Bonds
(cost $830,275) ..................... 877,125
----------

SHORT-TERM INVESTMENTS--4.2%
U.S. GOVERNMENT
OBLIGATIONS--4.2%
Federal Home Loan Mortgage Corp.
5.75%, 1/02/96
(amortized cost $1,899,697) ......... 1,900 1,899,697
----------

TOTAL INVESTMENTS--101.2%
(cost $42,069,250)............... $45,770,546
Other assets less liabilities--(1.2%) (550,835)
----------

NET ASSETS--100.0%................... $45,219,711
===========

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

* 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,
1995, the aggregate market value of these securities amounted to $1,726,119
or 3.8% of net assets.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
WORLDWIDE PRIVATIZATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES U.S.$ VALUE
--------- -----------
COMMON AND
PREFERRED STOCKS--67.0%
ARGENTINA--2.8%
Central Costanera ...................... 15,000 $ 46,191
Naviera Perez Comp Cia ................. 11,000 58,288
Telecom Argentina Stet
France (ADR) ........................ 1,300 61,913
----------
166,392
----------
AUSTRALIA--2.9%
CSL Ltd. ............................... 25,000 74,327
TAB Corp. Holdings Ltd. ................ 35,000 98,856
----------
173,183
----------
AUSTRIA--3.5%
Ams Austria Mikros ..................... 360 58,402
Flughafen Wien AG ...................... 1,000 67,470
VA Technologies AG ..................... 650 82,552
----------
208,424
----------
BRAZIL--2.9%
Centrais Eletricas Brasileiras ......... 4,000 54,119
Telecomunicacoes Brasileras
S.A. (ADR)* ......................... 1,900 91,489
Usinas Siderurgicas
de Minas (ADR) (a) .................. 3,000 24,385
----------
169,993
----------
CANADA--1.0%
Petro Canada ........................... 5,000 57,671
----------

DENMARK--0.9%
Tele Danmark AS ........................ 1,000 54,570
----------

FINLAND--1.9%
Unitas Bank Ltd.* ...................... 15,000 37,936
Valmet Co. ............................. 3,000 75,183
----------
113,119
----------
FRANCE--7.0%
Renault S.A ............................ 4,000 115,173
Roussel Uclaf .......................... 350 59,322
Seita .................................. 2,000 72,493
Sgs Thomson Micro Ltd.* ................ 1,000 38,289
Soc Elf Aquitaine ...................... 700 51,574
Usinor Sacilor* ........................ 6,000 79,334
----------
416,185
----------
GERMANY--4.1%
Lufthansa .............................. 900 123,911
Viag AG ................................ 300 120,251
----------
244,162
----------
GHANA--0.8%
Ashanti Goldfield Co. Ltd.
(ADR)* (a) .......................... 2,500 $ 49,375
----------

GREECE--0.6%
Hellenic Sugar Industries .............. 3,000 38,719
----------

HONG KONG--2.5%
Citic Pacific Ltd. ..................... 15,000 51,309
Hopewell Holdings Ltd. (ADR) ........... 60,000 34,530
Yizheng Chemical Fibre.................. 274,000 61,657
----------
147,496
----------
HUNGARY--0.7%
Otp Bank ............................... 6,000 39,900
----------

INDONESIA--2.1%
Indosat ................................ 35,000 127,050
----------

IRELAND--1.0%
Irish Life Plc ......................... 15,000 56,916
----------

ITALY--3.1%
Ente Nazionale Idrocarburi S.p.A.* ..... 15,000 52,420
IMI LNV ................................ 10,000 62,968
INA .................................... 50,000 66,273
----------
181,661
----------
JAPAN--3.8%
DDI Corp. .............................. 5 38,741
East Japan Railway Co. ................. 30 145,859
Nippon Telegraph and
Telephone Corp. ..................... 5 40,436
----------
225,036
----------
KOREA--2.3%
Korea Mobile Telecommunications
Corp. (ADR) ......................... 1,200 52,200
Korea Mobile Telecommunications
Corp. (GDR) ......................... 1,900 82,650
----------
134,850
----------
MALAYSIA--1.4%
Ekran Bhd .............................. 15,000 36,619
Telekom Malaysia ....................... 6,000 46,777
----------
83,396
----------
MEXICO--0.8%
Telefonos de Mexico,
S.A. Series L (ADR) ................. 1,500 47,813
----------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
WORLDWIDE PRIVATIZATION PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES U.S.$ VALUE
------ -----------
NETHERLANDS--2.5%
KLM .................................... 2,048 $ 71,980
Kon Ptt Nederland ...................... 2,031 73,788
----------
145,768
----------
NEW ZEALAND--1.3%
Telecom Corporation of
New Zealand Ltd. .................... 18,000 77,667
----------

NORWAY--0.8%
Christiania Bank OG Kreditkasse ........ 20,000 46,731
----------

PHILIPPINES--2.0%
First Philippines Holdings ............. 20,000 38,887
Manila Electric Co. .................... 10,000 81,586
----------
120,473
----------
SINGAPORE--1.0%
Development Bank of Singapore .......... 5,000 62,213
----------

SOUTH AFRICA--0.6%
Iscor .................................. 41,100 36,979
----------

SPAIN--2.2%
Emp Nac Electricid ..................... 1,000 56,636
Repsol S.A ............................. 2,200 72,094
----------
128,730
----------
THAILAND--1.4%
Industrial Finance of Thailand ......... 25,000 84,855
----------

TURKEY--0.4%
Turk Hava Yollari....................... 181,818 24,183
----------

SHARES OR
PRINCIPAL
AMOUNT
(000)
---------
UNITED KINGDOM--6.1%
London Electricity ..................... 4,000 $ 35,627
National Grid Grp* ..................... 3,411 10,542
National Power ......................... 8,000 55,847
Northern Ireland Electricity Plc ....... 10,000 66,781
Powergen ............................... 6,073 50,176
RJB Mining Plc ......................... 6,000 50,877
Southern Water ......................... 4,000 42,709
Wessex Water Plc ....................... 8,333 45,295
Wessex Water Plc, pfd .................. 10,000 7,920
----------
365,774
----------
UNITED STATES--2.6%
Pharmacia & Upjohn, Inc. ............... 4,000 155,000
----------

Total Common and Preferred Stocks
(cost $3,768,412) ................... 3,984,284
----------

SHORT-TERM INVESTMENTS--33.0%
TIME DEPOSIT--33.0%
State Street Bank and Trust Co.
5.50%, 1/02/96
(amortized cost $1,965,000) ......... $1,965 1,965,000
----------

TOTAL INVESTMENTS--100.0%
(cost $5,733,412) ................... 5,949,284
Other assets less liabilities--0.0% .... (2,510)
----------

NET ASSETS--100.0% ..................... $5,946,774
==========

- ----------
* 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,
1995, the aggregate market value of these securities amounted to $73,760 or
1.2% of net assets.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
CONSERVATIVE INVESTORS PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES U.S.$ VALUE
--------- -----------
COMMON STOCKS--11.5%
BASIC INDUSTRIES--0.8%
CHEMICALS--0.5%
Air Products & Chemicals, Inc. ......... 200 $ 10,550
Hercules, Inc. ......................... 500 28,187
----------
38,737
----------
METALS & MINING--0.3%
Aluminum Co. of America ................ 400 21,150
----------
59,887
----------
CAPITAL GOODS--1.0%
ELECTRICAL EQUIPMENT--0.8%
General Electric Co. ................... 700 50,400
Molex, Inc. ............................ 250 8,000
----------
58,400
----------
MACHINERY--0.2%
Deere & Co. ............................ 500 17,625
----------
76,025
----------
CONSUMER SERVICES--1.4%
ENTERTAINMENT &
LEISURE--0.4%
Eastman Kodak Co. ...................... 500 33,500
----------

RESTAURANTS &
LODGING--0.4%
McDonald's Corp. ....................... 700 31,587
----------

RETAILING--0.6%
Rite Aid Corp. ......................... 1,200 41,100
----------
106,187
----------
CONSUMER STAPLES--1.9%
COSMETICS--0.7%
Gillette Co. ........................... 1,000 52,125
----------

FOOD--0.5%
Coca-Cola Co. .......................... 400 29,700
IBP, Inc. .............................. 100 5,050
----------
34,750
----------
TOBACCO--0.7%
Philip Morris Cos., Inc. ............... 600 54,300
----------
141,175
----------
ENERGY--0.7%
DOMESTIC INTEGRATED--0.6%
Amoco Corp. ............................ 200 14,375

Mobil Corp. ............................ 300 $ 33,600
----------
47,975
----------
PIPELINES--0.1%
Enron Corp. ............................ 100 3,813
----------
51,788
----------
FINANCE--2.4%
BANKING & CREDIT--1.7%
American Express Co. ................... 1,000 41,375
Bank of New York Co., Inc. ............. 1,000 48,750
Citicorp ............................... 400 26,900
UST, Inc. .............................. 200 6,675
----------
123,700
----------

INSURANCE--0.7%
AFLAC, Inc. ............................ 100 4,337
General Reinsurance Corp. .............. 300 46,500
----------
50,837
----------
174,537
----------
HEALTH CARE--1.1%
DRUGS--0.7%
Pfizer, Inc. ........................... 800 50,400
----------

MEDICAL PRODUCTS--0.4%
Medtronic, Inc. ........................ 600 33,525
----------
83,925
----------
MULTI INDUSTRY
COMPANIES--0.1%
Tyco International Ltd. ................ 200 7,125
----------

TECHNOLOGY--0.2%
COMPUTER SOFTWARE &
SERVICES--0.2%
Reynolds & Reynolds Co. ................ 300 11,663
----------

UTILITIES--1.9%
TELEPHONE--1.9%
Cincinnati Bell, Inc. .................. 1,000 34,750
Nynex Corp. ............................ 1,300 70,200
SBC Communications, Inc. ............... 600 34,500
----------
139,450
----------
Total Common Stocks
(cost $768,041) ..................... 851,762
----------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
CONSERVATIVE INVESTORS PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

PRINCIPAL
AMOUNT
(000) U.S.$ VALUE
---------- -----------
U.S. GOVERNMENT
OBLIGATIONS--45.9%
U.S. Treasury Bonds
6.875%, 8/15/25.................. $1,855 $ 2,092,088
7.625%, 2/15/25.................. 357 436,543
U.S. Treasury Notes
5.75%, 10/31/00.................. 55 55,790
5.875%, 11/15/05................. 600 613,500
6.50%, 8/15/05................... 105 111,858
7.75%, 12/31/99.................. 90 97,664
-----------

Total U.S. Government Obligations
(cost $3,234,315)................ 3,407,443
-----------

SHORT-TERM INVESTMENTS--40.4%
U.S. GOVERNMENT
OBLIGATIONS--40.4%
Federal Farm Credit Bank
5.50%, 1/05/96................... 700 699,572

Federal Home Loan Bank
5.50%, 1/05/96...................$ 700 $ 699,572
Federal Home Loan Mortgage Corp.
5.75%, 1/02/96................... 1,600 1,599,745
-----------

Total Short-Term Investments
(amortized cost $2,998,889)...... 2,998,889
----------
TOTAL INVESTMENTS--97.8%
(cost $7,001,245)................ 7,258,094
Other assets less liabilities--2.2% 161,626
----------

NET ASSETS--100.0%................... $7,419,720
==========

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

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GROWTH INVESTORS PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995

