ALLIANCE VARIABLE PRODUCTS SERIES FUND INC, 497, 1997-11-14

ALLIANCE VARIABLE PRODUCTS SERIES FUND INC
497, 1997-11-14

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<PAGE>

This is filed pursuant to Rule 497(e)
File Nos. 33-18647 and 811-05398

<PAGE>

[LOGO OF ALLIANCE CAPITAL APPEARS HERE]
ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.

- -------------------------------------------------------------------------------
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
- -------------------------------------------------------------------------------
Alliance Variable Products Series Fund, Inc. (the "Fund") is an open-end se-
ries investment company designed to fund variable annuity contracts and vari-
able life insurance policies to be offered by the separate accounts of certain
life insurance companies. The Fund currently offers an opportunity to choose
among the separately managed pools of assets (the "Portfolios") described be-
low which have differing investment objectives and policies.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS/May 1, 1997
Investors are advised to carefully read this Prospectus and to retain it for
future reference.
<PAGE>

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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.

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ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
This Prospectus sets forth concisely the information which a prospective in-
vestor should know about the Fund and each of the Portfolios before applying
for certain variable annuity contracts and variable life insurance policies
offered by participating insurance companies. It should be read in conjunction
with the Prospectus of the separate account of the specific insurance product
which accompanies this Prospectus. A "Statement of Additional Information"
dated May 1, 1997, which provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to some investors,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, call or write Alliance Fund Services,
Inc. at the address or telephone number shown above.

2
<PAGE>

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EXPENSE INFORMATION
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SHAREHOLDER TRANSACTION EXPENSES

The Fund has no sales load on purchases or reinvested dividends, deferred
sales load, redemption fee or exchange fee. Shareholder transaction expenses
shown are net of expense reimbursement.

<TABLE>
<CAPTION>
U.S.
GROWTH GOVERNMENT/
PREMIER AND HIGH GRADE TOTAL
GROWTH INCOME SECURITIES RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees................... .72% .63% .54% .46%
Other Expenses.................... .23% .19% .38% .49%
--- --- --- ---
Total Portfolio Operating
Expenses......................... .95% .82% .92% .95%
=== === === ===
</TABLE>

<TABLE>
<CAPTION>
SHORT-
TERM
INTER- MULTI-
NATIONAL MARKET
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees........................................... .04% 0%
Other Expenses............................................ .91% .95%
--- ---
Total Portfolio Operating Expenses........................ .95% .95%
=== ===
</TABLE>

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).

The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
and indirectly. Expense Information for the Premier Growth Portfolio, U.S.
Government/High Grade Securities Portfolio, Total Return Portfolio, Interna-
tional Portfolio, Growth and Income Portfolio and Short-Term Multi-Market Port-
folio have been restated to reflect current fees. The expenses

3
<PAGE>

listed in the table for the Money Market Portfolio, Premier Growth Portfolio,
Growth and Income Portfolio, U.S. Government/High Grade Securities Portfolio,
Total Return Portfolio, International Portfolio and Short-Term Multi-Market
Portfolio are net of voluntary expense reimbursements, which are not required
to be continued indefinitely; however, the Adviser intends to continue such
reimbursements for the foreseeable future. The expenses of the following Port-
folios, before expense reimbursements, would be: Premier Growth Portfolio:
Management Fees -- 1.00%, Other Expenses -- .23% and Total Portfolio Operating
Expenses -- 1.23%; Growth and Income Portfolio: Management Fees -- .63%, Other
Expenses -- .19% and Total Portfolio Operating Expenses -- .82%; U.S.
Government/High Grade Securities Portfolio: Management Fees -- .60%, Other Ex-
penses -- .38% and Total Portfolio Operating Expenses -- .98%; Total Return
Portfolio: Management Fees -- .63%, Other Expenses -- .49% and Total Portfolio
Operating Expenses -- 1.12%; International Portfolio: Management Fees --
1.00%, Other Expenses -- .91% and Total Portfolio Operating Expenses --
1.91%; Short-Term Multi-Market Portfolio: Management Fees -- .55%, Other Ex-
penses -- 1.54% and Total Portfolio Operating Expenses -- 2.09%. The example
should not be considered representative of future expenses; actual expenses
may be greater or less than those shown.

<PAGE>

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FINANCIAL HIGHLIGHTS
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The following information as to net asset value, ratios and certain
supplemental 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
Information. The following information should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. 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 available
without charge upon request.

<TABLE>
<CAPTION>
PREMIER GROWTH PORTFOLIO
-------------------------------------------------------------
YEAR ENDED DECEMBER 31, JUNE 26, 1992(A)
---------------------------------------- TO
1996 1995 1994 1993 DECEMBER 31, 1992
------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 17.80 $ 12.37 $ 12.79 $ 11.38 $10.00
------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .08(c) .09(c) .03(c) -0-(c) .06(c)
Net realized and
unrealized gain (loss)
on investments........ 3.29 5.44 (.41) 1.43 1.32
------- ------- ------- ------- ------
Net increase (decrease)
in net asset value
from operations....... 3.37 5.53 (.38) 1.43 1.38
------- ------- ------- ------- ------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income..... (.10) (.03) (.01) (.01) -0-
Distributions from net
realized gains........ (5.37) (.07) (.03) (.01) -0-
------- ------- ------- ------- ------
Total dividends and
distributions......... (5.47) (.10) (.04) (.02) -0-
------- ------- ------- ------- ------
Net asset value, end of
period................ $ 15.70 $ 17.80 $ 12.37 $ 12.79 $11.38
======= ======= ======= ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 22.70% 44.85% (2.96)% 12.63% 13.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $96,434 $29,278 $37,669 $13,659 $3,760
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements........ .95% .95% .95% 1.18% .95%(e)
Expenses, before
waivers and
reimbursements........ 1.23% 1.19% 1.40% 2.05% 4.20%(e)
Net investment income.. .52% .55% .42% .22% .96%(e)
Portfolio turnover
rate.................. 32% 97% 38% 42% 14%
Average commission rate
paid(f)............... $.0609 -0- -0- -0- -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 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.
(f) For fiscal years beginning on or after September 1, 1995, a fund is re-
quired to disclose its average commission rate per share for trades on
which commissions are charged.

5
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 15.79 $ 11.85 $ 12.18 $ 10.99 $ 10.35
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b).............. .24(c) .27(c) .10 (c) .01(c) .10(c)
Net realized and
unrealized gain (loss)
on investments......... 3.18 3.94 (.16) 1.27 .71
-------- ------- ------- ------- -------
Net increase (decrease)
in net asset value from
operations............. 3.42 4.21 (.06) 1.28 .81
-------- ------- ------- ------- -------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income...... (.25) (.13) (.10) (.06) (.17)
Distributions from net
realized gains......... (2.56) (.14) (.17) (.03) -0-
-------- ------- ------- ------- -------
Total dividends and
distributions.......... (2.81) (.27) (.27) (.09) (.17)
-------- ------- ------- ------- -------
Net asset value, end of
period................. $ 16.40 $ 15.79 $ 11.85 $ 12.18 $ 10.99
======== ======= ======= ======= =======
TOTAL RETURN
Total investment return
based on net asset
value(d)............... 24.09% 35.76% (.35)% 11.69% 7.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's omitted). $126,729 $41,993 $41,702 $22,756 $ 7,803
Ratio to average net
assets of:
Expenses, net of waivers
and reimbursements..... .82% .79% .90% 1.18% .99%
Expenses, before waivers
and reimbursements..... .82% .79% .91% 1.28% 2.09%
Net investment income... 1.58% 1.95% 1.71% 1.76% 2.42%
Portfolio turnover rate. 87% 150% 95% 69% 49%
Average commission rate
paid(f)................ $.0602 -0- -0- -0- -0-
<CAPTION>
SHORT-TERM MULTI-MARKET PORTFOLIO
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 10.58 $ 9.91 $ 11.07 $ 10.77 $ 10.68
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b).............. .64(c) .82(c) .47(c) .28(c) .63(c)
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions........... .33 (.15) (1.16) .43 (.54)
-------- ------- ------- ------- -------
Net increase (decrease)
in net asset value from
operations............. .97 .67 (.69) .71 .09
-------- ------- ------- ------- -------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income...... (.82) -0- (.46) (.41) -0-
Return of capital....... -0- -0- (.01) -0- -0-
-------- ------- ------- ------- -------
Total dividends and
distributions.......... (.82) -0- (.47) (.41) -0-
-------- ------- ------- ------- -------
Net asset value, end of
period................. $ 10.73 $ 10.58 $ 9.91 $ 11.07 $ 10.77
======== ======= ======= ======= =======
TOTAL RETURN
Total investment return
based on net asset
value(d)............... 9.57% 6.76% (6.51)% 6.62% .84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's omitted). $ 7,112 $ 3,152 $20,921 $23,560 $14,841
Ratio to average net
assets of:
Expenses, net of waivers
and reimbursements..... .95% .95% .94% 1.17% .99%
Expenses, before waivers
and reimbursements..... 2.09% 1.30% .99% 1.24% 1.66%
Net investment income... 6.03% 8.22% 6.52% 6.39% 7.18%
Portfolio turnover rate. 159% 379% 134% 210% 153%
</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 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.
(f) For fiscal years beginning on or after September 1, 1995, a fund is re-
quired to disclose its average commission rate per share for trades on
which commissions are charged.

6
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
---------------------------------------------------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 17, 1992(A)
-------------------------------------- TO
1996 1995 1994 1993 DECEMBER 31, 1992
------- ------- ------ ------ ---------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $11.66 $ 9.94 $10.72 $ 9.89 $10.00
------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .66(c) .65(c) .28(c) .43(c) .14(c)
Net realized and
unrealized gain (loss)
on investments........ (.39) 1.25 (.71) .48 (.25)
------- ------- ------ ------ ------
Net increase (decrease)
in net asset value
from operations....... .27 1.90 (.43) .91 (.11)
------- ------- ------ ------ ------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income..... (.28) (.18) (.21) (.08) -0-
Distributions from net
realized gains........ (.13) -0- (.14) -0- -0-
------- ------- ------ ------ ------
Total dividends and
distributions......... (.41) (.18) (.35) (.08) -0-
------- ------- ------ ------ ------
Net asset value, end of
period................ $11.52 $ 11.66 $ 9.94 $10.72 $ 9.89
======= ======= ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 2.55% 19.26% (4.03)% 9.20% (1.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $29,150 $16,947 $5,101 $1,350 $ 785
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements........ .92% .95% .95% 1.16% .95%(e)
Expenses, before
waivers and
reimbursements........ .98% 1.58% 3.73% 5.42% 11.56%(e)
Net investment income.. 5.87% 5.96% 5.64% 4.59% 4.82%(e)
Portfolio turnover
rate.................. 137% 68% 32% 177% 13%
<CAPTION>
TOTAL RETURN PORTFOLIO
---------------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
-------------------------------------- TO
1996 1995 1994 1993 DECEMBER 31, 1992
------- ------- ------ ------ ---------------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 12.80 $10.41 $10.97 $10.01 $10.00
------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .27(c) .36(c) .15(c) .15(c) .01
Net realized and
unrealized gain (loss)
on investments ....... 1.66 2.10 (.56) .81 -0-
------- ------- ------ ------ ------
Net increase (decrease)
in net asset value
from operations....... 1.93 2.46 (.41) .96 .01
------- ------- ------ ------ ------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income..... (.07) (.07) (.09) -0- -0-
Distributions from net
realized gains ....... (.03) -0- (.06) -0- -0-
------- ------- ------ ------ ------
Total dividends and
distributions......... (.10) (.07) (.15) -0- -0-
------- ------- ------ ------ ------
Net asset value, end of
period................ $ 14.63 $12.80 $10.41 $10.97 $10.01
======= ======= ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 15.17% 23.67% (3.77)% 9.59% .10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $25,875 $ 8,242 $ 750 $ 360 $ 95
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements........ .95% .95% .95% 1.20% 0%
Expenses, before
waivers and
reimbursements........ 1.12% 4.49% 19.49% 25.96% 0%
Net investment income.. 2.76% 3.16% 2.29% 1.45% 2.21%(e)
Portfolio turnover
rate.................. 57% 30% 83% 25% 0%
Average commission rate
paid (f).............. $.0593 -0- -0- -0- -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 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.
(f) For fiscal years beginning on or after September 1, 1995, a fund is re-
quired to disclose its average commission rate per share for trades on
which commissions are charged.

7
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
--------------------------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 28, 1992(A)
-------------------------------------- TO
1996 1995 1994 1993 DECEMBER 31, 1992
------- ------- ------ ------ --------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................ $ 14.07 $ 12.88 $12.16 $10.00 $10.00
------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income(b). .19(c) .18(c) .10(c) .03(c) -0-
Net realized and
unrealized gain on
investments and foreign
currency transactions... .83 1.08 .72(d) 2.13 -0-
------- ------- ------ ------ ------
Net increase in net asset
value from operations... 1.02 1.26 .82 2.16 -0-
------- ------- ------ ------ ------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income....... (.08) (.03) (.02) -0- -0-
Distributions from net
realized gains.......... (.12) (.04) (.08) -0- -0-
------- ------- ------ ------ ------
Total dividends and
distributions........... (.20) (.07) (.10) -0- -0-
------- ------- ------ ------ ------
Net asset value, end of
period.................. $ 14.89 $ 14.07 $12.88 $12.16 $10.00
======= ======= ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d)................ 7.25% 9.86% 6.70% 21.60% 0%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)......... $44,324 $16,542 $7,276 $ 688 $ 79
Ratio of average net
assets of:
Expenses, net of waivers
and reimbursements..... .95% .95% .95% 1.20% 0%
Expenses, before waivers
and reimbursements..... 1.91% 2.99% 7.26% 39.28% 0%
Net investment income... 1.29% 1.41% .90% .26% 2.07%(e)
Portfolio turnover rate.. 60% 87% 95% 85% 0%
Average commission rate
paid (f)................ $.0431 -0- -0- -0- -0-
</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 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.
(f) For fiscal years beginning on or after September 1, 1995, a fund is re-
quired to disclose its average commission rate per share for trades on
which commissions are charged.

8
<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, six of which are offered by this Pro-
spectus: the Premier Growth Portfolio, the Growth and Income Portfolio, the
U.S. Government/High Grade Securities Portfolio, the Total Return Portfolio,
the International Portfolio and the Short-Term Multi-Market 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

9
<PAGE>

(the "Act"). The Fund may change each Portfolio's investment policies that are
not designated "fundamental policies" within the meaning of the Act upon no-
tice 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.

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 and
competition of these companies and a good knowledge of the managements of

<PAGE>

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.

<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.

<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

13
<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. Con-
sistent 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 applica-
ble tax requirements.

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

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

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

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

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

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

Other Securities. While the Portfolio's investment strategy normally empha-
sizes 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) certifi-
cates 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 on futures contracts. In-

14
<PAGE>

vestment grade debt securities described in (i) above are those rated BBB or
higher by S&P or Baa or higher by Moody's or, if not so rated, are of equiva-
lent investment 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 speculative characteristics. See "Other Investment Policies and Tech-
niques -- Securities Ratings." " -- Investment in Securities Rated Baa and
BBB" and Appendix A.

TOTAL RETURN PORTFOLIO

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

INTERNATIONAL PORTFOLIO

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

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

15
<PAGE>

short-term money-market instruments, including, but not limited to, government
obligations, certificates of deposit, bankers' acceptances, commercial paper,
short-term corporate debt securities 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
outside the United States determined on the basis of such factors as location
of the company's assets, or personnel, or sales and earnings. See "Other In-
vestment Policies and Techniques -- Foreign Securities."

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

16
<PAGE>

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 Neth-
erlands, France and Switzerland), Australia, Canada, and such other areas and
countries as the Adviser may determine from time to time. However, investments
may be made from time to time in companies in, or governments of, developing
countries as well as developed countries. Shareholders should be aware that in-
vesting 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 companies in, or govern-
ments of, developing countries. On December 31, 1996, 31.5% of the Portfolio's
net assets were invested in debt securities of Japanese issuers. For a descrip-
tion of certain risks associated with investing in foreign securities, see
"Other Investment Policies and Techniques -- Foreign Securities," "-- Invest-
ment in Japanese Issuers" and (for a further description of Japan) Appendix E
to the Statement of Additional Information.

SHORT-TERM MULTI-MARKET PORTFOLIO

The investment objective of the Short-Term Multi-Market Portfolio is to seek
the highest level of current income, consistent with what the Adviser considers
to be prudent investment risk, that is available from a portfolio of high-qual-
ity debt securities having remaining maturities of not more than three years.
The Portfolio seeks high current yields by investing in a portfolio of debt se-
curities denominated in the U.S. Dollar and selected foreign currencies. Ac-
cordingly, 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.

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

17
<PAGE>

percentage of assets invested in securities of a particular country or denomi-
nated in a particular currency will vary in accordance with the Adviser's as-
sessment 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 de-
crease the emphasis placed upon a particular type of security or industry sec-
tor 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 cur-
rency 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 S&P or Aaa or Aa by Moody's ("High Quality Ratings") or, if unrated, deter-
mined by the Adviser to be of equivalent quality; (iii) corporate debt securi-
ties having at least one High Quality Rating or, if unrated, determined by the
Adviser to be of equivalent quality; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, banks (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 pro-

18
<PAGE>

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

The Portfolio may invest in debt securities denominated in the ECU, which is a
"basket" consisting of specified amounts of the currencies of certain of the
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. Euro-
pean governments and supranationals, in particular, issue ECU-denominated ob-
ligations.

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.
However, 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 Secu-
rities or cash equivalents.

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

The net asset value of the Portfolio's shares will change as the general lev-
els of interest rates fluctuate. When interest rates decline, the value of a
portfolio primarily invested in debt securities can be expected to rise. Con-
versely, when interest rates rise, the value of a portfolio primarily invested
in debt securities can be expected to decline. However, a

19
<PAGE>

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

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

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:

REPURCHASE AGREEMENTS

Any Portfolio, except the Total Return Portfolio, may enter into agreements
pertaining to U.S. Government Securities.

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 and the Total Return Portfolio may
each write covered call options listed on one or more national securities ex-
changes. 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 specified security on or before a
fixed date, at a predetermined price. A Portfolio permitted to write call op-
tions may not do so unless the Portfolio at all times during the option period
owns the optioned securities, or securities convertible or carrying rights to
acquire the optioned securities at no additional cost. None of the above
listed Portfolios may write covered call op-

20
<PAGE>

tions in excess of 25% of such Portfolio's assets.

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

LOANS OF PORTFOLIO SECURITIES

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

The risks in lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the borrower fail
financially. In determining whether to lend securities to a particular borrow-
er, the Adviser (subject to review by the Directors) will consider all rele-
vant facts and circumstances, including the creditworthiness of the borrower.
While securities are on loan, the borrower will pay the Portfolio any income
earned thereon and the Portfolio may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed upon
amount of income from a borrower who has delivered equivalent collateral. Each
Portfolio will have the right to regain record ownership of loaned securities
to exercise beneficial rights such as voting rights, subscription rights and
rights to dividends, interest or other distributions. Each Portfolio may pay
reasonable finders', administrative and custodial fees in connection with a
loan. The Directors will monitor the lending of securities by each Portfolio.
No more than 30% of the value of the assets (20% in the case of the Short-Term
Multi-Market Portfolio), of each Portfolio may be loaned at any time, nor will
a Portfolio lend its portfolio securities to any officer, director, employee
or affiliate of either the Fund or the Adviser.

FOREIGN SECURITIES

For a description of the investment policies of the Short-Term Multi-Market
Portfolio, with respect to foreign securities, see above. Each of the other
Portfolios, except the U.S. Government/High Grade Securities Portfolio, may
invest in listed and unlisted foreign securities subject to the limitation
that the International Portfolio may invest only in the securities of foreign
issuers or U.S. companies having their principal activities and interests out-
side the United States. The

21
<PAGE>

other Portfolios of the Fund may invest in foreign securities without limita-
tion, 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 se-
curities to issues of high quality. The Portfolios may convert U.S. Dollars
into foreign currency, but only to effect securities transactions on a foreign
securities exchange and not to hold such currency as an investment. Each Port-
folio, except the U.S. Government/High Grade Securities Portfolio, may enter
into forward foreign currency exchange contracts in order to protect against
uncertainty in the level of future foreign exchange rates.