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

SHARES U.S.$ VALUE
------ -----------
COMMON STOCKS--41.3%
BASIC INDUSTRIES--2.6%
CHEMICALS--1.4%
Air Products & Chemicals, Inc. 500 $ 26,375
Hercules, Inc. ............... 800 45,100
--------
71,475
--------
METALS & MINING--0.9%
Aluminum Co. of America ...... 800 42,300
--------

PACKAGING--0.3%
Sealed Air Corp.* ............ 500 14,063
--------
127,838
--------
CAPITAL GOODS--1.1%
ELECTRICAL EQUIPMENT--0.7%
General Electric Co. ......... 300 21,600
Molex, Inc. .................. 375 12,000
--------
33,600
--------
MACHINERY--0.4%
Deere & Co. .................. 600 21,150
--------
54,750
--------
CONSUMER SERVICES--6.2%
AIRLINES--0.7%
Delta Air Lines, Inc. ........ 500 36,937
--------

ENTERTAINMENT &
LEISURE--1.4%
CUC International, Inc.* ..... 1,000 34,125
Eastman Kodak Co. ............ 500 33,500
--------
67,625
--------
RESTAURANTS &
LODGING--2.1%
Marriot International, Inc. .. 1,500 57,375
McDonald's Corp. ............. 1,000 45,125
--------
102,500
--------
RETAILING--2.0%
Consolidated Stores Corp.* ... 500 10,875
Dollar General Corp. ......... 500 10,375
Office Depot, Inc.* .......... 500 9,875
Rite Aid Corp. ............... 2,000 68,500
--------
99,625
--------
306,687
--------
CONSUMER STAPLES--7.1%
COSMETICS--2.6%
Gillette Co. ................. 2,500 130,312
--------

FOOD--1.8%
Coca-Cola Co. ................ 800 59,400
IBP, Inc. .................... 600 30,300
--------
89,700
--------
TOBACCO--2.7%
Philip Morris Cos., Inc. ..... 1,500 $135,750
--------
355,762
--------
ENERGY--1.8%
DOMESTIC PRODUCERS--1.6%
Amoco Corp. .................. 500 35,938
Mobil Corp. .................. 400 44,800
--------
80,738
--------
PIPELINES--0.2%
Enron Corp. .................. 200 7,625
--------
88,363
--------
FINANCE--9.6%
BANKING & CREDIT--6.4%
American Express Co. ......... 2,000 82,750
Bank of New York Co., Inc. ... 3,000 146,250
Citicorp ..................... 1,000 67,250
First Bank System, Inc. ...... 500 24,812
--------
321,062
--------
INSURANCE--3.2%
AFLAC, Inc. .................. 100 4,338
General Reinsurance Corp. .... 1,000 155,000
--------
159,338
--------
480,400
--------
HEALTH CARE--5.0%
DRUGS--1.6%
Pfizer, Inc. ................. 1,300 81,900
--------

MEDICAL PRODUCTS--2.8%
Cardinal Health, Inc. ........ 500 27,375
Medtronic, Inc. .............. 2,000 111,750
--------
139,125
--------
MEDICAL SERVICES--0.6%
HealthCare Compare Corp.* .... 700 30,581
--------
251,606
--------
MULTI INDUSTRY
COMPANIES--0.4%
Tyco International Ltd. ...... 600 21,375
--------

TECHNOLOGY--2.9%
COMMUNICATIONS
EQUIPMENT--0.2%
ADC Telecommunications, Inc.* 300 10,913
--------

COMPUTER HARDWARE--0.9%
3Com Corp.* (a) .............. 400 18,675
Sun Microsystems, Inc.* ...... 600 27,412
--------
46,087
--------

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GROWTH INVESTORS PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONT'D)

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

SHARES OR
PRINCIPAL
(000) U.S.$ VALUE
---------- -----------
COMPUTER SOFTWARE &
SERVICES--1.8%
Oracle Corp.* ................................. 400 $ 16,950
Paychex, Inc. ................................. 1,000 49,687
Reynolds & Reynolds Co. ....................... 500 19,438
--------
86,075
--------
143,075
--------
TRANSPORTATION--0.4%
RAILROADS--0.4%
Illinois Central Corp. ........................ 500 19,188
--------

UTILITIES--4.2%
TELEPHONE--4.2%
Cincinnati Bell, Inc. ......................... 1,500 52,125
Nynex Corp. ................................... 1,700 91,800
SBC Communications, Inc. ...................... 1,100 63,250
--------
207,175
--------
Total Common Stocks
(cost $1,867,183) .......................... 2,056,219
----------

U.S. GOVERNMENT
OBLIGATIONS--24.6%
U.S. Treasury Bonds
6.875%, 8/15/25 ............................ $ 460 518,792
7.625%, 2/15/25 ............................ 68 83,151
U.S. Treasury Notes
5.75%, 10/31/00 ............................ 110 111,581
5.875%, 8/15/98 ............................ 100 101,578

5.875%, 11/15/05 ........................... $ 250 $255,625
6.50%, 8/15/05 ............................. 60 63,919
7.25%, 2/15/98 ............................. 60 62,390
7.75%, 12/31/99 ............................ 25 27,129
---------

Total U.S. Government Obligations
(cost $1,179,716) .......................... 1,224,165
---------

SHORT-TERM INVESTMENTS--40.2%
U.S. GOVERNMENT
OBLIGATIONS--40.2%
Federal Farm Credit Bank
5.50%, 1/05/96 ............................. 500 499,695
Federal Home Loan Bank
5.50%, 1/05/96 ............................. 500 499,694
Federal Home Loan Mortgage Corp. ..............
5.75%, 1/02/96 ............................. 1,000 999,840
----------

Total Short-Term Investments
(amortized cost $1,999,229) ................ 1,999,229
-----------

TOTAL INVESTMENTS--106.1%
(cost $5,046,128) .......................... 5,279,613
Other assets less liabilities--(6.1%) ......... (301,497)
----------

NET ASSETS--100.0%................... $4,978,116
===========

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

* 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, 1995, the aggregate market value of these securities amounted to
$18,675 or 0.4% of net assets.

See Notes to Financial Statements.

GLOSSARY OF TERMS
ADR - American Depository Receipts
FRN - Floating Rate Note
GDR - Global Depository Receipts

IDU - Interest Due on Unpaid Bond
ORD - Ordinary
PDI - Past Due Interest Bonds

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

- --------------------------------------------------------------------------
<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
$62,648,886, $10,862,330, $73,530,350 and
$10,612,442, respectively) .................................. $65,966,206 $11,169,715 $77,997,208 $ 10,609,349
Cash, at value (cost $-0-, $19,693, $304,765 and
$-0-, respectively) ......................................... -0- 19,515 305,262 -0-
Receivable for investment securities sold ..................... 4,073,626 -0- 114,395 1,245,480
Receivable for capital stock sold ............................. 176,399 45,083 136,140 14,284
Dividends receivable .......................................... 95,107 -0- 141,492 -0-
Deferred organization expenses ................................ 8,169 2,136 658 -0-
Interest receivable ........................................... 5,314 341,849 -0- 31,280
Unrealized appreciation of forward exchange
currency contracts .......................................... -0- 12,865 -0- -0-
Receivable from investment adviser ............................ -0- 5,366 -0- 8,197
----------- ----------- ----------- ------------
Total assets .................................................. 70,324,821 11,596,529 78,695,155 11,908,590
----------- ----------- ----------- ------------

LIABILITIES
Due to custodian .............................................. 45,330 -0- -0- 22,207
Payable for capital stock redeemed ............................ 40,918,447 2,848 36,617,680 8,644,807
Investment advisory fee payable ............................... 49,803 -0- 40,923 -0-
Unrealized depreciation of forward exchange
currency contracts .......................................... -0- -0- -0- 47,357
Accrued expenses .............................................. 32,947 40,704 43,724 42,141
----------- ----------- ----------- ------------
Total liabilities ............................................. 41,046,527 43,552 36,702,327 8,756,512
----------- ----------- ----------- ------------
NET ASSETS ....................................................... $29,278,294 $11,552,977 $41,992,828 $ 3,152,078
=========== =========== =========== ============

COMPOSITION OF NET ASSETS
Capital stock, at par ......................................... $ 1,645 $ 951 $ 2,659 $ 298
Additional paid-in capital .................................... 8,825,473 9,905,081 24,838,801 3,939,381
Undistributed net investment income ........................... 312,649 1,034,881 1,130,049 369,422
Accumulated net realized gain (loss) on investments,
options and foreign currency transactions ................... 16,821,207 289,940 11,553,964 (1,107,325)
Net unrealized appreciation (depreciation) of investments
and foreign currency denominated assets and liabilities ..... 3,317,320 322,124 4,467,355 (49,698)
----------- ----------- ----------- ------------
$29,278,294 $11,552,977 $41,992,828 $ 3,152,078
=========== =========== =========== ============

Shares of capital stock outstanding ........................... 1,644,774 950,828 2,658,797 298,038
=========== =========== =========== ============
Net asset value per share ..................................... $17.80 $12.15 $ 15.79 $10.58
=========== =========== =========== ============

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

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

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
$16,598,482, $8,256,562, $16,029,364 and
$32,455,268, respectively) ............................................ $17,192,644 $ 8,672,561 $16,760,074 $ 32,455,268
Cash, at value (cost $30,619, $149,597, $352,983 and
$789,081, respectively) ............................................... 30,619 149,597 351,754 789,081
Interest receivable ..................................................... 310,168 48,216 653 -0-
Receivable for capital stock sold ....................................... 43,482 1,583 113,931 111,468
Deferred organization expenses .......................................... 8,350 9,712 9,948 9,976
Dividends receivable .................................................... 1,181 6,445 31,554 -0-
Receivable for investment securities sold ............................... -0- 50,693 69,976 -0-
Receivable from investment adviser ...................................... -0- 7,467 16,513 -0-
Unrealized appreciation of forward exchange
currency contracts .................................................... -0- -0- 10,433 -0-
----------- ----------- ----------- ------------
Total assets ............................................................ 17,586,444 8,946,274 17,364,836 33,365,793
----------- ----------- ----------- ------------

LIABILITIES
Payable for capital stock redeemed ...................................... 586,796 66,390 218,205 5,197,155
Unrealized depreciation of forward exchange
currency contracts .................................................... 12,642 -0- -0- -0-
Investment advisory fee payable ......................................... 3,089 -0- -0- 15,489
Payable for investment securities purchased ............................. -0- 574,751 510,233 -0-
Accrued expenses ........................................................ 37,398 62,692 94,763 60,841
----------- ----------- ----------- ------------
Total liabilities ....................................................... 639,925 703,833 823,201 5,273,485
----------- ----------- ----------- ------------
NET ASSETS ................................................................. $16,946,519 $ 8,242,441 $16,541,635 $ 28,092,308
=========== =========== =========== ============

COMPOSITION OF NET ASSETS
Capital stock, at par ................................................... $ 1,453 $ 644 $ 1,176 $ 28,092
Additional paid-in capital .............................................. 15,448,164 7,692,772 15,463,278 28,063,170
Undistributed net investment income ..................................... 620,469 87,921 154,797 803
Accumulated net realized gain on investments and
foreign currency transactions ......................................... 295,645 45,105 182,395 243
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities ........................... 580,788 415,999 739,989 -0-
----------- ----------- ----------- ------------
$16,946,519 $ 8,242,441 $16,541,635 $ 28,092,308
=========== =========== =========== ============

Shares of capital stock outstanding ..................................... 1,453,146 643,972 1,175,986 28,092,065
=========== =========== =========== ============
Net asset value per share ............................................... $11.66 $12.80 $14.07 $1.00
=========== =========== =========== ============

- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
</TABLE>
54

<TABLE>
<CAPTION>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

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

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
$3,449,861, $6,582,624, $5,929,303 and
$42,069,250, respectively) ............................................ $ 3,714,402 $ 6,900,435 $ 6,232,496 $ 45,770,546
Cash, at value (cost $856, $277,378, $121,129 and
$410,571, respectively) ............................................... 856 277,342 121,129 410,700
Interest receivable ..................................................... 74,953 74,908 -0- 7,408
Deferred organization expenses .......................................... 11,144 14,384 10,263 7,408
Receivable from investment adviser ...................................... 8,149 6,650 9,082 -0-
Receivable for investment securities sold ............................... 2,402 62,250 15,061 268,600
Receivable for capital stock sold ....................................... 1,879 -0- 22,557 346,840
Dividends receivable .................................................... -0- -0- 14,567 60,005
----------- ----------- ----------- ------------
Total assets ............................................................ 3,813,785 7,335,969 6,425,155 46,871,507
----------- ----------- ----------- ------------

LIABILITIES
Payable for capital stock redeemed ...................................... 193 18,932 57 28
Unrealized depreciation of forward exchange
currency contracts .................................................... -0- 2,068 -0- -0-
Payable for investment securities purchased ............................. -0- -0- 143,853 1,585,587
Investment advisory fee payable ......................................... -0- -0- -0- 26,540
Accrued expenses ........................................................ 35,497 37,042 30,704 39,641
----------- ----------- ----------- ------------
Total liabilities ....................................................... 35,690 58,042 174,614 1,651,796
----------- ----------- ----------- ------------
NET ASSETS ................................................................. $ 3,778,095 $ 7,277,927 $ 6,250,541 $ 45,219,711
=========== =========== =========== ============

COMPOSITION OF NET ASSETS
Capital stock, at par ................................................... $ 316 $ 695 $ 521 $ 3,177
Additional paid-in capital .............................................. 3,311,542 6,910,039 5,727,085 39,796,861
Undistributed net investment income ..................................... 188,559 47,940 81,328 266,542
Accumulated net realized gain on investments
and foreign currency transactions ..................................... 13,137 3,539 138,414 1,451,706
Net unrealized appreciation of investments and
foreign currency denominated assets and liabilities ................... 264,541 315,714 303,193 3,701,425
----------- ----------- ----------- ------------
$ 3,778,095 $ 7,277,927 $ 6,250,541 $ 45,219,711
=========== =========== =========== ============

Shares of capital stock outstanding ..................................... 316,166 694,380 520,402 3,177,065
=========== =========== =========== ============
Net asset value per share ............................................... $11.95 $10.48 $12.01 $14.23
=========== =========== =========== ============

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

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

WORLDWIDE CONSERVATIVE GROWTH
PRIVATIZATION INVESTORS INVESTORS
PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------ ----------
<S> <C> <C> <C>
ASSETS
Investments in securities, at value (cost $5,733,412,
$7,001,245 and $5,046,128, respectively) ............................... $ 5,949,284 $7,258,094 $5,279,613
Cash, at value (cost $1,316, $114,257 and $58,386,
respectively) .......................................................... 1,319 114,257 58,386
Receivable for capital stock sold ........................................ 52,029 159,819 -0-
Dividends receivable ..................................................... 15,848 1,471 2,504
Receivable from investment adviser ....................................... 9,359 6,570 8,470
Deferred organization expenses ........................................... 7,452 7,644 7,644
Interest receivable ...................................................... 901 69,627 23,187
----------- ---------- ----------
Total assets ............................................................. 6,036,192 7,617,482 5,379,804
----------- ---------- ----------

LIABILITIES
Payable for investment securities purchased .............................. 48,900 160,351 363,964
Payable for capital stock redeemed ....................................... 736 -0- 2,362
Accrued expenses ......................................................... 39,782 37,411 35,362
----------- ---------- ----------
Total liabilities ........................................................ 89,418 197,762 401,688
----------- ---------- ----------
NET ASSETS .................................................................. $ 5,946,774 $7,419,720 $4,978,116
=========== ========== ==========

COMPOSITION OF NET ASSETS
Capital stock, at par .................................................... $ 532 $ 631 $ 419
Additional paid-in capital ............................................... 5,683,909 6,979,641 4,671,968
Undistributed net investment income ...................................... 90,277 127,336 55,987
Accumulated net realized gain (loss) on investments
and foreign currency transactions ...................................... (43,764) 55,263 16,257
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities ............................ 215,820 256,849 233,485
----------- ---------- ----------
$ 5,946,774 $7,419,720 $4,978,116
=========== ========== ==========

Shares of capital stock outstanding ...................................... 532,219 630,671 419,292
=========== ========== ==========
Net asset value per share ................................................ $11.17 $11.76 $11.87
=========== ========== ==========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

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

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 $3,545, $-0-,
$12,341 and $-0-, respectively)...................... $ 732,514 $ -0- $ 1,243,872 $ -0-
Interest (net of foreign tax withheld of $-0-, $2,384,
$-0- and $554, respectively)......................... 123,151 652,234 350,546 1,458,970
----------- ----------- ----------- ----------
Total investment income................................ 855,665 652,234 1,594,418 1,458,970
----------- ----------- ----------- ----------

EXPENSES
Investment advisory fee................................ 570,739 59,122 362,532 87,500
Custodian.............................................. 60,995 56,052 58,457 76,026
Audit and legal........................................ 25,921 26,079 26,078 25,823
Printing............................................... 7,676 10,137 4,300 6,733
Amortization of organization expenses 5,497 3,975 4,449 4,040
Directors fees......................................... 2,129 1,257 1,113 1,857
Transfer agency........................................ 2,062 1,982 677 1,701
Miscellaneous.......................................... 3,077 2,031 2,819 2,953
----------- ----------- ----------- ----------
Total expenses......................................... 678,096 160,635 460,425 206,633
Less: expense reimbursement............................ (135,894) (74,231) -0- (55,497)
----------- ----------- ----------- ----------
Net expenses........................................... 542,202 86,404 460,425 151,136
----------- ----------- ----------- ----------
Net investment income.................................. 313,463 565,830 1,133,993 1,307,834
----------- ----------- ----------- ----------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on investment transactions .... 16,824,672 445,890 11,527,647 (910,867)
Net realized gain (loss) on foreign currency
transactions .......................................... -0- 466,026 18,489 (964,669)
Net change in unrealized appreciation of investments 3,054,025 428,457 4,605,384 1,523,232
Net change in unrealized appreciation (depreciation) of
foreign currency denominated assets and liabilities -0- 17,928 503 (99,392)
----------- ---------- ------------ ----------
Net gain (loss) on investments 19,878,697 1,358,301 16,152,023 (451,696)
------------- ---------- ------------ ----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $20,192,160 $1,924,131 $17,286,016 $ 856,138
============== ========== ============ ==========

- --------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

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

U.S. GOVERNMENT/
HIGH GRADE TOTAL MONEY
SECURITIES RETURN INTERNATIONAL MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest ............................................ $ 690,988 $ 82,373 $ 73,765 $ 954,316
Dividends (net of foreign tax withheld of $-0-, $72,
$30,118 and $-0-, respectively) ................... 4,725 32,210 175,323 -0-
---------- ----------- ----------- ---------
Total investment income ............................. 695,713 114,583 249,088 954,316
---------- ----------- ----------- ---------

EXPENSES
Investment advisory fee ............................. 60,388 17,443 105,532 82,265
Custodian ........................................... 52,007 61,129 163,334 49,488
Audit and legal ..................................... 26,182 26,612 26,361 25,011
Printing ............................................ 10,287 11,083 8,463 10,533
Amortization of organization expenses ............... 4,873 4,873 4,993 4,993
Transfer agency ..................................... 1,719 1,707 2,096 1,873
Directors fees ...................................... 1,457 1,021 2,574 205
Miscellaneous ....................................... 2,483 1,347 2,252 2,138
---------- ----------- ----------- ---------
Total expenses ...................................... 159,396 125,215 315,605 176,506
Less: expense reimbursement ......................... (63,782) (98,702) (215,349) (20,203)
---------- ----------- ----------- ---------
Net expenses ........................................ 95,614 26,513 100,256 156,303
---------- ----------- ----------- ---------
Net investment income ............................... 600,099 88,070 148,832 798,013
---------- ----------- ----------- ---------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions ........ 319,393 49,542 60,209 726
Net realized gain on foreign currency transactions .. 29,033 -0- 136,755 -0-
Net change in unrealized appreciation of investments 791,180 424,620 812,079 -0-
Net change in unrealized appreciation (depreciation)
of foreign currency denominated assets and
liabilities ......................................... (13,374) -0- 11,149 -0-
---------- ----------- ----------- ---------
Net gain on investments ............................. 1,126,232 474,162 1,020,192 726
---------- ----------- ----------- ---------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............. $1,726,331 $ 562,232 $ 1,169,024 $ 798,739
========== =========== =========== =========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

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

NORTH AMERICAN
GLOBAL DOLLAR GOVERNMENT UTILITY
GOVERNMENT INCOME INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ------------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest ................................................ $ 211,731 $ 677,811 $ 13,221 $ 139,162
Dividends (net of foreign tax withheld of $-0-, $-0-,
$968 and $2,101, respectively) ........................ -0- -0- 96,576 328,404
---------- ----------- ----------- ---------
Total investment income ................................. 211,731 677,811 109,797 467,566
---------- ----------- ----------- ---------

EXPENSES
Investment advisory fee ................................. 16,541 33,402 22,348 154,907
Custodian ............................................... 48,351 55,017 55,366 72,170
Audit and legal ......................................... 23,943 25,126 22,967 24,616
Printing ................................................ 7,136 8,047 2,299 1,089
Amortization of organization expenses ................... 4,241 5,855 3,743 2,000
Transfer agency ......................................... 1,933 2,017 1,871 1,923
Directors fees .......................................... 1,891 737 1,007 1,430
Miscellaneous ........................................... 2,336 1,848 3,206 3,485
---------- ----------- ----------- ---------
Total expenses .......................................... 106,372 132,049 112,807 261,620
Less: expense reimbursement ............................. (85,420) (83,230) (84,500) (65,405)
---------- ----------- ----------- ---------
Net expenses ............................................ 20,952 48,819 28,307 196,215
---------- ----------- ----------- ---------
Net investment income ................................... 190,779 628,992 81,490 271,351
---------- ----------- ----------- ---------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions ............ 13,908 21,305 146,191 1,503,347
Net realized gain (loss) on foreign currency transactions -0- (582,809) 2,026 (8,006)
Net change in unrealized appreciation of investments .... 317,262 1,033,552 336,155 3,495,390
Net change in unrealized appreciation (depreciation) of
foreign currency denominated assets and liabilities ... -0- (2,088) -0- 129
---------- ----------- ----------- ---------
Net gain on investments ................................. 331,170 469,960 484,372 4,990,860
---------- ----------- ----------- ---------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................. $ 521,949 $ 1,098,952 $ 565,862 $5,262,211
========== =========== =========== ==========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995

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

WORLDWIDE CONSERVATIVE GROWTH
PRIVATIZATION INVESTORS INVESTORS
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest .............................................. $67,167 $ 148,178 $ 61,097
Dividends (net of foreign tax withheld of $7,521, $-0-,
and $-0-, respectively) ............................. 58,801 5,367 11,256
------- --------- --------
Total investment income ............................... 125,968 153,545 72,353
------- --------- --------