To the extent a Portfolio, including the Short-Term Multi-Market Portfolio,
invests in foreign securities, consideration is given to certain factors com-
prising both risk and opportunity. The values of foreign securities invest-
ments are affected by changes in currency rates or exchange control regula-
tions, application of foreign tax laws, including withholding taxes, changes
in governmental administration or economic, taxation or monetary policy (in
the United States and abroad) or changed circumstances in dealings between na-
tions. Currency exchange rate movements will increase or reduce the U.S. dol-
lar value of the Portfolio's net assets and income attributable to foreign se-
curities. 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 is-
suers, and foreign issuers may not be subject to accounting, auditing and fi-
nancial reporting standards and requirements comparable to those of domestic
issuers. Foreign issuers are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from
those applicable to U.S. issuers. In particular, the assets and profits ap-
pearing 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 account-
ing records in local currency, inflation accounting rules in some of the coun-
tries in which a Portfolio will invest require, for both tax and accounting
purposes, that certain assets and liabilities be restated on the issuer's bal-
ance sheet in order to express items in terms of currency of constant purchas-
ing power. Inflation accounting may indirectly generate losses or profits.
Consequently, financial data may be materially affected by restatements for
inflation and may not accurately reflect the real condition of those issuers
and securities markets. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable domestic issuers, and foreign bro-
kerage commissions are generally higher than in the United States. Foreign se-
curities 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 taxation, lack of uniform accounting and
auditing standards and potential difficulties in enforcing con-

22
<PAGE>

tractual 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. Between 1985 and
1995, the Japanese Yen generally appreciated against the U.S. Dollar. On April
19, 1995, the Japanese Yen reached an all time high of 79.75 against the U.S.
Dollar. Since its peak of April 19, 1995, the Japanese Yen has decreased in
value against the U.S. Dollar. On April 15, 1997, the exchange rate was 126.3
Yen per 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 45% through December 29,
1995. On December 30, 1996 the TOPIX closed down approximately 7% from the end
of 1995. On January 31, 1997 the TOPIX closed down approximately 7% from the
end of 1996, after falling approximately 10% during the first full week of
1997. On April 16, 1997, the TOPIX closed down approximately 2% from January
31, 1997.

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. Between August 1993 and October 1996 Japan was ruled by a series of
four coalition governments. As a result of a general election on October 20,
1996, however, Japan returned to a single-party government led by Prime Minis-
ter Ryutaro Hashimoto. Mr. Hashimoto's party, however, does not control a ma-
jority of the seats in the parliament. For further information regarding Ja-
pan, see the Fund's Statement of Additional Information.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

The Total Return Portfolio and the U.S. Government/High Grade Securities
Portfo-

23
<PAGE>

lio, 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 generally
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, normally
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 liq-
uid assets 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 commitment are subject
to market fluctuation, and no interest accrues to the purchaser 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 val-
uation 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, 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 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. If the Portfolio, however, chooses to dis-
pose of the right to receive or deliver a security subject to a forward commit-
ment 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 Portfolio might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.

HEDGING TECHNIQUES

The following hedging techniques are utilized by the Short-Term Multi-Market
Portfolio.

Cross Hedges. The attractive returns currently available from foreign currency
denominated debt instruments can be adversely affected by changes in exchange

24
<PAGE>

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 asset
value of the Portfolio shares resulting from adverse changes in currency ex-
change rates. For example, the return available from securities denominated in
a particular foreign currency would diminish in the event the value of the U.S.
Dollar increased against such currency. Such a decline could be partially or
completely offset by an increase in value of a cross-hedge involving a forward
exchange contract to sell a different foreign currency, where such contract is
available on terms more advantageous to the Portfolio than a contract to sell
the currency in which the position being hedged is denominated. It is the Ad-
viser's belief that cross-hedges can therefore provide significant protection
of net asset value in the event of a general rise in the U.S. Dollar against
foreign currencies. However, a cross-hedge cannot protect against exchange rate
risks perfectly, and if the Adviser is incorrect in its judgment of future ex-
change rate relationships, the Portfolio could be in a less advantageous posi-
tion than if such a hedge had not been established.

Indexed Debt Securities. The Portfolio may invest without limitation in debt
instruments that are indexed to certain specific foreign currency exchange
rates. The terms of such securities provide that their principal amount is ad-
justed upwards or downwards (but not below zero) at maturity to reflect changes
in the exchange rate between two currencies while the obligation is outstand-
ing. The Portfolio will purchase such debt instruments with the currency in
which they are denominated and, at maturity, will receive interest and princi-
pal 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 invest-
ments 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 Ex-
change Commission (the "Commission") is currently considering whether the Port-
folio'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 investments
in this type of security and to maintain in such account cash not available for
investment or U.S. Government Securities or other liquid high quality debt se-
curities having a value equal to the aggregate principal amount of outstanding
commercial paper of this type.

Futures Contracts and Options on Futures Contracts. The Portfolio may enter
into con-

25
<PAGE>

tracts for the purchase or sale for future delivery of fixed-income securities
or foreign currencies, or contracts based on financial indices including any
index of U.S. Government Securities, foreign government securities or corpo-
rate 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 securities or foreign
currencies called for by the contract at a specified price on a specified
date. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was effected.

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

The purchaser of a futures contract on an index agrees to take or make 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
Portfolio.

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

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

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

26
<PAGE>

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

Options on Foreign Currencies. The Portfolio may purchase and write put and
call options on foreign currencies for the purpose of protecting against de-
clines in the U.S. Dollar value of foreign currency-denominated portfolio se-
curities and against increases in the U.S. Dollar cost of such securities to
be acquired. As in the case of other kinds of options, however, the writing of
an option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and the Portfolio could be required to pur-
chase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on a foreign currency may consti-
tute an effective hedge against fluctuations in exchange rates although, in
the event of rate movements adverse to the Portfolio's position, it may for-
feit the entire amount of the premium plus related transaction costs. Options
on foreign currencies to be written or purchased by the Portfolio are traded
on U.S. and foreign exchanges or over-the-counter. There is no specific per-
centage limitation on the Portfolio's investments in options or on foreign
currencies. See the Fund's Statement of Additional Information for further
discussion of the use, risks and costs of options on foreign currencies.

Forward Foreign Currency Exchange Contracts. The Portfolio may purchase or
sell forward foreign currency exchange contracts ("forward contracts") to at-
tempt to minimize the risk to the Portfolio from adverse changes in the rela-
tionship between the U.S. Dollar and foreign currencies. A forward contract is
an obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers. Forward contracts reduce the potential gain from
a positive change in the relationship between the U.S. Dollar and other cur-
rencies. Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
The Fund's Custodian will place liquid assets in a segregated account having a
value equal to the aggregate amount of the Portfolio's commitments under for-
ward contracts entered into with respect to position hedges and cross-hedges.

27
<PAGE>

tion of its portfolio. The Portfolio may also enter into these transactions to
protect against any increase in the price of securities the Portfolio antici-
pates purchasing at a later date. The Portfolio does not intend to use these
transactions in a speculative manner. Interest rate swaps involve the exchange
by the Portfolio with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed rate
payments. Interest rate swaps are entered into on a net basis, i.e., the two
payment streams are netted out, with the Portfolio receiving or paying, as the
case may be, only the net amount of the two payments. The purchase of an in-
terest 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 pur-
chase 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 liquid as-
sets 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 Portfolio's obligations with re-
spect 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 rating organization at the time
of entering into the transaction. The Adviser will monitor the credit-
worthiness of counter parties to its interest rate swap, cap and floor trans-
actions 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 seg-
regated account with the Fund's Custodian liquid assets having an aggregate
net asset value at least equal to the full amount, accrued on a daily basis,
of the Portfolio's obligations with respect to the caps or floors.

General. The successful use of the foregoing investment practices draws upon
the Adviser's special skills and experience with

28
<PAGE>

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 market movements could therefore continue to an unlim-
ited extent over a period of time. In addition, the correlation between move-
ments in the price of the securities and currencies hedged or used for cover
will not be perfect and could produce unanticipated losses.

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

29
<PAGE>

mation 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.

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 be more susceptible to real or perceived ad-
verse economic conditions than investment grade securities, although the mar-
ket values of securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate levels than do
those of higher-rated securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's

30
<PAGE>

ability to pay interest and repay principal. Securities rated B are judged to
have highly speculative elements or to be predominantly speculative. Such secu-
rities 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 research
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 Port-
folio, 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 rel-
ative values based on such factors as interest or dividend coverage, asset cov-
erage, earnings prospects, and the experience and managerial strength of the
issuer.

NON-DIVERSIFIED STATUS

The Short-Term Multi-Market Portfolio is "non-diversified", 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, because the Portfolio may invest
in a smaller number of individual issuers than a diversified portfolio, an in-
vestment in the Portfolio may, under certain circumstances, present greater
risk to an investor than an investment in a diversified portfolio. The Portfo-
lio intends to conduct its operations so as to qualify as a "regulated invest-
ment company" for purposes of the Internal Revenue Code. 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 in-
vested 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 Portfo-
lio's investments in U.S. Government Securities are not subject to these limi-
tations.

DEFENSIVE POSITION

31
<PAGE>

bankers' acceptances and interest-bearing savings deposits of banks having to-
tal assets of more than $1 billion and which are members of the Federal De-
posit Insurance Corporation, and (iii) commercial paper of prime quality rated
A-1 or higher by S&P or Prime-1 or higher by Moody's or, if not rated, issued
by companies which have an outstanding debt issue rated AA or higher by S&P or
Aa or higher by Moody's.

PORTFOLIO TURNOVER

Generally, the Fund's policy with respect to turnover of securities held in
the Portfolios is to purchase securities for investment purposes and not for
the purpose of realizing short-term trading profits or for the purpose of ex-
ercising control. When circumstances warrant, however, securities may be sold
without regard to the length of time held.

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

The U.S. Government/High Grade Securities Portfolio will actively use trading
to benefit from yield disparities among different issues of fixed-income secu-
rities or otherwise to achieve their investment objectives and policies. Al-
though management cannot accurately predict its portfolio turnover rate, it is
anticipated that the annual turnover rate for the U.S. Government/High Grade
Securities Portfolio generally will not exceed 400% (excluding turnover of se-
curities 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. The Portfolio may be subject to
a greater degree of turnover and, thus, a higher incidence of short-term capi-
tal gain taxable as ordinary income than might be expected from investment
companies which invest substantially all of their funds on a long-term basis
and correspondingly larger mark-up charges can be expected to be borne by the
Portfolios. See "Dividends, Distributions and Taxes."

The Short-Term Multi-Market Portfolio 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. Manage-
ment anticipates that the annual turnover in the Short-

32
<PAGE>

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.

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 Premier Growth Portfolio, the Growth and Income
Portfolio, the U.S. Government/High Grade Securities Portfolio, the Total Re-
turn Portfolio and the International Portfolio, these fundamental investment
policies provide that a Portfolio may not: (i) invest in securities of any one
issuer (including repurchase agreements with any one entity) other than secu-
rities issued or guaranteed by the United States Government, if immediately
after such purchases more than 5% of the value of its total assets would be
invested in such issuer, except that 25% of the value of the total assets of a
Portfolio may be invested without regard to such 5% limitation; (ii) acquire
more than 10% of any class of the outstanding securities of any issuer (for
this purpose, all preferred stock of an issuer shall be deemed a single class,
and all indebtedness of an issuer shall be deemed a single class); (iii) in-
vest more than 25% of the value of its total assets at the time an investment
is made in the securities of issuers conducting their principal business ac-
tivities in any one industry, except that there is no such limitation with re-
spect to U.S. Government securities or certificates of deposit, bankers'
acceptances and interest-bearing deposits. For purposes of this investment re-
striction, the electric, gas, telephone and water business shall each be con-
sidered as a separate industry; (iv) borrow money, except that 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 hypothecate any of its assets, except as may be necessary
in connection with permissible borrowings described in paragraph (iv) above
(in an aggregate amount not to exceed 15% of total assets of a Portfolio);
(vi) invest in illiquid securities if immediately after such investment more
than 10% of the Portfolio's total assets (taken at market value) would be in-
vested in such securities; or (vii) invest more than 10% of the value of its
total assets in repurchase agreements not terminable within seven days.