EXPENSES
Investment advisory fee ............................... 32,207 20,567 13,051
Custodian ............................................. 65,219 55,590 54,965
Audit and legal ....................................... 23,738 27,485 29,011
Printing .............................................. 4,706 5,791 3,499
Amortization of organization expenses ................. 2,000 2,000 2,000
Transfer agency ....................................... 1,926 1,362 1,997
Directors fees ........................................ 1,478 2,384 1,613
Miscellaneous ......................................... 2,878 1,423 1,314
------- --------- --------
Total expenses ........................................ 134,152 116,602 107,450
Less: expense reimbursement ........................... (103,555) (90,550) (90,920)
-------- --------- --------
Net expenses .......................................... 30,597 26,052 16,530
------- --------- --------
Net investment income ................................. 95,371 127,493 55,823
------- --------- --------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on investment transactions ... (45,435) 55,975 16,967
Net realized loss on foreign currency transactions .... (3,414) -0- -0-
Net change in unrealized appreciation of investments .. 215,872 255,556 237,378
Net change in unrealized depreciation of foreign
currency denominated assets and liabilities ......... (52) -0- -0-
-------- --------- --------
Net gain on investments ............................... 166,971 311,531 254,345
------- --------- --------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............... $262,342 $ 439,024 $310,168
========= ========= ========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS

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

PREMIER GROWTH PORTFOLIO GLOBAL BOND PORTFOLIO
------------------------------ -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ................................... $ 313,463 $ 97,606 $ 565,830 $ 408,590
Net realized gain (loss) on investment transactions ..... 16,824,672 271,826 445,890 (154,419)
Net realized gain (loss) on foreign currency
transactions .......................................... -0- -0- 466,026 (253,681)
Net change in unrealized appreciation (depreciation)
of investments and foreign currency denominated
assets and liabilities ................................ 3,054,025 (1,055,863) 446,385 (353,957)
---------- ----------- ----------- ---------
Net increase (decrease) in net assets
from operations ....................................... 20,192,160 (686,431) 1,924,131 (353,467)

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................... (97,581) (20,473) (72,090) (383,604)
Net realized gain on investments and foreign
currency transactions ................................. (273,977) (56,132) -0- (181,669)

CAPITAL STOCK TRANSACTIONS
Net increase (decrease) ................................. (28,211,402) 24,773,454 2,402,867 1,468,349
---------- ----------- ----------- ---------
Total increase (decrease) ............................... (8,390,800) 24,010,418 4,254,908 549,609

NET ASSETS
Beginning of period ..................................... 37,669,094 13,658,676 7,298,069 6,748,460
---------- ----------- ----------- ---------
End of period (including undistributed net
investment income of $312,649, $95,835,
$1,034,881 and $70,965, respectively) ................. $29,278,294 $37,669,094 $11,552,977 $7,298,069
========== =========== =========== =========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS

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

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,
1995 1994 1995 1994
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ................................... $1,133,993 $ 556,186 $ 1,307,834 $1,675,123
Net realized gain (loss) on investment transactions ..... 11,527,647 605,669 (910,867) (567,154)
Net realized gain (loss) on foreign currency
transactions .......................................... 18,489 (50) (964,669) (1,385,266)
Net change in unrealized appreciation (depreciation)
of investments and foreign currency denominated
assets and liabilities ................................ 4,605,887 (1,403,807) 1,423,840 (1,215,362)
---------- ----------- ----------- ----------
Net increase (decrease) in net assets
from operations ....................................... 17,286,016 (242,002) 856,138 (1,492,659)

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................... (531,525) (277,061) -0- (1,057,212)
Net realized gain on investments and foreign
currency transactions ................................. (551,658) (484,873) -0- -0-
Return of capital ....................................... -0- -0- -0- (940)

CAPITAL STOCK TRANSACTIONS
Net increase (decrease) ................................. (15,911,876) 19,950,283 (18,624,919) (88,801)
----------- ----------- ----------- ---------
Total increase (decrease) ............................... 290,957 18,946,347 (17,768,781) (2,639,612)

NET ASSETS
Beginning of period ..................................... 41,701,871 22,755,524 20,920,859 23,560,471
---------- ----------- ----------- ----------
End of period (including undistributed
(overdistributed) net investment income of
$1,130,049, $539,879, $369,422 and
$(2,357), respectively) ............................... $41,992,828 $41,701,871 $ 3,152,078 $20,920,859
=========== =========== =========== ===========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS

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

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,
1995 1994 1995 1994
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ................................... $ 600,099 $ 147,656 $ 88,070 $ 9,704
Net realized gain (loss) on investment transactions ..... 319,393 (29,780) 49,542 (4,437)
Net realized gain on foreign currency
transactions .......................................... 29,033 -0- -0- -0-
Net change in unrealized appreciation (depreciation)
of investments and foreign currency denominated
assets and liabilities ................................ 777,806 (182,479) 424,620 (22,102)
---------- ----------- ----------- ---------
Net increase (decrease) in net assets
from operations ....................................... 1,726,331 (64,603) 562,232 (16,835)

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................... (149,971) (52,816) (10,089) (3,795)
Net realized gain on investments ........................ -0- (35,522) -0- (2,282)

CAPITAL STOCK TRANSACTIONS
Net increase ............................................ 10,268,875 3,903,950 6,940,398 412,828
---------- ----------- ----------- ---------
Total increase .......................................... 11,845,235 3,751,009 7,492,541 389,916

NET ASSETS
Beginning of period ..................................... 5,101,284 1,350,275 749,900 359,984
---------- ----------- ----------- ---------
End of period (including undistributed net
investment income of $620,469, $147,340,
$87,921 and $9,940, respectively) ..................... $16,946,519 $ 5,101,284 $ 8,242,441 $ 749,900
========== =========== =========== =========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS

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

INTERNATIONAL PORTFOLIO MONEY MARKET PORTFOLIO
----------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ................................... $ 148,832 $ 25,102 $ 798,013 $ 82,719
Net realized gain (loss) on investment transactions ..... 60,209 18,758 726 (473)
Net realized gain on foreign currency
transactions .......................................... 136,755 1,982 -0- -0-
Net change in unrealized appreciation (depreciation)
of investments and foreign currency denominated
assets and liabilities ................................ 823,228 (106,701) -0- -0-
---------- ----------- ----------- ---------
Net increase (decrease) in net assets
from operations ....................................... 1,169,024 (60,859) 798,739 82,246

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................... (23,594) (1,901) (798,013) (82,719)
Net realized gain on investments and foreign
currency transactions ................................. (29,314) (11,169) -0- -0-

CAPITAL STOCK TRANSACTIONS
Net increase ............................................ 8,149,131 6,662,423 21,193,287 6,797,225
---------- ----------- ----------- ---------
Total increase .......................................... 9,265,247 6,588,494 21,194,013 6,796,752

NET ASSETS
Beginning of period ..................................... 7,276,388 687,894 6,898,295 101,543
---------- ----------- ----------- ---------
End of period (including undistributed net
investment income of $154,797, $23,907,
$803 and $803, respectively) .......................... $16,541,635 $ 7,276,388 $28,092,308 $6,898,295
========== =========== =========== =========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS

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

GLOBAL DOLLAR NORTH AMERICAN
GOVERNMENT PORTFOLIO GOVERNMENT INCOME PORTFOLIO
-------------------- ---------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994(A) 1995 1994(B)
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ................................... $ 190,779 $ 25,782 $ 628,992 $ 145,598
Net realized gain (loss) on investment transactions ..... 13,908 (771) 21,305 (12,751)
Net realized loss on foreign currency
transactions .......................................... -0- -0- (582,809) (4,232)
Net change in unrealized appreciation (depreciation)
of investments and foreign currency denominated
assets and liabilities ................................ 317,262 (52,721) 1,031,464 (715,750)
---------- ----------- ----------- ---------
Net increase (decrease) in net assets
from operations ....................................... 521,949 (27,710) 1,098,952 (587,135)

DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ................................... (28,002) -0- (144,624) -0-

CAPITAL STOCK TRANSACTIONS
Net increase ............................................ 2,137,822 1,174,036 2,475,517 4,435,217
---------- ----------- ----------- ---------
Total increase .......................................... 2,631,769 1,146,326 3,429,845 3,848,082

NET ASSETS
Beginning of period ..................................... 1,146,326 -0- 3,848,082 -0-
---------- ----------- ----------- ---------
End of period (including undistributed net
investment income of $188,559, $25,782,
$47,940 and $141,547, respectively) ................... $3,778,095 $ 1,146,326 $ 7,277,927 $3,848,082
========== =========== =========== =========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Commencement of operations, May 2, 1994.
(b) Commencement of operations, May 3, 1994.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS

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

UTILITY INCOME PORTFOLIO GROWTH PORTFOLIO
------------------------ ----------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994(A) 1995 1994(B)
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ................................... $ 81,490 $ 18,849 $ 271,351 $ 11,263
Net realized gain (loss) on investment transactions ..... 146,191 (9,667) 1,503,347 (48,794)
Net realized gain (loss) on foreign currency
transactions .......................................... 2,026 (17) (8,006) -0-
Net change in unrealized appreciation (depreciation)
of investments and foreign currency denominated
assets and liabilities ................................ 336,155 (32,962) 3,495,519 205,906
---------- ----------- ----------- ---------
Net increase (decrease) in net assets
from operations ....................................... 565,862 (23,797) 5,262,211 168,375

DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ................................... (19,130) -0- (10,913) -0-

CAPITAL STOCK TRANSACTIONS
Net increase ............................................ 4,449,560 1,278,046 34,476,649 5,323,389
---------- ----------- ----------- ---------
Total increase .......................................... 4,996,292 1,254,249 39,727,947 5,491,764

NET ASSETS
Beginning of period ..................................... 1,254,249 -0- 5,491,764 -0-
---------- ----------- ----------- ---------
End of period (including undistributed net
investment income of $81,328, $18,832,
$266,542 and $11,263, respectively) ................... $6,250,541 $ 1,254,249 $45,219,711 $5,491,764
========== =========== =========== =========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Commencement of operations, May 10, 1994.
(b) Commencement of operations, September 15, 1994.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS

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

CONSERVATIVE
WORLDWIDE PRIVATIZATION PORTFOLIO INVESTORS PORTFOLIO
--------------------------------- -------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994(A) 1995 1994(B)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ................................... $ 95,371 $ 7,184 $ 127,493 $ 3,462
Net realized gain (loss) on investment transactions ..... (45,435) -0- 55,975 (712)
Net realized loss on foreign currency
transactions .......................................... (3,414) -0- -0- -0-
Net change in unrealized appreciation of
investments and foreign currency
denominated assets and liabilities .................... 215,820 -0- 255,556 1,293
---------- ----------- ----------- ---------
Net increase in net assets from operations .............. 262,342 7,184 439,024 4,043

DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ................................... (7,193) -0- (3,619) -0-

CAPITAL STOCK TRANSACTIONS
Net increase ............................................ 4,564,563 1,119,878 6,283,423 696,849
---------- ----------- ----------- ---------
Total increase .......................................... 4,819,712 1,127,062 6,718,828 700,892

NET ASSETS
Beginning of period ..................................... 1,127,062 -0- 700,892 -0-
---------- ----------- ----------- ---------
End of period (including undistributed net
investment income of $90,277, $7,184,
$127,336 and $3,462, respectively) .................... $5,946,774 $ 1,127,062 $ 7,419,720 $ 700,892
========== =========== =========== =========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Commencement of operations, September 23, 1994.
(b) Commencement of operations, October 28, 1994.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS

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

GROWTH INVESTORS PORTFOLIO
--------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1995 1994(A)
---------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income...................................... $ 55,823 $ 1,067
Net realized gain (loss) on investment transactions 16,967 (710)
Net change in unrealized appreciation (depreciation)
of investments........................................... 237,378 (3,893)
----------- -----------
Net increase (decrease) in net assets from operations 310,168 (3,536)

DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income...................................... (903) -0-

CAPITAL STOCK TRANSACTIONS
Net increase............................................... 4,348,053 324,334
----------- -----------
Total increase............................................. 4,657,318 320,798

NET ASSETS
Beginning of period........................................ 320,798 -0-
----------- ---------
End of period (including undistributed net investment income
of $55,987 and $1,067, respectively) $ 4,978,116 $ 320,798
=========== =========

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Commencement of operations, October 28, 1994.
See Notes to Financial Statements.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

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

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, 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
investment objectives of each Portfolio are as follows:

PREMIER GROWTH PORTFOLIO--seeks growth of capital employing 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. The Portfolio is not intended for investors whose principal
objective is assured income or preservation of capital.