With respect to the Short-Term Multi-Market Portfolio, these fundamental in-
vestment policies provide that the Portfolio may

33
<PAGE>

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.

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 1992.

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 1992.

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 1992. He is
currently an independent consultant.

John H. Dobkin is President of Historic Hudson Valley (historic preservation)
since prior to 1992. 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 1992.

Dr. James M. Hester is President of the Harry Frank Guggenheim Foundation and
a

34
<PAGE>

Director of Union Carbide Corporation since prior to 1992. 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 1992. He is president and Chief Ex-
ecutive Officer of Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining).

Donald J. Robinson was formerly a partner at Orrick, Herrington & Sutcliffe and
is currently Senior Counsel to that firm. He was also a Trustee of the Museum
of the City of New York from 1977-1995.

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 "Investment
Advisory Agreement") to provide investment advice and, in general, to conduct
the management and investment program of each of the Fund's Portfolios subject
to the general supervision and control of the Board of Directors of the Fund.
The employee of the Adviser principally responsible for the Premier Growth
Portfolio's investment program since its inception is Alfred Harrison, who is
Vice Chairman of ACMC, with which he has been associated since prior to 1992.
The employee of the Adviser principally responsible for the Growth and Income
Portfolio's investment program since its inception is Paul Rissman, who is a
Vice President of ACMC with which he has been associated since prior to 1992.
The employee of the Adviser principally responsible for the U.S.
Government/High Grade Securities Portfolio's investment program since its in-
ception is Paul J. DeNoon, who is a Vice President of ACMC, with which he has
been associated since prior to 1992. Prior to that, Mr. DeNoon was Vice Presi-
dent of Manufacturers Hanover Trust since prior to 1992. The employee of the
Adviser principally responsible for the Total Return Portfolio's investment
program since 1996 is Paul Rissman, who is a Vice President of ACMC, with which
he has been associated since prior to 1992. The employee of the Adviser princi-
pally responsible for the International Portfolio's investment program since
1996 is Steven Beinhacker, a Vice President of ACMC with which he has been as-
sociated since prior to 1992. The employee of the Adviser principally responsi-
ble for the Short-Term Multi-Market Portfolio's investment program since its
inception is Douglas J. Peebles, who is a Vice President of ACMC, with which he
has been associated since prior to 1992.

The Adviser is a leading international investment manager supervising client
accounts with assets as of December 31, 1996 totaling more than $182 billion
(of which approximately $63 billion represented the assets of investment compa-
nies). The Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 52 registered investment companies managed by the Ad-
viser comprising 110 separate investment portfolios currently have over two
million shareholders. As of December 31,

35
<PAGE>

1996, the Adviser was retained as an investment manager by 34 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:

<TABLE>
<S> <C>
Premier Growth Portfolio 1.000%
Growth and Income Portfolio .625%
U.S. Government/High
Grade Securities Portfolio .600%
Total Return Portfolio .625%
International Portfolio 1.000%
Short-Term Multi-Market
Portfolio .550%
</TABLE>

The fees are accrued daily and paid monthly. For the year ended December 31,
1996, the Adviser received no net advisory fees from the Short Term Multi-Mar-
ket Portfolio. For the year ended December 31, 1996 the Adviser received an
advisory fee from each of the Premier Growth Portfolio, the Growth & Income
Portfolio, the U.S. Government/High Grade Securities Portfolio, the Total Re-
turn Portfolio and the International Portfolio so that each such Portfolio
paid an advisory fee equal to .72%, .63%, .54%, .46% and .04% of each such
Portfolio's average net assets, respectively.

EXPENSES OF THE FUND

In addition to the payments to the Adviser under the Investment Advisory
Agreement described above, the Fund pays certain other costs including (a)
custody, transfer and dividend disbursing expenses, (b) fees of Directors who
are not affiliated with the Adviser, (c) legal and auditing expenses, (d)
clerical, accounting and other office costs, (e) costs of printing the Fund's
prospectuses and shareholder reports, (f) cost of maintaining the Fund's ex-
istence, (g) interest charges, taxes, brokerage fees and commissions, (h)
costs of stationery and supplies, (i) expenses and fees related to registra-
tion and filing with the Commission and with state regulatory authorities, and
(j) cost of certain personnel of the Adviser or its affiliates rendering cler-
ical, accounting and other services to the Fund.

36
<PAGE>

it may also utilize personnel employed by the Adviser or by its affiliates; in
such event, the services are provided to the Fund at cost and the payments
specifically approved in advance by the Fund's Board of Directors.

For the year ended December 31, 1996, the ordinary operating expenses of the
Growth and Income Portfolio were .82%, the Short-Term Multi-Market Portfolio
were .95%, the Premier Growth Portfolio were .95%, the U.S. Government/High
Grade Portfolio were .92%, the Total Return Portfolio were .95% and the Inter-
national 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 di-
rectly by the Fund and by Alliance Fund Distributors, Inc., the Fund's Princi-
pal Underwriter, to the separate accounts of certain life insurance companies
without any sales or other charge, at each Portfolio's net asset value, as de-
scribed below. The separate accounts of insurance companies place orders to
purchase shares of each Portfolio based on, among other things, the amount of
premium payments to be invested and surrendered 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 re-
serves the right to suspend the sale of the Fund's shares in response to con-
ditions in the securities markets or for other reasons. Individuals may not
place orders directly with the Fund. See the Prospectus of the separate ac-
count of the participating insurance company for more information on the pur-
chase 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 Fund business day on which such an order is received and trading
in the types of securities in which the Fund invests might materially affect
the value of Fund shares. The Fund's per share net asset value is computed by
dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any week-
day exclusive of days on which the Exchange is closed (most national holidays
and Good Friday). For purposes of this computation, the securities in each
Portfolio are valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily available, such other
methods as the Directors believe would accurately reflect fair market value.
Portfolio securities may also be valued on the basis of prices provided by a
pricing service when such prices are believed by the Adviser to reflect the
fair market value of such securities.

REDEMPTION OF SHARES

An insurance company separate account may redeem all or any portion of the
shares of any

37
<PAGE>

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 fur-
nished to the Fund or the Principal Underwriter. Any certificates representing
shares being redeemed must be submitted with the redemption request. Shares
redeemed are entitled to earn dividends, if any, up to and including the day
redemption is effected. There is no redemption charge. Payment of the redemp-
tion price will normally be made within seven days after receipt of such ten-
der 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
- --------------------------------------------------------------------------------

Each of the Portfolios will declare and distribute dividends from net invest-
ment income and will distribute its net capital gains, if any, at least annu-
ally. Such income and capital gains distributions will be made in shares of
such Portfolios.

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

38
<PAGE>

issued Regulations under section 817(h) which, among other things, provide the
manner in which a segregated asset account will treat investments in a regu-
lated investment company for purposes of the applicable diversification re-
quirements. 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 purpos-
es, 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 each Portfolio
owned by a segregated asset account of a life insurance company will be subject
to this treatment under the Code.

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

- --------------------------------------------------------------------------------
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
U.S. Government/High Grade Securities Portfolio and the Short-Term Multi-Market
Portfolio occur primarily with issuers, underwriters or major dealers acting as
principals, while transactions for the Premier Growth Portfolio, the Growth and
Income Portfolio and the International Portfolio, are normally effected by bro-
kers, and transactions for the Total Return 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.

39
<PAGE>

Donaldson, Lufkin and Jenrette Securities Corporation, for which Donaldson,
Lufkin and Jenrette Securities Corporation may receive a portion of the bro-
kerage commission. In such instances, the placement of orders with such bro-
kers would be consistent with the Fund's objective of obtaining best execution
and would not be dependent upon the fact that Donaldson, Lufkin & Jenrette Se-
curities Corporation is an affiliate of the Adviser.

ORGANIZATION

The Fund is a Maryland corporation organized on November 17, 1987. The autho-
rized capital stock of the Fund consists solely of 10,000,000,000 shares of
Common Stock having a par value of $.001 per share, which may, without share-
holder approval, be divided into an unlimited number of series. Such shares
are currently divided into 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 elec-
tion of Directors, that affect all Portfolios in substantially the same man-
ner. Maryland law does not require a registered investment company to hold an-
nual meetings of shareholders and it is anticipated that shareholder meetings
will be held only when specifically required by federal or state law. Share-
holders have available certain procedures for the removal of Directors. Shares
of each Portfolio are freely transferable, are entitled to dividends as deter-
mined by the Board of Directors and, in liquidation of the Fund, are entitled
to receive the net assets of that Portfolio. Shareholders have no preference,
pre-emptive or conversion rights. In accordance with current law, it is antic-
ipated that an insurance company issuing a variable annuity contract or vari-
able life insurance policy that participates in the Fund will request voting
instructions from contract or policyholders and will vote shares in the sepa-
rate account in accordance with the voting instructions received.

PRINCIPAL UNDERWRITER

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

CUSTODIAN

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

REGISTRAR AND DIVIDEND-DISBURSING AGENT

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

PERFORMANCE INFORMATION

40
<PAGE>

scribed 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
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 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
invested 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.

41
<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(e)
File Nos. 33-18647 and 811-05398

<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
- -------------------------------------------------------------------------------
PREMIER GROWTH PORTFOLIO -- seeks growth of capital rather than current in-
come. In pursuing its investment objective, the Premier Growth Portfolio will
employ aggressive investment policies. Since investments will be made based
upon their potential for capital appreciation, current income will be inciden-
tal to the objective of capital growth. The Portfolio is not intended for in-
vestors whose principal objective is assured income or preservation of capi-
tal.
GROWTH AND INCOME PORTFOLIO -- seeks to balance the objectives of reasonable
current income and reasonable opportunities for appreciation through invest-
ments primarily in dividend-paying common stocks of good quality.
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO -- seeks a high level of cur-
rent income consistent with preservation of capital by investing principally
in a portfolio of U.S. Government Securities and other high grade debt securi-
ties.
HIGH-YIELD PORTFOLIO -- seeks the highest level of current income available
without assuming undue risk by investing principally in high-yielding fixed
income securities. As a secondary objective, this Portfolio seeks capital ap-
preciation where consistent with its primary objective. Many of the high-
yielding securities in which the High-Yield Portfolio invests are rated in the
lower rating categories (i.e., below investment grade) by the nationally rec-
ognized rating services. These securities, which are often referred to as
"junk bonds," are subject to greater risk of loss of principal and interest
than higher rated securities and are considered to be predominantly specula-
tive with respect to the issuer's capacity to pay interest and repay 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.
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.
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.

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

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS/May 1, 1997
Investors are advised to carefully read this Prospectus and to retain it for
future reference.
<PAGE>

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.

2
<PAGE>

- -------------------------------------------------------------------------------
EXPENSE INFORMATION
- -------------------------------------------------------------------------------

SHAREHOLDER TRANSACTION EXPENSES

The Fund has no sales load on purchases or reinvested dividends, deferred
sales load, redemption fee or exchange fee. Shareholder transaction expenses
shown are net of expense reimbursement.

<TABLE>
<CAPTION>
U.S.
GROWTH GOVERNMENT/
PREMIER AND HIGH GRADE HIGH
GROWTH INCOME SECURITIES YIELD
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO*
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees.................. .72% .63% .54% 0%
Other Expenses................... .23% .19% .38% .95%
--- --- --- ---
Total Portfolio Operating
Expenses........................ .95% .82% .92% .95%
=== === === ===
</TABLE>

<TABLE>
<CAPTION>
GLOBAL
TOTAL DOLLAR WORLDWIDE
RETURN GOVERNMENT GROWTH PRIVATIZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees................ .46% 0% .74% .10%
Other Expenses................. .49% .95% .19% .85%
--- --- --- ---
Total Portfolio Operating
Expenses...................... .95% .95% .93% .95%
=== === === ===
</TABLE>

<TABLE>
<CAPTION>
REAL ESTATE
TECHNOLOGY QUASAR INVESTMENT
PORTFOLIO** PORTFOLIO** PORTFOLIO(1)**
----------- ----------- --------------
<S> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET
ASSETS)
Management Fees...................... .33% 0% 0%
Other Expenses....................... .62% .95% .95%
--- --- ---
Total Portfolio Operating Expenses... .95% .95% .95%
=== === ===
</TABLE>
- --------
* Estimated.
** Annualized.
(1) Inception (1/9/97) through 3/31/97.

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>
Premier Growth Portfolio....................... $10 $30 $53 $117
Growth and Income Portfolio.................... $ 8 $26 $46 $101
U.S. Government/High Grade Securities Portfo-
lio........................................... $ 9 $29 $51 $113
High Yield Portfolio........................... $10 $30 $53 $117
Total Return Portfolio......................... $10 $30 $53 $117
Global Dollar Government Portfolio............. $10 $30 $53 $117
Growth Portfolio............................... $10 $30 $51 $114
Worldwide Privatization Portfolio.............. $10 $30 $53 $117
Technology Portfolio........................... $10 $30 $53 $117
Quasar Portfolio............................... $10 $30 $53 $117
Real Estate Investment Portfolio............... $10 $30 $53 $117
</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 and are net of
voluntary fee waiver and expense reimbursements, which are not required to be
continued indefinitely; however, the Adviser intends to continue such waivers
and/or reimbursements for the foreseeable future. Expense Information for the
Premier Growth Portfolio, U.S. Government/High Grade Securities Portfolio, To-
tal Return Portfolio and Growth and Income Portfolio have been restated to re-
flect current fees. The expenses listed in the table for the Premier Growth
Portfolio, Growth and Income Portfolio, U.S. Government/High Grade Securities
Portfolio, High Yield Portfolio, Total Return Portfolio, Global Dollar Govern-
ment Portfolio, Growth Portfolio, Worldwide Privatization Portfolio, Technol-
ogy Portfolio, Quasar Portfolio and Real Estate Investment Portfolio are net
of voluntary expense reimbursements, which are not required to be continued
indefinitely; however, the Adviser intends to continue such reimbursements for
the foreseeable future. The expenses of the following Portfolios, before ex-
pense reimbursements, would be: Premier Growth Portfolio: Management Fees --
1.00%, Other Expenses -- .23% and Total Portfolio Operating Expenses --
1.23%; Growth and Income Portfolio: Management Fees -- .63%, Other Ex-
penses -- .19% and Total Portfolio Operating Expenses -- .82%; U.S.
Government/High Grade Securities Portfolio: Management Fees -- .60%, Other Ex-
penses -- .38% and Total Portfolio Operating Expenses -- .98%; Total Return
Portfolio: Management Fees -- .63%, Other Expenses -- .49% and Total Portfolio
Operating Expenses -- 1.12%; Global Dollar Government Portfolio: Management
Fees -- .75%, Other Expenses -- 1.22% and Total Portfolio Operating Ex-
penses -- 1.97%; Worldwide Privatization Portfolio: Management Fee -- 1.00%,
Other Expenses -- .85% and Total Portfolio Operating Expenses -- 1.85%; Growth
Portfolio: Management Fees --.75%, Other Expenses -- .18% and Total Portfolio
Operating Expenses -- .93%. The estimated expenses of the Technology Portfolio
before expense reimbursements would be: Management Fees -- 1.00%, Other Ex-
penses -- .62% and Total Operating Expenses -- 1.62%. The estimated expenses
of the Quasar Portfolio before expense reimbursements would be: Management
Fees -- 1.00%, Other Expenses -- 3.44% and Total Operating Expenses -- 4.44%.
The estimated expenses of the Real Estate Investment Portfolio before expense
reimbursement would be: Management Fees -- .90%, Other Expenses -- 5.10% and
Total Operating Expenses -- 6.00%. The example should not be considered repre-
sentative of future expenses; actual expenses may be greater or less than
those shown.

5
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information as to net asset value, ratios and certain supple-
mental data for each of the periods shown below has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose unqualified report thereon
(referring to Financial Highlights) appears in the Statement of Additional In-
formation. The following information should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information. Information has not been included in the following "Financial
Highlights" tables for the High-Yield Portfolio because the High Yield Portfo-
lio has not yet begun operations. 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 in-
formation about the Fund's performance is contained in the Fund's annual re-
port, which is available without charge upon request.

<TABLE>
<CAPTION>
PREMIER GROWTH PORTFOLIO
------------------------------------------------------
YEAR ENDED DECEMBER 31, JUNE 26, 1992(A)
----------------------------------- TO
1996 1995 1994 1993 DECEMBER 31, 1992
------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 17.80 $ 12.37 $ 12.79 $ 11.38 $10.00
------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)(c).......... .08 .09 .03 -0- .06
Net realized and
unrealized gain (loss)
on investments........ 3.29 5.44 (.41) 1.43 1.32
------- ------- ------- ------- ------
Net increase (decrease)
in net asset value
from operations....... 3.37 5.53 (.38) 1.43 1.38
------- ------- ------- ------- ------
LESS: DIVIDENDS AND DIS-
TRIBUTIONS
Dividends from net in-
vestment income....... (.10) (.03) (.01) (.01) -0-
Distributions from net
realized gains........ (5.37) (.07) (.03) (.01) -0-
------- ------- ------- ------- ------
Total dividends and
distributions......... (5.47) (.10) (.04) (.02) -0-
------- ------- ------- ------- ------
Net asset value, end of
period................ $ 15.70 $ 17.80 $ 12.37 $ 12.79 $11.38
======= ======= ======= ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 22.70% 44.85% (2.96)% 12.63% 13.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted).. $96,434 $29,278 $37,669 $13,659 $3,760
Ratio to average net
assets of:
Expenses, net of waiv-
ers and reimburse-
ments................. .95% .95% .95% 1.18% .95%(e)
Expenses, before waiv-
ers and reimburse-
ments................. 1.23% 1.19% 1.40% 2.05% 4.20%(e)
Net investment income.. .52% .55% .42% .22% .96%(e)
Portfolio turnover
rate.................. 32% 97% 38% 42% 14%
Average commission rate
paid(f) $.0609 -0- -0- -0- -0-
</TABLE>

<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
--------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of pe-
riod............................ $ 15.79 $ 11.85 $ 12.18 $ 10.99 $10.35
-------- ------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)(c)..... .24 .27 .10 .01 .10
Net realized and unrealized gain
(loss) on investments.......... 3.18 3.94 (.16) 1.27 .71
-------- ------- ------- ------- ------
Net increase (decrease) in net
asset value from operations.... 3.42 4.21 (.06) 1.28 .81
-------- ------- ------- ------- ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income......................... (.25) (.13) (.10) (.06) (.17)
Distributions from net realized
gains.......................... (2.56) (.14) (.17) (.03) -0-
-------- ------- ------- ------- ------
Total dividends and distribu-
tions.......................... (2.81) (.27) (.27) (.09) (.17)
-------- ------- ------- ------- ------
Net asset value, end of period.. $ 16.40 $ 15.79 $ 11.85 $ 12.18 $10.99
======== ======= ======= ======= ======
TOTAL RETURN
Total investment return based on
net asset value(d)............. 24.09% 35.76% (.35)% 11.69% 7.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's
omitted)....................... $126,729 $41,993 $41,702 $22,756 $7,803
Ratio to average net assets of:
Expenses, net of waivers and re-
imbursements................... .82% .79% .90% 1.18% .99%
Expenses, before waivers and re-
imbursements................... .82% .79% .91% 1.28% 2.09%
Net investment income........... 1.58% 1.95% 1.71% 1.76% 2.42%
Portfolio turnover rate......... 87% 150% 95% 69% 49%
Average commission rate paid(f) $.0602 -0- -0- -0- -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 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.
(f) For fiscal years beginning on or after September 1, 1995, a fund is re-
quired to disclose its average commission rate per share for trades on
which commissions are charged.