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.

GROWTH AND INCOME PORTFOLIO--seeks reasonable current income and opportunities
for appreciation through investments primarily in dividend-paying common stocks
of good quality.

SHORT-TERM MULTI-MARKET PORTFOLIO--seeks the highest level of current income,
consistent with what the Fund's Adviser considers 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.

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO--seeks a high level of current
income consistent with preservation of capital by investing principally in a
portfolio of U.S. Government securities and other high grade debt securities.

TOTAL RETURN PORTFOLIO--seeks to achieve a high return through a combination of
current income and capital appreciation by investing in a diversified portfolio
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 principally through a broad portfolio of marketable
securities of established non-United States companies, companies participating
in foreign economies with prospects for growth, and foreign government
securities.

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.

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.

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO--seeks the highest level of current
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 denominated 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.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

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 performance of
securities of utilities companies.

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
undergoing, or have undergone, privatization. The balance of the Portfolio's
investment portfolio will include equity securities of companies that are
believed by the Fund's Adviser to be beneficiaries of the privatization process.

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
diversified 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 diversified
mix of publicly traded equity and fixed-income securities.

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 a 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
Portfolio securities traded on a national securities exchange are 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. Listed securities not
traded and securities traded in the over-the-counter market, including listed
debt securities whose primary market is believed to be over-the-counter, are
valued at the mean between the most recent quoted bid and asked prices provided
by the principal market makers. Publicly traded sovereign debt obligations are
typically traded internationally on the over-the-counter market. Readily
marketable sovereign debt obligations and fixed income securities may be valued
on the basis of prices provided by a pricing service when such prices are
believed by the Adviser to reflect the fair value of such securities. Options
are valued at market value or fair value using methods determined by the Board
of Directors. 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.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

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.

The Portfolios isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held.

Net foreign exchange gains (losses) of $466,026, $18,489, $(964,669), $29,033,
$136,755, $(582,809), $2,026, $(8,006) and $(3,414) for the Global Bond
Portfolio, Growth and Income Portfolio, Short-Term Multi-Market Portfolio, U.S.
Government/High Grade Securities Portfolio, International Portfolio, North
American Government Income Portfolio, Utility Income Portfolio, Growth Portfolio
and Worldwide Privatization 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 exchange rates are reflected as a component of
unrealized appreciation (depreciation) on investments and foreign currency
denominated assets and liabilities.

4. ORGANIZATION EXPENSES
Organization expenses of each Portfolio 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
$16,723 through April 1999; North American Government Income Portfolio $21,570
through April 1999; Utility Income Portfolio $15,299 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. TAXES
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 provisions for federal income taxes are 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.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

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 .95% for the year ended
December 31, 1995. Expense reimbursements, if any, are accrued daily and paid
monthly. For the year ended December 31, 1995, such reimbursements amounted to
$135,894, $74,231, $55,497, $63,782, $98,702, $215,349, $20,203, $85,420,
$83,230, $84,500, $65,405, $103,555, $90,550 and $90,920 for the Premier Growth
Portfolio, the Global Bond 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 Worldwide Privatization Portfolio, the Conservative Investors Portfolio and
the Growth Investors Portfolio, respectively. In addition, for the year ended
December 31, 1995, the Advisers agreed to waive the Global Bond Portfolio's
investment advisory fee in the amount of $59,122.

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 $1,050
for the Premier Growth Portfolio, the Global Bond Portfolio, the Growth and
Income Portfolio, the Short-Term Multi-Market Portfolio, the U.S. Govern-
ment/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 Worldwide Privatization
Portfolio, the Conservative Investors Portfolio and the Growth Investors
Portfolio, respectively, for the year ended December 31, 1995.

Brokerage commissions paid for the year ended Decem- ber 31, 1995 on securities
transactions amounted to $148,418, $229,432, $64,196, $7,479, $22,347, $104,323,
$11,055, $1,373 and $3,055 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 Worldwide Privatization
Portfolio, the Conservative Investors Portfolio and the Growth Investors
Portfolio, respectively, none of which was paid to affiliated brokers.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

NOTE C -- INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
for the year ended December 31, 1995 were as follows:

<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.................. $ 50,063,245 $ 14,812,089 $ 77,062,008 $ 22,986,853 $ 8,863,096
U.S. Government and government
agency obligations........................ -0- 10,869,805 -0- 395,375 14,606,645

SALES
Stocks and debt obligations.................. 83,623,311 14,327,721 95,003,637 25,779,789 4,602,628
U.S. Government and government
agency obligations........................ -0- 8,579,628 -0- 396,125 7,457,074
</TABLE>

<TABLE>
<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.................. $ 4,715,680 $ 15,583,792 $ 1,901,201 $ 2,619,687 $ 8,055,921
U.S. Government and government
agency obligations........................ 1,964,159 -0- 300,766 857,981 -0-

SALES
Stocks and debt obligations.................. 573,617 8,229,140 73,035 941,835 3,898,743
U.S. Government and government
agency obligations........................ 66,438 -0- 199,317 429,484 -0-

</TABLE>

<TABLE>
<CAPTION>
WORLDWIDE CONSERVATIVE GROWTH
GROWTH PRIVATIZATION INVESTORS INVESTORS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
PURCHASES
Stocks and debt obligations.................. $ 50,534,340 $ 4,360,558 $ 858,585 $ 2,060,373
U.S. Government and government
agency obligations........................ -0- -0- 3,691,376 1,357,000

SALES
Stocks and debt obligations.................. 16,540,089 548,382 157,545 323,294
U.S. Government and government
agency obligations........................ -0- -0- 723,171 233,289

</TABLE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

At December 31, 1995, the cost of investments for federal income tax purposes
and the tax basis gross unrealized appreciation, depreciation and net unrealized
appreciation/(depreciation) were as follows:

<TABLE>
<CAPTION>
NET
UNREALIZED
GROSS UNREALIZED APPRECIATION
PORTFOLIO COST APPRECIATION DEPRECIATION (DEPRECIATION)
- --------- ---------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Premier Growth.................................. $ 63,153,803 $ 3,908,719 $ (1,096,316) $ 2,812,403
Global Bond..................................... 10,866,314 331,428 (28,027) 303,401
Growth and Income............................... 73,791,337 5,054,250 (848,379) 4,205,871
Short-Term Multi-Market......................... 10,614,262 9,506 (14,419) (4,913)
U.S. Government/High Grade Securities........... 16,598,482 615,988 (21,826) 594,162
Total Return.................................... 8,256,630 464,807 (48,876) 415,931
International................................... 16,081,724 1,061,523 (383,173) 678,350
Global Dollar Government........................ 3,451,736 283,113 (20,447) 262,666
North American Government Income................ 6,582,624 469,356 (151,545) 317,811
Utility Income.................................. 5,946,087 476,187 (189,778) 286,409
Growth.......................................... 42,087,541 4,672,059 (989,054) 3,683,005
Worldwide Privatization......................... 5,733,441 440,828 (224,985) 215,843
Conservative Investors.......................... 7,001,245 259,261 (2,412) 256,849
Growth Investors................................ 5,046,128 249,444 (15,959) 233,485
</TABLE>

At December 31, 1995, for federal income tax purposes, the Short-Term
Multi-Market and Worldwide Privatization Portfolios had net capital loss
carryforwards of $1,103,278 (of which $9,593 expires in 2001, $150,822 expires
in 2002, and $941,594 expires in 2003) and $43,735 which expires 2003,
respectively.

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 activities. 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 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. The Fund's custodian will place and maintain cash not available
for investment or government securities in a separate account of the Fund having
a value equal to the aggregate amount of the Fund's commitments under forward
exchange currency contracts entered into with respect to position hedges. 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, 1995, the outstanding forward
exchange currency contracts were as follows:

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

GLOBAL BOND PORTFOLIO:
CONTRACT VALUE ON U.S.$
AMOUNT ORIGINATION CURRENT UNREALIZED
FOREIGN CURRENCY SALE CONTRACTS (000) DATE VALUE APPRECIATION
- ------------------------------- ---------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Japanese Yen, expiring 1/26/96.......................... 90,000 $ 888,100 $ 875,235 $12,865
=======
</TABLE>

SHORT-TERM MULTI-MARKET PORTFOLIO:
<TABLE>
<CAPTION>
CONTRACT VALUE ON U.S.$ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
FOREIGN CURRENCY BUY CONTRACTS (000) DATE VALUE (DEPRECIATION)
- ------------------------------ ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Australian Dollars, expiring 1/16/96-1/18/96............ 854 $ 632,279 $ 634,496 $ 2,217
British Pounds, expiring 1/25/96........................ 469 729,144 728,399 (745)
Canadian Dollars, expiring 1/18/96...................... 1,266 930,859 926,756 (4,103)
Deutsche Marks, expiring 1/22/96-2/05/96................ 7,349 5,123,620 5,131,277 7,657
Finnish Markka, expiring 2/5/96......................... 1,500 346,481 345,452 (1,029)
French Francs, expiring 1/22/96......................... 1,621 327,820 331,201 3,381
Japanese Yen, expiring 1/11/96.......................... 90,000 897,181 873,322 (23,859)
New Zealand Dollars, expiring 1/16/96................... 378 243,953 246,752 2,799
Spanish Pesetas, expiring 1/25/96....................... 134,259 1,098,950 1,103,701 4,751
Swiss Francs, expiring 1/18/96.......................... 682 592,608 592,600 (8)
Thailand Baht, expiring 6/28/96......................... 7,500 292,911 291,465 (1,446)

FOREIGN CURRENCY SALE CONTRACTS
Australian Dollars, expiring 1/18/96.................... 554 412,048 411,720 328
British Pounds, expiring 1/25/96........................ 519 814,398 805,077 9,321
Canadian Dollars, expiring 1/18/96...................... 1,575 1,144,964 1,153,652 (8,688)
Deutsche Marks, expiring 1/22/96-2/05/96................ 7,523 5,115,999 5,251,086 (135,087)
Finnish Markka, expiring 2/05/96........................ 1,500 350,214 345,452 4,762
French Francs, expiring 1/22/96......................... 2,005 405,612 409,563 (3,951)
Japanese Yen, expiring 1/11/96.......................... 120,000 1,300,400 1,165,504 134,896
New Zealand Dollars, expiring 1/16/96................... 378 246,160 246,752 (592)
Spanish Pesetas, expiring 1/25/96....................... 159,475 1,271,423 1,310,994 (39,571)
Swiss Francs, expiring 1/18/96-3/04/96.................. 1,326 1,156,355 1,154,700 1,655
Thailand Baht, expiring 6/28/96......................... 3,750 145,688 145,733 (45)
---------
$ (47,357)
=========