6
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
--------------------------------------------------------
YEAR ENDED DECEMBER 31, SEPTEMBER 17, 1992(A)
--------------------------------- TO
1996 1995 1994 1993 DECEMBER 31, 1992
------- ------- ------ ------ ---------------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $11.66 $ 9.94 $10.72 $ 9.89 $10.00
------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)(c).......... .66 .65 .28 .43 .14
Net realized and
unrealized gain (loss)
on investments........ (.39) 1.25 (.71) .48 (.25)
------- ------- ------ ------ ------
Net increase (decrease)
in net asset value
from operations....... .27 1.90 (.43) .91 (.11)
------- ------- ------ ------ ------
LESS: DIVIDENDS AND DIS-
TRIBUTIONS
Dividends from net in-
vestment income....... (.28) (.18) (.21) (.08) -0-
Distributions from net
realized gains........ (.13) -0- (.14) -0- -0-
------- ------- ------ ------ ------
Total dividends and
distributions......... (.41) (.18) (.35) (.08) -0-
------- ------- ------ ------ ------
Net asset value, end of
period................ $11.52 $ 11.66 $ 9.94 $10.72 $ 9.89
======= ======= ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 2.55% 19.26% (4.03)% 9.20% (1.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted).. $29,150 $16,947 $5,101 $1,350 $ 785
Ratio to average net
assets of:
Expenses, net of waiv-
ers and reimburse-
ments................. .92% .95% .95% 1.16% .95%(e)
Expenses, before waiv-
ers and reimburse-
ments................. .98% 1.58% 3.73% 5.42% 11.56%(e)
Net investment income.. 5.87% 5.96% 5.64% 4.59% 4.82%(e)
Portfolio turnover
rate.................. 137% 68% 32% 177% 13%
</TABLE>

<TABLE>
<CAPTION>
TOTAL RETURN PORTFOLIO
-------------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 28, 1992(A)
------------------------------------- TO
1996 1995 1994 1993 DECEMBER 31, 1992
------- ------ ------ ------ --------------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $12.80 $10.41 $10.97 $10.01 $10.00
------- ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .27(c) .36(c) .15(c) .15(c) .01
Net realized and
unrealized gain (loss)
on investments ....... 1.66 2.10 (.56) .81 -0-
------- ------ ------ ------ ------
Net increase (decrease)
in net asset value
from operations....... 1.93 2.46 (.41) .96 .01
------- ------ ------ ------ ------
LESS: DIVIDENDS AND DIS-
TRIBUTIONS
Dividends from net in-
vestment income....... (.07) (.07) (.09) -0- -0-
Distributions from net
realized gains ....... (.03) -0- (.06) -0- -0-
------- ------ ------ ------ ------
Total dividends and
distributions......... (.10) (.07) (.15) -0- -0-
------- ------ ------ ------ ------
Net asset value, end of
period................ $ 14.63 $12.80 $10.41 $10.97 $10.01
======= ====== ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 15.17% 23.67% (3.77)% 9.59% .10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted).. $25,875 $8,242 $ 750 $ 360 $ 95
Ratio to average net
assets of:
Expenses, net of waiv-
ers and reimburse-
ments................. .95% .95% .95% 1.20% 0%
Expenses, before waiv-
ers and reimburse-
ments................. 1.12% 4.49% 19.49% 25.96% 0%
Net investment income.. 2.76% 3.16% 2.29% 1.45% 2.21%(e)
Portfolio turnover
rate.................. 57% 30% 83% 25% 0%
Average commission rate
paid (f).............. $.0593 -0- -0- -0- -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 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.
(f) For fiscal years beginning on or after September 1, 1995, a fund is re-
quired to disclose its average commission rate per share for trades on
which commissions are charged.

7
<PAGE>

- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL DOLLAR
GOVERNMENT PORTFOLIO
-----------------------------------------------
MAY 2, 1994(A)
YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ---------------------
<S> <C> <C> <C>
Net asset value, beginning of
period........................ $ 11.95 $ 9.84 $10.00
-------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income(b)(c)... 1.10 .92 .36
Net realized and unrealized
loss on investments and for-
eign currency transactions... 1.78 1.32 (.52)
-------- ------- ------
Net decrease in net asset
value from operations........ 2.88 2.24 (.16)
-------- ------- ------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net investment
income ...................... (.48) (.13) -0-
Distributions from net
realized gains .............. (.03) -0- -0-
-------- ------- ------
Total dividends and
distributions ............... (.51) (.13) -0-
-------- ------- ------
Net asset value, end of
period....................... $ 14.32 $11.95 $ 9.84
======== ======= ======
TOTAL RETURN
Total investment return based
on net asset value(d)........ 24.90% 22.98% (1.60)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted).............. $ 8,847 $3,778 $1,146
Ratio to average net assets
of:
Expenses, net of waivers and
reimbursements............... .95% .95% .95%(e)
Expenses, before waivers and
reimbursements............... 1.97% 4.82% 15.00%(e)
Net investment income......... 8.53% 8.65% 6.02%(e)
Portfolio turnover rate....... 155% 13% 9%
<CAPTION>
GROWTH
PORTFOLIO
-----------------------------------------------
SEPTEMBER 15, 1994(A)
YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ---------------------
<S> <C> <C> <C>
Net asset value, beginning of
period........................ $ 14.23 $ 10.53 $10.00
-------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income(b)(c)... .06 .17 .03
Net realized and unrealized
gain (loss) on investments... 3.95 3.54 .50
-------- ------- ------
Net increase (decrease) in net
asset value from operations.. 4.01 3.71 .53
-------- ------- ------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net investment
income....................... (.04) (.01) -0-
Distributions from net
realized gains .............. (.28) -0- -0-
-------- ------- ------
Total dividends and
distributions ............... (.32) (.01) -0-
-------- ------- ------
Net asset value, end of
period....................... $ 17.92 $ 14.23 $10.53
======== ======= ======
TOTAL RETURN
Total investment return based
on net asset value(d)........ 28.49% 35.23% 5.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted).............. $138,688 $45,220 $5,492
Ratio to average net assets
of:
Expenses, net of waivers and
reimbursements............... .93% .95% .95%(e)
Expenses, before waivers and
reimbursements............... .93% 1.27% 4.19%(e)
Net investment income......... .35% 1.31% 1.17%(e)
Portfolio turnover rate....... 98% 86% 25%
Average commission rate paid
(f).......................... $0.578 -0- -0-
</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.
(f) For fiscal years beginning on or after September 1, 1995, a fund is re-
quired to disclose its average commission rate per share for trades on
which commissions are charged.

8
<PAGE>

- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WORLDWIDE PRIVATIZATION PORTFOLIO
------------------------------------------------------------
SEPTEMBER 23, 1994(A)
YEAR ENDED YEAR ENDED TO
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value,
beginning of period.... $ 11.17 $10.10 $10.00
------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)(c).......... .28 .32 .10
Net realized and
unrealized gain (loss)
on investments........ 1.78 .78 -0-
------- ------ ------
Net increase in net
asset value from
operations............ 2.06 1.10 .10
------- ------ ------
LESS: DISTRIBUTIONS
Dividends from net
investment income..... (.10) (.03) -0-
Distributions from net
realized gains........ -0- -0- -0-
------- ------ ------
Total dividends and
distributions......... (.10) (.03) -0-
------- ------ ------
Net asset value, end of
period................ $ 13.13 $11.17 $10.10
======= ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 18.51% 10.87% 1.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $18,807 $5,947 $1,127
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements........ .95% .95% .95%(e)
Expenses, before
waivers and
reimbursements........ 1.85% 4.17% 18.47%(e)
Net investment income.. 2.26% 2.96% 4.27%(e)
Portfolio turnover
rate.................. 47% 23% 0%
Average commission rate
paid(f)............... $.0148 -0- -0-
<CAPTION>
REAL ESTATE
TECHNOLOGY PORTFOLIO QUASAR PORTFOLIO INVESTMENT PORTFOLIO
-------------------- ----------------- ---------------------
JANUARY 9, 1997(A)
JANUARY 11, 1996(A) AUGUST 5, 1996(A) TO
TO TO MARCH 31, 1997
DECEMBER 31, 1996 DECEMBER 31, 1996 (UNAUDITED)
-------------------- ----------------- ---------------------
<S> <C> <C> <C>
Net asset value,
beginning of period.... $ 10.00 $10.00 $10.00
------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .11(c) .04(c) .10
Net realized and
unrealized loss on
investments........... .93 .60 .05
------- ------ ------
Net increase (decrease)
in net asset value
from operations....... 1.04 .64 .15
------- ------ ------
LESS: DISTRIBUTIONS
Dividends from net
investment income..... -0- -0- -0-
Distributions from net
realized gains........ -0- -0- -0-
------- ------ ------
Total dividends and
distributions......... -0- -0- -0-
------- ------ ------
Net asset value, end of
period................ $ 11.04 $10.64 $10.15
======= ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 10.40% 6.40% 1.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $28,083 $8,842 $2,268
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements........ .95%(e) .95%(e) .95%
Expenses, before
waivers and
reimbursements........ 1.62%(e) 4.44%(e) 6.99%
Net investment income.. 1.17%(e) .93%(e) 1.18%
Portfolio turnover
rate.................. 22% 40% -0-
Average commission rate
paid(f)............... $.0553 $.0511 -0-
</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.
(f) For fiscal years beginning on or after September 1, 1995, a fund is re-
quired to disclose its average commission rate per share for trades on
which commissions are charged.

9
<PAGE>

- -------------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS
- -------------------------------------------------------------------------------

INTRODUCTION TO THE FUND

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.

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, and can be expected to affect the de-
gree of risk to which each Portfolio is subject and each Portfolio's yield or
return. Each Portfolio's investment objectives cannot be changed without ap-
proval by the holders of a majority of such Portfolio's outstanding voting se-
curities, as defined in the Investment Company Act of 1940, as amended (the
"Act"). The Fund may change each Portfolio's investment policies that are not
designated "fundamental policies" within the meaning of the Act upon notice to
shareholders of the Portfolio, but without their approval. The types of port-
folio securities in which each Portfolio may invest are described in greater
detail below.

10
<PAGE>

PREMIER GROWTH PORTFOLIO

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 Alliance
Capital Management L.P. (the "Adviser"), are likely to achieve superior earn-
ings growth. The Portfolio investments in the 25 such companies most highly
regarded at any point in time by the Adviser will usually constitute approxi-
mately 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.

11
<PAGE>

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.

12
<PAGE>

tivity based upon the aggregate performance of a selected portfolio of pub-
licly traded stocks, including monthly adjustments to reflect the reinvestment
of dividends and distributions.

13
<PAGE>

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.

GROWTH AND INCOME PORTFOLIO

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 United States Government,
its agencies or instrumentalities (collectively the "U.S. Government") and re-
purchase agreements pertaining to U.S. Government securities, and (ii) other
high grade debt securities rated AAA, AA or A by Standard & Poor's ("S&P") or
Aaa, Aa or A by Moody's Investors Service, Inc. ("Moody's") or that have not
received a rating but are determined to be of comparable quality by the Advis-
er. 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 maturity of the
Portfolio's portfolio of U.S. Government securities is expected to vary be-
tween one year or less and 30 years. See "Other Investment Policies and Tech-
niques -- Fixed-Income Securities." The Portfolio will utilize certain other
investment techniques, including options and futures contracts, intended to
enhance income and reduce market risk. The Portfolio is designed primarily for
long-term investors and investors should not consider it a trading vehicle. As
with all investment company portfolios, there can be no assurance that the
Portfolio's objective will be achieved.

The Portfolio is subject to the diversification requirements prescribed by the
U.S. Treasury Department which, among other things, limits the Portfolio to
investing no more than 55% of its total assets in any one investment. For this
purpose, all securities issued or guaranteed by the U.S. Government are con-
sidered a single investment. Accordingly, the U.S. Government/High Grade Secu-
rities Portfolio will limit its purchases of

14
<PAGE>

U.S. Government securities to 55% of the total assets of the Portfolio. Con-
sistent 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 applica-
ble tax requirements.