</TABLE>

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO:
<TABLE>
<CAPTION>
CONTRACT VALUE ON U.S.$
AMOUNT ORIGINATION CURRENT UNREALIZED
FOREIGN CURRENCY SALE CONTRACTS (000) DATE VALUE DEPRECIATION
- ------------------------------- ---------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Australian Dollars, expiring 1/08/96.................... 767 $ 565,673 $ 570,117 $ (4,444)
Canadian Dollars, expiring 1/08/96...................... 1,100 800,827 805,387 (4,560)
Deutsche Marks, expiring 1/22/96........................ 1,019 707,484 711,122 (3,638)
---------
$ (12,642)
=========
</TABLE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

INTERNATIONAL PORTFOLIO:
CONTRACT VALUE ON U.S.$ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
FOREIGN CURRENCY SALE CONTRACTS (000) DATE VALUE (DEPRECIATION)
- ------------------------------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Deutsche Marks, expiring 1/31/96........................ 450 $ 318,990 $ 314,254 $ 4,736
French Francs, expiring 2/29/96......................... 1,500 302,845 306,629 (3,784)
Japanese Yen, expiring 1/31/96.......................... 61,000 603,113 593,632 9,481
---------
$ 10,433
==========

</TABLE>

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO:
<TABLE>
<CAPTION>
CONTRACT VALUE ON U.S.$
AMOUNT ORIGINATION CURRENT UNREALIZED
FOREIGN CURRENCY SALE CONTRACTS (000) DATE VALUE DEPRECIATION
- ------------------------------- ---------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Canadian Dollars, expiring 1/22/96...................... 871 $ 635,809 $ 637,877 $(2,068)
=======

- ------------------------------------------------------------------------------------------------------------------------
</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,
1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 2,743,464 2,158,503 $ 42,977,782 $ 27,040,995
Shares issued in reinvestment of dividends
and distributions................................. 24,754 6,295 371,559 76,606
Shares redeemed...................................... (4,167,864) (187,942) (71,560,743) (2,344,147)
----------- ----------- ------------ ------------
Net increase (decrease).............................. (1,399,646) 1,976,856 $(28,211,402) $24,773,454
=========== =========== ============ ===========

GLOBAL BOND PORTFOLIO
----------------------------------------------------------------
SHARES AMOUNT
------------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 232,590 99,445 $2,666,899 $1,004,475
Shares issued in reinvestment of dividends
and distributions................................. 6,352 57,681 72,090 565,272
Shares redeemed...................................... (31,126) (9,522) (336,122) (101,398)
----------- ----------- ------------ ------------
Net increase......................................... 207,816 147,604 $2,402,867 $1,468,349
=========== =========== ============ ==========

</TABLE>

<TABLE>
<CAPTION>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

GROWTH AND INCOME PORTFOLIO
---------------------------------------------------------------
SHARES AMOUNT
----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 2,176,403 1,938,671 $ 31,126,890 $23,400,005
Shares issued in reinvestment of dividends
and distributions................................. 79,180 65,234 1,083,182 761,935
Shares redeemed...................................... (3,114,447) (355,050) (48,121,948) (4,211,657)
----------- ----------- ------------ ------------
Net increase (decrease).............................. (858,864) 1,648,855 $(15,911,876) $19,950,283
=========== =========== ============ ==========

SHORT-TERM MULTI-MARKET PORTFOLIO
---------------------------------------------------------------
SHARES AMOUNT
----------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 485,653 2,182,196 $ 4,901,077 $ 23,826,681
Shares issued in reinvestment of dividends
and distributions................................. -0- 100,584 -0- 1,058,151
Shares redeemed...................................... (2,299,084) (2,298,689) (23,525,996) (24,973,633)
----------- ----------- ------------ ------------
Net decrease......................................... (1,813,431) (15,909) $(18,624,919) $ (88,801)
=========== =========== ============ ============

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
---------------------------------------------------------------
SHARES AMOUNT
----------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 1,256,331 518,614 $ 13,737,462 $ 5,232,257
Shares issued in reinvestment of dividends
and distributions................................. 13,708 8,852 149,970 88,339
Shares redeemed...................................... (330,322) (140,052) (3,618,557) (1,416,646)
----------- ----------- ------------ ------------
Net increase......................................... 939,717 387,414 $ 10,268,875 $ 3,903,950
=========== =========== ============ ============

TOTAL RETURN PORTFOLIO
---------------------------------------------------------------
SHARES AMOUNT
----------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 610,625 69,761 $7,402,831 $ 736,467
Shares issued in reinvestment of dividends
and distributions................................. 866 583 10,089 6,076
Shares redeemed...................................... (39,552) (31,120) (472,522) (329,715)
----------- ----------- ---------- ---------
Net increase......................................... 571,939 39,224 $6,940,398 $ 412,828
=========== =========== ========== =========
</TABLE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

INTERNATIONAL PORTFOLIO
----------------------------------------------------------------
SHARES AMOUNT
--------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 761,751 547,184 $ 10,153,923 $ 7,176,460
Shares issued in reinvestment of dividends
and distributions................................. 4,039 1,015 52,908 13,070
Shares redeemed...................................... (154,693) (39,868) (2,057,700) (527,107)
----------- ----------- ------------ ------------
Net increase......................................... 611,097 508,331 $ 8,149,131 $ 6,662,423
=========== =========== ============ ============

MONEY MARKET PORTFOLIO
----------------------------------------------------------------
SHARES AMOUNT
----------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Shares sold.......................................... 72,470,594 14,471,656 $ 72,470,594 $ 14,471,656
Shares issued in reinvestment of dividends........... 799,144 82,845 799,144 82,845
Shares redeemed...................................... (52,076,451) (7,757,276) (52,076,451) (7,757,276)
----------- ----------- ------------ ------------
Net increase......................................... 21,193,287 6,797,225 $ 21,193,287 $ 6,797,225
=========== =========== ============ ============

GLOBAL DOLLAR GOVERNMENT PORTFOLIO
------------------------------------------------------------------------
SHARES AMOUNT
---------------------------------- -----------------------------------
YEAR ENDED MAY 2, 1994(A) YEAR ENDED MAY 2, 1994(A)
DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1994 1995 1994
--------------------------------------------------------------------------
Shares sold................................. 234,218 118,322 $ 2,508,397 $ 1,192,406
Shares issued in reinvestment of dividends
and distributions........................ 2,647 -0- 28,002 -0-
Shares redeemed............................. (37,201) (1,820) (398,577) (18,370)
----------- ---------- ----------- ------------
Net increase................................ 199,664 116,502 $ 2,137,822 $ 1,174,036
=========== ========== =========== ============

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO
-------------------------------------------------------------------------
SHARES AMOUNT
---------------------------------- -----------------------------------
YEAR ENDED MAY 3, 1994(A) YEAR ENDED MAY 3, 1994(A)
DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1994 1995 1994
-------------------------------------------------------------------------
Shares sold................................. 528,380 525,199 $ 4,987,369 $ 5,263,041
Shares issued in reinvestment of dividends
and distributions........................ 15,806 -0- 144,624 -0-
Shares redeemed............................. (287,428) (87,577) (2,656,476) (827,824)
----------- ---------- ----------- ------------
Net increase................................ 256,758 437,622 $ 2,475,517 $ 4,435,217
=========== ========== =========== ============

</TABLE>

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

UTILITY INCOME PORTFOLIO
------------------------------------------------------------------------
SHARES AMOUNT
---------------------------------- -----------------------------------
YEAR ENDED MAY 10, 1994(A) YEAR ENDED MAY 10, 1994(A)
DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1994 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................. 443,081 130,903 $ 4,987,939 $ 1,329,004
Shares issued in reinvestment of dividends
and distributions........................ 1,762 -0- 19,131 -0-
Shares redeemed............................. (50,420) (4,924) (557,510) (50,958)
----------- ---------- ----------- ------------
Net increase................................ 394,423 125,979 $ 4,449,560 $ 1,278,046
=========== ========== =========== ============

GROWTH PORTFOLIO
------------------------------------------------------------------------
SHARES AMOUNT
---------------------------------- -----------------------------------
YEAR ENDED SEPTEMBER 15, 1994(A) YEAR ENDED SEPTEMBER 15, 1994(A)
DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1994 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................. 2,718,920 525,636 $ 35,309,744 $ 5,364,669
Shares issued in reinvestment of dividends
and distributions........................ 874 -0- 10,912 -0-
Shares redeemed............................. (64,342) (4,023) (844,007) (41,280)
----------- ---------- ------------ ------------
Net increase................................ 2,655,452 521,613 $ 34,476,649 $ 5,323,389
=========== ========== ============ ============

WORLDWIDE PRIVATIZATION PORTFOLIO
------------------------------------------------------------------------
SHARES AMOUNT
---------------------------------- -----------------------------------
YEAR ENDED SEPTEMBER 23, 1994(A) YEAR ENDED SEPTEMBER 23, 1994(A)
DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1994 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................. 430,445 111,619 $ 4,671,434 $ 1,120,370
Shares issued in reinvestment of dividends
and distributions........................ 662 -0- 7,193 -0-
Shares redeemed............................. (10,458) (49) (114,064) (492)
----------- ---------- ----------- ------------
Net increase................................ 420,649 111,570 $ 4,564,563 $ 1,119,878
=========== ========== =========== = =========

CONSERVATIVE INVESTORS PORTFOLIO
------------------------------------------------------------------------
SHARES AMOUNT
---------------------------------- -----------------------------------
YEAR ENDED OCTOBER 28, 1994(A) YEAR ENDED OCTOBER 28, 1994(A)
DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1994 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................. 600,037 71,574 $ 6,706,928 $ 716,743
Shares issued in reinvestment of dividends
and distributions........................ 328 -0- 3,620 -0-
Shares redeemed............................. (39,275) (1,993) (427,125) (19,894)
----------- ---------- ----------- ------------
Net increase................................ 561,090 69,581 $ 6,283,423 $ 696,849
=========== ========== =========== ============

</TABLE>

<TABLE>
<CAPTION>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)

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

GROWTH INVESTORS PORTFOLIO
------------------------------------------------------------------------
SHARES AMOUNT
---------------------------------- -----------------------------------
YEAR ENDED OCTOBER 28, 1994(A) YEAR ENDED OCTOBER 28, 1994(A)
DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1994 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................. 407,129 34,433 $ 4,571,141 $342,801
Shares issued in reinvestment of dividends
and distributions........................ 83 -0- 903 -0-
Shares redeemed............................. (20,469) (1,884) (223,991) (18,467)
----------- ---------- ----------- --------
Net increase................................ 386,743 32,549 $ 4,348,053 $324,334
=========== ========== =========== ========
</TABLE>
- ---------------
(a) Commencement of operations.

The Premier Growth, Growth and Income and Short-Term Multi-Market Portfolios
liquidated portions of their portfolios to meet significant shareholder
redemption requests that occurred on the last day of the fiscal year. Cash from
the liquidation was invested in short-term securities pending settlement of the
redemption requests on January 2, 1996.
- -----------------------------------------------------------------------------

NOTE E -- RECLASSIFICATION OF COMPONENTS OF NET ASSETS
As a result of permanent differences between accounting and tax regulations in
the treatment of foreign currency transactions, short-term gains and tax returns
of capital distributions, the portfolios made the following reclassifications:

<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>
Paid-in capital........................... $ -0- $ -0- $ (1,714) $ (2,334) $ -0-
Undistributed net investment income....... 932 470,176 (12,298) (936,055) 23,001
Undistributed net realized gains.......... (932) (470,176) 14,012 938,389 (23,001)

NORTH AMERICAN
GOVERNMENT UTILITY WORLDWIDE
INTERNATIONAL INCOME INCOME GROWTH PRIVATIZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Paid-in capital........................... $ -0- $ -0- $ -0- $ -0- $ -0-
Undistributed net investment income....... 5,652 (577,975) 136 (5,159) (5,085)
Undistributed net realized gains.......... (5,652) 577,975 (136) 5,159 5,085
</TABLE>

Net investment income, net realized gains and net assets were not affected by
the reclassifications.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

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

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 OPERATIONS
Net investment income (b)............................. .09(c) .03(c) -0-(c) .06(c)
Net realized and unrealized gain (loss) on investments 5.44 (.41) 1.43 1.32
------ --------- --------- -------
Net increase (decrease) in net asset value from operations 5.53 (.38) 1.43 1.38
------ --------- --------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income.................. (.03) (.01) (.01) -0-
Distributions from net realized gains................. (.07) (.03) (.01) -0-
------ ------- ------- ------
Total dividends and distributions..................... (.10) (.04) (.02) -0-
------ ------- ------- ------
Net asset value, end of period........................ $17.80 $ 12.37 $ 12.79 $11.38
====== ======= ======= ======
TOTAL RETURN
Total investment return based on net asset value (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
-----------------------------------------------------------------------
JULY 15, 1991(A)
YEAR ENDED DECEMBER 31, TO
-----------------------------------------------
1995 1994 1993 1992 DECEMBER 31, 1991
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>

Net asset value, beginning 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: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment 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 waivers and reimbursements .95% .95% 1.50% 1.50% 1.50%(e)
Expenses, before waivers and reimbursements 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 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. Total investment return calculated
for a period of less than one year is not annualized.
(e) Annualized.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

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

GROWTH AND INCOME PORTFOLIO
-----------------------------------------------------------------------
JULY 15, 1991(A)
YEAR ENDED DECEMBER 31, TO
-----------------------------------------------------
1995 1994 1993 1992 DECEMBER 31, 1991
-------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.85 $ 12.18 $ 10.99 $ 10.35 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)..................... .27(c) .10(c) .01(c) .10(c) .35(c)
Net realized and unrealized gain (loss) on
investments................................. 3.94 (.16) 1.27 .71 -0-
------- ------- ------- ------- -------
Net increase (decrease) in net asset value
Net increase (decrease) in net asset value
from operations............................. 4.21 (.06) 1.28 .81 .35
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.13) (.10) (.06) (.17) -0-
Distributions from net realized gains (.14) (.17) (.03) -0- -0-
------- ------- ------- ------- -------
Total dividends and distributions............. (.27) (.27) (.09) (.17) -0-
------- ------- ------- ------- -------
Net asset value, end of period................ $ 15.79 $ 11.85 $ 12.18 $ 10.99 $ 10.35
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on
net asset value (d)......................... 35.76% (.35)% 11.69% 7.92% 3.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $41,993 $41,702 $22,756 $7,803 $1,431
Ratio to average net assets of:
Expenses, net of waivers and reimbursements .79% .90% 1.18% .99% 1.79%(e)
Expenses, before waivers and reimbursements .79% .91% 1.28% 2.09% 9.43%(e)
Net investment income....................... 1.95% 1.71% 1.76% 2.42% 3.59%(e)
Portfolio turnover rate....................... 150% 95% 69% 49% 0%

SHORT-TERM MULTI-MARKET PORTFOLIO
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ------
Net asset value, beginning of period $ 9.91 $ 11.07 $ 10.77 $ 10.68 $ 10.03
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)..................... .82(c) .47(c) .28(c) .63(c) .36
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (.15) (1.16) .43 (.54) .34
------- ------- ------- ------- -------
Net increase (decrease) in net asset value
from operations........................... .67 (.69) .71 .09 .70
------- -------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- (.46) (.41) -0- (.03)
Distributions from net realized gains -0- -0- -0- -0- (.02)
Return of capital............................. -0- (.01) -0- -0- -0-
------- -------- ------- ------- -------
Total dividends and distributions............. -0- (.47) (.41) -0- (.05)
------- -------- ------- ------- -------
Net asset value, end of period................ $ 10.58 $ 9.91 $ 11.07 $ 10.77 $ 10.68
======= ======== ======= ======= =======
TOTAL RETURN
Total investment return based on
net asset value (d)......................... 6.76% (6.51)% 6.62% .84% 7.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,152 $20,921 $23,560 $14,841 $5,858
Ratio to average net assets of:
Expenses, net of waivers and reimbursements .95% .94% 1.17% .99% 1.79%
Expenses, before waivers and reimbursements 1.30% .99% 1.24% 1.66% 4.40%
Net investment income....................... 8.22% 6.52% 6.39% 7.18% 7.53%
Portfolio turnover rate....................... 379% 134% 210% 153% 51%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

<PAGE>

<TABLE>
<CAPTION>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

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

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
------------------------------------------------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 17, 1992(A)
--------------------------------- TO
1995 1994 1993 DECEMBER 31, 1992
------- -------- ----- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..................... $ 9.94 $ 10.72 $ 9.89 $10.00
------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)............................. .65(c) .28(c) .43(c) .14(c)
Net realized and unrealized gain (loss) on investments 1.25 (.71) .48 (.25)
------ ------- ------- ------
Net increase (decrease) in net asset value from
operations ......................................... 1.90 (.43) .91 (.11)
------ ------- ------- ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income.................. (.18) (.21) (.08) -0-
Distributions from net realized gains................. -0- (.14) -0- -0-
------ ------- ------- ------
Total dividends and distributions..................... (.18) (.35) (.08) -0-
------ ------- ------- ------
Net asset value, end of period........................ $11.66 $ 9.94 $ 10.72 $ 9.89
====== ======= ======= ======
TOTAL RETURN
Total investment return based on net asset value (d) 19.26% (4.03)% 9.20% (1.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $16,947 $5,101 $1,350 $785
Ratio to average net assets of:
Expenses, net of waivers and reimbursements .95% .95% 1.16% .95%(e)
Expenses, before waivers and reimbursements 1.58% 3.73% 5.42% 11.56%(e)
Net investment income............................... 5.96% 5.64% 4.59% 4.82%(e)
Portfolio turnover rate............................... 68% 32% 177% 13%

TOTAL RETURN PORTFOLIO
-------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
----------------------- TO
1995 1994 1993 DECEMBER 31, 1992
----- ---- ----- -----------------
Net asset value, beginning of period..................... $10.41 $ 10.97 $ 10.01 $10.00
------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)............................. .36(c) .15(c) .15(c) .01
Net realized and unrealized gain (loss) on investments 2.10 (.56) .81 -0-
------ ------- ------- ------
Net increase (decrease) in net asset value from
operations 2.46 (.41) .96 .01
------ ------- ------- ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income.................. (.07) (.09) -0- -0-
Distributions from net realized gains................. -0- (.06) -0- -0-
------ ------- ------- ------
Total dividends and distributions..................... (.07) (.15) -0- -0-
------ ------- ------- ------
Net asset value, end of period........................ $12.80 $ 10.41 $ 10.97 $10.01
====== ======= ======= ======
TOTAL RETURN
Total investment return based on net asset value (d) 23.67% (3.77)% 9.59% .10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $8,242 $750 $360 $95
Ratio to average net assets of:
Expenses, net of waivers and reimbursements........ .95% .95% 1.20% 0%
Expenses, before waivers and reimbursements........ 4.49% 19.49% 25.96% 0%
Net investment income............................... 3.16% 2.29% 1.45% 2.21%(e)
Portfolio turnover rate............................... 30% 83% 25% 0%

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Commencement of operations.
(b) Net of expenses reimbursed or waived 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. Total
investment return calculated for a period of less than one year is not
annualized.
(e) Annualized.

<TABLE>
<CAPTION>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

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

INTERNATIONAL PORTFOLIO
-------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
---------------------------------- TO
1995 1994 1993 DECEMBER 31, 1992
------ ------ ----- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..................... $12.88 $ 12.16 $ 10.00 $10.00
------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)............................. .18(c) .10(c) .03(c) -0-
Net realized and unrealized gain on investments and
foreign currency transactions....................... 1.08 .72(d) 2.13 -0-
------ ----- ------- ------
Net increase in net asset value from operations 1.26 .82 2.16 -0-
------ ------- ------ -----------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income.................. (.03) (.02) -0- -0-
Distributions from net realized gains................. (.04) (.08) -0- -0-
------ ------- ------- ------
Total dividends and distributions..................... (.07) (.10) -0- -0-
------ ------- ------- ------
Net asset value, end of period........................ $14.07 $ 12.88 $ 12.16 $10.00
====== ======= ======= ======
TOTAL RETURN
Total investment return based on net asset value (e) 9.86% 6.70% 21.60% 0%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) ............ $16,542 $7,276 $688 $79
Ratio to average net assets of:
Expenses, net of waivers and reimbursements ........ .95% .95% 1.20% 0%
Expenses, before waivers and reimbursements ........ 2.99% 7.26% 39.28% 0%
Net investment income............................... 1.41% .90% .26% 2.07%(f)
Portfolio turnover rate............................... 87% 95% 85% 0%

MONEY MARKET PORTFOLIO
----------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
---------------------------------- TO
1995 1994 1993 DECEMBER 31, 1992
------ ------ ----- -----------------
Net asset value, beginning of period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)............................. .05 .03 .22 -0-
Net realized and unrealized gain on investments ...... -0- -0- -0- -0-
------- ------- ------ ------
Net increase in net asset value from operations ...... .05 .03 .22 -0-
------ ------- ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income.................. (.05) (.03) (.22) -0-
Distributions from net realized gains................. -0- -0- -0- -0-
------ ------- ------- ------
Total dividends and distributions..................... (.05) (.03) (.22) -0-
------ ------- ------- ------
Net asset value, end of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======= ======= ======
TOTAL RETURN
Total investment return based on net asset value (e) 4.97% 3.27% 2.25% .02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) ........... $28,092 $6,899 $102 $30
Ratio to average net assets of:
Expenses, net of waivers and reimbursements ........ .95% .95% 1.16% 0%
Expenses, before waivers and reimbursements ........ 1.07% 4.46% 68.14% 0%
Net investment income............................... 4.85% 3.98% 2.15% 3.05%(f)
Portfolio turnover rate............................... 0% 0% 0% 0%

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

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

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

GLOBAL DOLLAR NORTH AMERICAN
GOVERNMENT PORTFOLIO GOVERNMENT INCOME PORTFOLIO
---------------------------------- -------------------------------------
YEAR ENDED MAY 2, 1994(A) YEAR ENDED MAY 3, 1994(A)
DECEMBER 31, TO DECEMBER 31, TO
1995 DECEMBER 31, 1994 1995 DECEMBER 31, 1994
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.84 $10.00 $ 8.79 $ 10.00
------ ------ ------ --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b).................... .92(c) .36(c) 1.13(c) .50(c)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.32 (.52) .83 (1.71)
------- ------ ------ ------
Net increase (decrease) in net asset value
from operations............................ 2.24 (.16) 1.96 (1.21)
------- ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income ........ (.13) -0- (.27) -0-
Distributions from net realized gains ....... -0- -0- -0- -0-
------- ------ ------ ------
Total dividends and distributions............ (.13) -0- (.27) -0-
------- ------ ------ ------
Net asset value, end of period .............. $ 11.95 $ 9.84 $10.48 $ 8.79
======= ====== ====== =======
TOTAL RETURN
Total investment return based on
net asset value(d)......................... 22.98% (1.60)% 22.71% (12.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,778 $1,146 $7,278 $3,848
Ratio to average net assets of:
Expenses, net of waivers and reimbursements .95% .95%(e) .95% .95%(e)
Expenses, before waivers and reimbursements 4.82% 15.00%(e) 2.57% 4.43%(e)
Net investment income...................... 8.65% 6.02%(e) 12.24% 8.49%(e)
Portfolio turnover rate...................... 13% 9% 35% 15%