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;

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

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

Other Securities. While the Portfolio's investment strategy normally empha-
sizes 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) certifi-
cates 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 on futures contracts. Investment grade debt se-
curities described in (i) above are those rated BBB or higher by S&P or Baa or
higher by Moody's or, if not so rated, are of equivalent investment quality in
the opinion of the Adviser. Securities rated BBB by S&P or Baa by Moody's nor-
mally provide higher yields but may be considered to have speculative charac-
teristics.

15
<PAGE>

See "Other Investment Policies and Techniques -- Securities Ratings." " -- In-
vestment in Securities Rated Baa and BBB" and Appendix A.

HIGH-YIELD PORTFOLIO

The primary investment objective of the High-Yield Portfolio is to earn the
highest level of current income available without assuming undue risk by in-
vesting principally in high-yielding fixed-income securities rated Baa or
lower by Moody's or BBB or lower by S&P or, if not rated, of comparable 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 high-risk, 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 mortgage-related securities that provide funds for mortgage loans
made to residential homeowners. These include securities which represent in-
terests in pools of fixed and adjustable mortgage loans made by

16
<PAGE>

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 organizations.

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

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers
may in addition be the originators of the underlying mortgage loans as well as
the guarantors of the mortgage-related securities. Pools created by such non-
governmental issuers generally offer a higher rate of interest than 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.

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

17
<PAGE>

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

Purchasing Put and Call Options. In addition to writing put and call options,
the 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 pur-
chase put and call options to provide protection against adverse price or
yield effects from anticipated changes in prevailing interest rates in the
same manner discussed below under "Other Investment Policies and Techniques --
When-Issued Securities and Forward Commitments." In purchasing a call op-
tion, 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 de-
clined 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 period by more than the amount of the premium. If a put
or call option purchased by the Portfolio were permitted to expire without be-
ing sold or exercised, its premium would represent a realized loss to the
Portfolio.

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

18
<PAGE>

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 there-
on. If the Adviser anticipates that interest rates will rise, the Portfolio may
sell a futures contract or a call option thereon or purchase a put option on
such futures contracts as a hedge against a decrease in the value of the Port-
folio's securities. If the Adviser anticipates that interest rates will de-
cline, 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 in-
tends 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 as-
sets. The Portfolio may not purchase or sell futures contracts or related op-
tions thereon if immediately thereafter more than 30% of its net assets would
be hedged. See "Other Investment Policies and Techniques -- Hedging Tech-
niques -- Futures Contracts and Options on Futures Contracts."

TOTAL RETURN PORTFOLIO

The investment objective of the Total Return Portfolio is to achieve a high re-
turn through a combination of current income and capital appreciation. The To-
tal Return Portfolio's assets are invested in U.S. Government and agency obli-
gations, bonds, fixed-income senior securities (including short and long-term
debt securities and preferred stocks to the extent their value is attributable
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 invested in each
type of security at any time shall be in accordance with the judgment of the
Adviser.

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

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

19
<PAGE>

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 obliga-
tions 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 ("Collateralized Brady Bonds"). The Portfolio may
also invest up to 35% of its total assets in U.S. and non-U.S. corporate fixed
income securities. The Portfolio will limit its investments in Sovereign Debt
Obligations and U.S. and non-U.S. corporate fixed income securities to U.S.
dollar 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 Fund's
portfolio of sovereign debt obligations will have a longer average maturity.

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

20
<PAGE>

such as a country's public finances, monetary policy, external accounts, fi-
nancial markets, stability of exchange rate policy and labor conditions. In
selecting and allocating assets among corporate issues within a given country,
the Adviser will consider the relative financial strength of issues and ex-
pects to emphasize investments in securities of issuers that, in the Adviser's
opinion, are undervalued within each market sector. The Portfolio is not re-
quired to invest any specified minimum amount of its total assets in the secu-
rities or obligations of issues located in any particular country.

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

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

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

21
<PAGE>

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.

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

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

22
<PAGE>

tity 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 de-
pendent 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 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 Participa-

23
<PAGE>

tion and not an Assignment. The Portfolio may have difficulty disposing of As-
signments and Participations because to do so it will have to assign such se-
curities to a third party. Because there is no liquid market for such securi-
ties, the Portfolio anticipates that such securities could be sold only to a
limited number of institutional investors. The lack of a liquid secondary mar-
ket may have an adverse impact on the value of such securities and the Portfo-
lio's ability to dispose of particular Assignments or Participations when nec-
essary to meet the Portfolio's liquidity needs in response to a specific eco-
nomic 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 secu-
rities for purposes of valuing the Portfolio's portfolio and calculating its
net asset value.

U.S. and Non-U.S. Corporate Fixed Income Securities. U.S and non-U.S. corpo-
rate fixed income securities include debt securities, convertible securities
and preferred stocks of corporate issuers. Differing yields on fixed income
securities of the same maturity are a function of several factors, including
the relative financial strength of the issuers. Higher yields are generally
available from securities in the lower rating categories. When the spread be-
tween the yields of lower rated obligations and those of more highly rated is-
sues is relatively narrow, the Portfolio may invest in the latter since they
may provide attractive returns with somewhat less risk. The Portfolio expects
to invest in investment grade securities (i.e. securities rated Baa or better
by Moody's or BBB or better by S&P) and in high yield, high risk lower rated
securities (i.e., securities rated lower than Baa by Moody's or BBB by S&P and
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 is-
suers 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 invest-
ment objectives and policies. During the Fund's fiscal year ended December 31,
1996, on a weighted average basis, the percentages of the Portfolio's assets
invested in securities rated (or considered by the Adviser to be of equivalent
quality to securities rated) in particular rating categories were 8% in A and
above, 8% in Ba or BB, 4% in B, 1% in CC and 79% in non-rated. See "Certain
Risk Considerations" for a discussion of the risks associated with the Portfo-
lio's investments 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 Port-

24
<PAGE>

folio (including management and advisory fees) and, indirectly, 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 in connection
with the sale. The Portfolio does not intend to retain in its portfolio any
warrant for equity securities acquired as a unit with a debt instrument, if
the warrant begins to trade separately from the related debt instrument.

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

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

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

25
<PAGE>

stricted pending a determination by the other party, or its trustee or receiv-
er, whether to enforce the Portfolio's obligation to repurchase the securi-
ties.

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

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

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

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

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

26
<PAGE>

able 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 ac-
tual 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 indebtedness. Restructuring arrangements have included, among
other things, reducing and rescheduling interest and principal payments by ne-
gotiating new or amended credit agreements or converting outstanding principal
and unpaid interest to Brady Bonds, and obtaining new credit to finance inter-
est payments. Certain governments have not been able to make payments of in-
terest 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.

27
<PAGE>

Legal recourse therefore may be significantly diminished. Bankruptcy, morato-
rium and other similar laws applicable to issuers of Sovereign Debt Obliga-
tions may be substantially different from those applicable to issuers of pri-
vate debt obligations. The political context, expressed as the willingness of
an issuer of Sovereign Debt Obligations to meet the terms of the debt obliga-
tion, for example, is of considerable importance. In addition, no assurance
can be given that the holders of commercial bank debt will not contest pay-
ments to the holders of securities issued by foreign governments in the event
of default under commercial bank loan agreements.

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

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.

28
<PAGE>

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

Non-Publicly Traded Securities. The Portfolio may invest in securities which
are not publicly traded, including securities sold pursuant to Rule 144A under
the Securities Act of 1933 ("Rule 144A Securities"). The sale of these securi-
ties is usually restricted under Federal securities laws, and market quota-
tions may not be readily available. As a result, the Portfolio may not be able
to sell these securities (other than Rule 144A Securities) unless they are
registered under applicable Federal and state securities laws, or may have to
sell them at less than fair market value. Investment in these securities is
restricted to 5% of the Portfolio's total assets (not including for these pur-
poses Rule 144A Securities, to the extent permitted by applicable law) and is
also subject to the Portfolio's restriction against investing more than 15% of
total assets in illiquid securities. To the extent permitted by applicable
law, Rule 144A Securities will not be treated as "illiquid" for purposes of
the foregoing restriction so long as such securities meet liquidity guidelines
established by the Board of Directors. See "Other Investment Policies and
Techniques -- Illiquid Securities," below.

Investments in High-Yield Securities. The Growth Portfolio may invest in high-
yield, high-risk, fixed-income and convertible securities rated at the time of
purchase Ba or lower by Moody's BB or lower by S&P, or, 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, 1996, 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 0.37% in B and 0% in Caa or
CCC.

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 Portfo-

29
<PAGE>

lio), 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 in-
vestment is considered appropriate in the circumstances.

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

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

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

30
<PAGE>

pends 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 sec-
ondary market will exist for any future option at any particular time. Certain
provisions of the Internal Revenue Code and certain regulatory requirements
may limit the Portfolio's ability to engage in futures and options transac-
tions.

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

WORLDWIDE PRIVATIZATION PORTFOLIO

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

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

31
<PAGE>

or partnerships. In the opinion of the Adviser, substantial potential for ap-
preciation in the value of equity securities of an enterprise undergoing or
following privatization exists as the enterprise rationalizes its management
structure, operations and business strategy to position itself to compete ef-
ficiently in a market economy, and the Portfolio will seek to emphasize in-
vestments in the equity securities of such enterprises.

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

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

32
<PAGE>

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 domi-
nant market positions in their local markets. Because of the relaxation of gov-
ernment controls upon privatization, these enterprises typically have the po-
tential 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.

Individual regions and countries have different histories of involvement in the
privatization process. For example, the countries that formerly constituted the
Soviet Union and the Eastern Bloc are currently exploring privatization partly
as a means of integrating into the international community, while certain West-
ern European and Latin American countries have had privatization programs in
place for more than ten years. The cumulative gross proceeds from major
privatizations worldwide increased from $39.5 billion in 1988 to $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 ob-
jective as Western European countries attempt to meet the directives of the Eu-
ropean Commission regarding debt and achieve the target budget deficit levels
established by the Maastricht Treaty. In developing market countries, including
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 In-
ternational 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 struc-
tural economic changes that will enable Eastern and Central European countries
to develop market economies and compete in the world markets.