UTILITY INCOME PORTFOLIO GROWTH PORTFOLIO
-------------------------------- ------------------------------------
YEAR ENDED MAY 10, 1994(A) YEAR ENDED SEPTEMBER 15, 1994(A)
DECEMBER 31, TO DECEMBER 31, TO
1995 DECEMBER 31, 1994 1995 DECEMBER 31, 1994
-------------- ----------------- -------------- -----------------
Net asset value, beginning of period $ 9.96 $10.00 $10.53 $10.00
------ ------ ----- -----
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b).................... .30(c) .28(c) .17(c) .03(c)
Net realized and unrealized gain (loss)
on investments............................. 1.83 (.32) 3.54 .50
------- ------ ------ ------
Net increase (decrease) in net asset value
from operations............................ 2.13 (.04) 3.71 .53
------- ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income ........ (.08) -0- (.01) -0-
Distributions from net realized gains ....... -0- -0- -0- -0-
----- ----- ------- -----
Total dividends and distributions............ (.08) -0- (.01) -0-
----- ------ ------ ------
Net asset value, end of period .............. $12.01 $ 9.96 $14.23 $10.53
====== ====== ====== ======
TOTAL RETURN
Total investment return based on
net asset value(d)......................... 21.45% (.40)% 35.23% 5.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $6,251 $1,254 $45,220 $5,492
Ratio to average net assets of:
Expenses, net of waivers and reimbursements .95% .95%(e) .95% .95%(e)
Expenses, before waivers and reimbursements 3.79% 15.98%(e) 1.27% 4.19%(e)
Net investment income...................... 2.73% 4.62%(e) 1.31% 1.17%(e)
Portfolio turnover rate...................... 138% 31% 86% 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
redemption on the last day of the period. Total investment return calculated
for a period of less than one year is not annualized.
(e) Annualized.

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

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

WORLDWIDE PRIVATIZATION PORTFOLIO CONSERVATIVE INVESTORS PORTFOLIO
------------------------------------- ----------------------------------------
YEAR ENDED SEPTEMBER 23, 1994(A) YEAR ENDED OCTOBER 28, 1994(A)
DECEMBER 31, TO DECEMBER 31, TO
1995 DECEMBER 31, 1994 1995 DECEMBER 31, 1994
-------------- --------------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.10 $10.00 $10.07 $10.00
------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b).................... .32(c) .10(c) .51(c) .06(c)
Net realized and unrealized gain
on investments............................. .78 -0- 1.20 .01
------- ------ ------ ------
Net increase in net asset value
from operations............................ 1.10 .10 1.71 .07
------- ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income ........ (.03) -0- (.02) -0-
Distributions from net realized gains ........ -0- -0- -0- -0-
--------- -------- ------- -------
Total dividends and distributions............ (.03) -0- (.02) -0-
------- ------ ------ ------
Net asset value, end of period $11.17 $10.10 $11.76 $10.07
======== ======= ======= =======
TOTAL RETURN
Total investment return based on
net asset value(d)......................... 10.87% 1.00% 16.99% 0.70%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,947 $1,127 $7,420 $701
Ratio to average net assets of:
Expenses, net of waivers and reimbursements .95% .95%(e) .95% .95%(e)
Expenses, before waivers and reimbursements 4.17% 18.47%(e) 4.25% 20.35%(e)
Net investment income...................... 2.96% 4.27%(e) 4.65% 3.55%(e)
Portfolio turnover rate...................... 23% 0% 61% 2%

GROWTH INVESTORS PORTFOLIO
-----------------------------------------------
YEAR ENDED OCTOBER 28, 1994(A)
DECEMBER 31, TO
1995 DECEMBER 31, 1994
-------------- ------------------
Net asset value, beginning of period......................... $ 9.86 $10.00
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)................................. .35(c) .04(c)
Net realized and unrealized gain (loss) on investments ... 1.67 (.18)
------ -------
Net increase (decrease) in net asset value from operations 2.02 (.14)
------ -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income...................... (.01) -0-
Distributions from net realized gains..................... -0- -0-
------ ------
Total dividends and distributions......................... (.01) -0-
------ ------
Net asset value, end of period............................ $11.87 $ 9.86
====== ======
TOTAL RETURN
Total investment return based on net asset value(d) ...... 20.48% (1.40)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted.................. $4,978 $321
Ratio to average net assets of:
Expenses, net of waivers and reimbursements ............ .95% .95%(e)
Expenses, before waivers and reimbursements ............ 6.17% 41.62%(e)
Net investment income................................... 3.21% 2.29%(e)
Portfolio turnover rate................................... 50% 3%

- ------------------------------------------------------------------------------------------------------------------------
</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 redemption on the last day of the period. Total
investment return calculated for a period of less than one year is not
annualized.
(e) Annualized.

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, 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,
1995, and the related statements of operations for the year then ended and the
statements of 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, 1995, by correspondence with the custodian and brokers. 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, 1995, the results of their operations for the year
then ended and 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 5, 1996

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

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, 1995:

PER SHARE
---------
Premier Growth $.02
Growth and Income $.05
International $.03

<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.BA4

<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.BA4

<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

C-4

<PAGE>

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

C-5

<PAGE>

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

C-6

<PAGE>

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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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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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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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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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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APPENDIX E: JAPAN

The information in this section is based on material
obtained by the Fund from various Japanese 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 Japan, its economy or
the consequences of investing in Japanese Securities.

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.

GOVERNMENT

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 4.2% in real GDP terms from 1988 through 1992,

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compared with 2.2% for the United States during the same period.
In 1993, Japan's real GDP growth rate fell to zero and increased
to 0.5% in 1994. Inflation has remained low, 1.3% in 1993 and
0.7% in 1994. Still private consumer demand remains weak due to
falling stock and land prices and the effects of the Kobe
earthquake in January 1995. Unemployment, however, reached a
forty year high of 3.23% in August, and is not expected to fall
in the foreseeable future. In addition, employment has been
shifting from the manufacturing to the service industry, a trend
expected to continue in 1996.

Japan's post World War II reliance on heavy industries
has shifted to higher technology products assembly and, most
recently, to automobile, electrical and electronic production.
Japan's success in exporting its products has generated sizable
trade surpluses. Japan is in a difficult phase in its relations
with its trading partners that is partly due to the concentration
of Japanese exports in products such as automobiles, machine
tools and semiconductors and the large trade surpluses ensuing
therefrom, recent large and visible Japanese real estate
investments in the United States and an overall trade imbalance
as indicated by Japan's balance of payments. Although probable
that the recent improvement of the United States economy and an
increased competitiveness and success in manufacturing, such as
with the U.S. automobile industry, has had a negative effect on
Japan's growth, Japan's overall trade surplus for 1994 remained
the largest in its history, amounting to $121 billion. Exports
totaled $396 billion, up 9.6% from 1993, and imports were $275
billion, up 14.2% from 1993. The current account surplus in 1994
was $129 billion, down 2% from a record high in 1993.
Consequently, Japan remains 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. In June 1995, the two countries agreed in principal
to increase Japanese imports of American automobiles and
automotive parts. The final wording of the agreement is
ambiguous, and therefore it is likely that this issue will
continue to be a source of tension between the two countries.
Other current sources of tension between the two countries, are
the export of steel products from Japan to the United States and
a dispute over aviation rights. It is expected that the
continuing friction between the United States and Japan with
respect to trade issues will continue for the foreseeable future.

In response to pressures caused by the slumping Japanese
economy, the fragile financial markets and the appreciating Yen,
the Japanese government, in April and June 1995, announced
emergency economic packages which focus on higher and accelerated

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public works spending and increased aid for post-earthquake
reconstruction in the Kobe area. Additional measures make it
easier for companies to buy back their own stock in an attempt to
revitalize the stock market and for companies to receive
subsidies for offering retraining programs for laid-off workers.
It is hoped by the Japanese government that public investment
will serve as an impetus of private sector domestic demand.
Nevertheless, these packages do not include measures which are
likely to assist the economy in the near future.

In addition to the government's emergency economic
packages, the Bank of Japan attempted to assist the financial
markets by lowering its official discount rate to a record low in
1995. However, large amounts of bad debt have prevented banks
from expanding their loan portfolios despite low discount rates.
Japanese banks have suffered six years of declining profits and
three of the four largest securities firms reported
unconsolidated pre-tax losses for 1994-1995. In addition, many
banks have required public funds to avert insolvency. In June
1995, the Finance Ministry announced an expansion of deposit
insurance and restrictions on rescuing insolvent banks.
Nevertheless, the financial system's fragility is expected to
continue for the foreseeable future.

The Japanese Yen has generally appreciated against the
U.S. Dollar for the past decade. In 1995, through October 23,
the Japanese Yen high against the U.S. Dollar was 123.33 Yen per
dollar and the low was 95.97 Yen per dollar. On October 23,
1995, the exchange rate was 100.30 Yen 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 98.3% of the share trading volume
and for about 98.1% of the overall market value of all shares
traded on Japanese stock exchanges during the year ended
December 31, 1994. 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 1994. Trading volume and value of
foreign stocks are not included.

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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
1994 105,937 114,622 84,514 87,356 14,904 19,349 4,720 5,780

Source: The Tokyo Stock Exchange 1995 Fact Book.

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 1994, the TSE accounted for 76.2% of the market value and
79.8% 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 93 non-Japanese
companies at the end of 1994. 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
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 1994, the three largest industry sectors, based on market
value, listed on the TSE were banking, with 101 companies
representing 22.2% of all domestic stocks listed on the TSE;
electric appliances, with 173 companies representing 10.9% of all
domestic stocks so listed; and chemicals with 130 companies
representing 7.3% 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 128,320
million yen and 98,090 billion yen, respectively, through the end
of 1989, when they were 1,335,810 million yen and 611,152 billion
yen, respectively. Following the peak in 1989, both average daily
trading value and aggregate year-end market value declined
through 1992 when they were 243,362 million yen and 289,483

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billion yen, respectively. In 1993 and 1994, both average daily
trading value and aggregate year end market value increased and
were 353,208 and 353,666 million yen, respectively, and 324,357
and 358,392 billion yen, 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 of 2,910.35 on December 7, 1989.
Thereafter, the TOPIX declined approximately 60% through June 30,
1995. As of October 27, 1995, the TOPIX had declined by
approximately 11% from the end of 1994. As of the second
quarter, the TSE's price/earnings ratio was approximately 60,
substantially higher than the stock markets of other developed
economies.

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
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 100 million Yen. 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 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

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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 share, 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 ("SEL") which provides overall regulation for
the issuance of securities in public offerings and private
placements and for secondary market trading. THE SEL was amended
in 1988 in order to liberalize the securities market; to regulate
the securities futures, index, and option trade; to add
disclosure regulations; and to reinforce the prevention of
insider 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 Securities Dealers Association
(the "SDA"). 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 detained 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 SEL, which took effect in 1992, as well as two
reform bills passed by the Diet in 1992. The amended SEL 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 SDA 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 of illegal gains regardless of whether the
transaction otherwise technically complies with the rules. The

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reform bill 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.

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