The privatization of state enterprises is achieved through various methods. A
gradual approach is commonly taken at the early stages of privatization within
a country. Oftentimes, the government will transfer partial ownership of the
enterprise to a corporation or similar entity and occasionally also broaden
ownership to employees and citizens while retaining an interest. Occasionally,
a few selected foreign minority shareholders are permitted to make private in-
vestments at this stage. After the new corporation has operated under this form
of ownership for a few years, the government may divest itself completely by
means of an equity offering in national and international securities markets.
Another approach is the formation of an investment fund owned by

33
<PAGE>

employees and citizens that, with the assistance of international managers,
operates one or many state enterprises for a set term, after which the govern-
ment 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 se-
curities 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 circumstances could include periods during which returns
on or market liquidity of investments in national commercial banks substan-
tially exceed those available on investments in other industries. The staff of
the Securities and Exchange Commission has indicated that, in its view, regis-
tered investment companies may not, absent shareholder approval, change be-
tween concentration and non-concentration in the securities of issuers in a
single industry. The Portfolio disagrees with the staff's position but has un-
dertaken that it will not concentrate 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 total 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 sub-
ject to greater risk and market fluctuation 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,
increases 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
dividends or voting rights with respect to the securities which may be pur-
chased 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

34
<PAGE>

total assets in debt securities and convertible debt securities of issuers
whose common stocks are eligible for purchase by the Portfolio under the in-
vestment policies described above. Debt securities include bonds, debentures,
corporate notes and preferred stocks. Convertible debt securities are such in-
struments that are convertible at a stated exchange rate into common stock.
Prior to their conversion, convertible securities have the same general charac-
teristics 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 in-
crease as interest rates decline. While convertible securities generally offer
lower interest yields than non-convertible debt securities of similar quality,
they do enable the investor to benefit from increases in the market price of
the underlying common stock.

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

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

The Portfolio may, but is not required to, utilize various investment strate-
gies to hedge its portfolio against currency and other risks. These investment
strategies entail risks. Although the Adviser believes that these investment
strategies may further the Portfolio's investment objective, 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. Government
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 con-
tracts, enter into forward commitments for the purchase or sale of securities,
enter into repurchase agreements, standby commitment agreements and currency
swaps, make short sales of securities and make secured loans of its portfolio
securities. Certain of these investment strategies may not currently be avail-
able 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 strategies become
available or permissible in the future. Except with regard to those investment
strategies discussed immediately below, each of these investment strategies is
discussed under the caption "Other Investment Policies and Techniques," below.

Currency Swaps. The Portfolio may enter into currency swaps for hedging purpos-
es. Currency swaps involve the exchange by the Portfolio with another party of
a series of payments in specified currencies. Since cur-

35
<PAGE>

rency swaps are individually negotiated, the Portfolio expects to achieve an
acceptable degree of correlation between its portfolio investments and its cur-
rency swaps positions. A currency swap may involve the delivery at the end of
the exchange period of a substantial amount of one designated currency in ex-
change 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 currency 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 abil-
ity 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 trans-
action, 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 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.

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

36
<PAGE>

on privatization programs will continue to divest their ownership of state en-
terprises, that proposed privatizations will be successful or that governments
will not re-nationalize enterprises that have been privatized. Furthermore, in
the case of certain of the enterprises in which the Portfolio may invest,
large blocks of the stock of those enterprises may be held by a small group of
stockholders, even after the initial equity offerings by those enterprises.
The sale of some portion or all of those blocks could have an adverse effect
on the price of the stock of any such enterprise.

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

Currency Considerations. Because substantially all of the Portfolio's assets
will be invested in securities denominated in foreign currencies and a corre-
sponding portion of the Portfolio's revenues will be received in such curren-
cies, the dollar equivalent of the Portfolio's net assets and distributions
will be adversely affected by reductions in the value of certain foreign cur-
rencies relative to the U.S. dollar. Such changes will also affect the Portfo-
lio'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 distri-
butions, 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 be-
tween 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 cur-
rency 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.

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<PAGE>

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.

Options. In an effort to increase current income and to reduce fluctuations in
net asset value, the Technology Portfolio intends to write covered 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. 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 Custo-
dian) 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 ex-
ercise 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 Cus-
todian. 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 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 mar-
ket 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 options
(valued at the lower of the option price or market value of such securities)
would exceed 15% of the Portfolio's

38
<PAGE>

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 outstanding 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 "Illiquid Se-
curities." See Appendix D in the Statement of Additional Information for a fur-
ther 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 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 cho-
sen 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 enti-
tle the holder to buy equity securities at a specific price for a specific pe-
riod of time. Right are similar to warrants except that they have a substan-
tially shorter duration. 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 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 underlying 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 per-
ception 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 warrant will expire
worthless. Moreover, a right or warrant ceases to have value if it is not exer-
cised 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.

39
<PAGE>

It invests for capital appreciation and only incidentally for current income.
The selection of securities based on the possibility of appreciation cannot
prevent loss in value. Moreover, because the Portfolio's investment policies
are aggressive, an investment 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 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 Policies and Tech-
niques," 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 under-
lying 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 experience
a loss equal to the premium paid for the option.

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<PAGE>

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 un-
derlying security would then be purchased or sold by the Portfolio at a disad-
vantageous price. These risks could be reduced by entering into a closing
transaction (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 option could result in increases in a Fund's portfolio turnover rate,
especially during periods when market prices of the underlying securities ap-
preciate.

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 de-
livered 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 ob-
tain 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 entered 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

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<PAGE>

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 -- Mortgage-Backed Securi-
ties" 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
de-

42
<PAGE>

rive income primarily from the collection of rents. Equity REITs can also re-
alize 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 Adviser will avail itself of the consulting services
of Koll Investment Management, 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 da-
tabases and algorithms, Koll analyzes local market rent, expense and occupancy
trends, market specific transaction 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 rela-
tive scale by Koll in compiling its REIT . Score database. The relative at-
tractiveness of these real estate industry companies is similarly ranked based
on the composite rankings of the properties 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 capa-
bility to perform site specific inspections of key properties. This analysis
examines 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 immediately be put in the context of local market events. Only those com-
panies 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 rig-

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<PAGE>

orous financial models and by engaging in regular contact with management of
targeted companies. Each management's strategic plan and ability to execute
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 indus-
tries. This information is then used to further interpret management's strate-
gic 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
include mortgage pass-through certificates and multiple-class pass-through se-
curities, 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 inter-
ests in pools of residential mortgage loans and are issued by U.S. governmen-
tal or private lenders and guaranteed by the U.S. Government or one of its
agencies or instrumentalities, including but not limited to the Government Na-
tional Mortgage Association ("Ginnie Mae"), the Federal National Mortgage As-
sociation ("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 as-

44
<PAGE>

sets such as whole loans or private mortgage pass-through securities. Debt
service on CMOs is provided from payments of principal and interest on collat-
eral 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, 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 in-
strumentalities 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 main-

45
<PAGE>

tain 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 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 underlying 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 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.

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.

46
<PAGE>

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 the value of real estate; risks related to gen-
eral and local economic conditions; possible lack of availability of mortgage
funds; overbuilding; extended vacancies of properties; increases in competi-
tion, property taxes and operating expenses; changes in zoning laws; costs re-
sulting from the clean-up of, and liability to third parties for damages re-
sulting from, environmental problems; casualty or condemnation losses; unin-
sured 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 investments are concentrated geographically,
by property type or in certain other respects, 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 Portfo-
lio's ability to retain its tax status as a regulated investment company. See
"Dividends, Distributions and Taxes." Investments by the Portfolio in securi-
ties 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.

47
<PAGE>

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 registration 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
obligations 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 de-
cline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradu-
ally align themselves to reflect changes in market interest rates, causing the
value of such investments to fluctuate less dramatically in response to inter-
est rate fluctuations 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. Historical-
ly, 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 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
effects of prepayments on mortgage cash flows. When interest rates decline,
the value of an investment in fixed rate obligations can be expected to rise.
Conversely, when interest rates rise, the value of an investment in fixed rate
obligations can be expected to decline. In contrast, as interest rates on ad-
justable rate mortgage loans are reset periodically, yields on investments in
such loans will gradually align themselves to reflect changes in market inter-
est rates, causing the value of such investments to fluctuate less
dramatically in response to interest rate fluctuations than would investments
in fixed rate obligations.

Further, the yield characteristics of Mortgage-Backed Securities, such as
those in which the Portfolio may invest, differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of inter-
est rates, and the possibility that prepayments of principal may be made sub-
stantially 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
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal prepay-
ments in an increasing interest rate environment. Early payment associated
with Mortgage-Backed

48
<PAGE>

Securities causes these securities to experience significantly greater price
and yield volatility than that experienced by traditional fixed-income securi-
ties. Under certain interest rate and prepayment rate scenarios, the Portfolio
may fail to recoup fully its investment in Mortgage-Backed Securities notwith-
standing any direct or indirect governmental or agency guarantee. When the
Portfolio reinvests amounts representing payments and unscheduled prepayments
of principal, it may receive a rate of interest that is lower than the rate on
existing adjustable rate mortgage pass-through securities. Thus, Mortgage-
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, howev-
er, 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 va-
rying degrees 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:

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 Global Dollar Government 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 des-
ignated by the Federal Reserve Bank of New York). The Real Estate Investment
Portfolio may enter into repurchase agreements pertaining to U.S. Government
securities with member banks of the Federal Reserve System or primary dealers.
There is no percentage restriction on the ability of the Global Dollar Govern-
ment Portfolio, the Worldwide Privatization Portfolio and the Real Estate In-
vestment Portfolio to enter into repurchase agreements. The Real Estate In-
vestment Portfolio currently intends to enter into repurchase agreements only
with the Fund's Custodian and such primary dealers.

49
<PAGE>

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 creditwor-
thiness of the dealers with which the Portfolios enter into repurchase agree-
ment transactions.

WRITING COVERED CALL OPTIONS

The Premier Growth Portfolio, the 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 op-
tion, the right to purchase from the writer of the option a specified number
of shares of a specified security on or before a fixed date, at a predeter-
mined price. A Portfolio permitted to write call options may not do so unless
the Portfolio at all times during the option period owns the optioned securi-
ties, or securities convertible or carrying rights to acquire the optioned se-
curities at no additional cost. None of the above listed Portfolios may write
covered call options in excess of 25% of such Portfolio's assets.

OPTIONS

In an effort to increase current income and to reduce fluctuations in net as-
set value the Global Dollar Government Portfolio and the Worldwide
Privatization Portfolio 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.

50
<PAGE>

option written by a Portfolio is "covered" if the Portfolio (i) owns the un-
derlying security covered by the call (ii) has an absolute and immediate right
to acquire that security without additional cash consideration (or for addi-
tional cash consideration held in a segregated account by the Fund's Custodi-
an) 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 ex-
ercise 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 Cus-
todian. A put option written by a Portfolio is "covered" if the Portfolio
maintains liquid assets with a value equal to the exercise price in a segre-
gated account with the Fund's Custodian, or else holds a put on the same secu-
rity in the same principal amount as the put written where the exercise price
of the put held is equal to or greater than the exercise price of the put
written. The premium paid by the purchaser of an option will reflect, among
other things, the relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the option, sup-
ply 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 liquid assets 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 trans-

51
<PAGE>

action. See Appendix D to the Statement of Additional Information. A Portfolio
retains the premium received from writing a put or call option whether or not
the option is exercised.

A Portfolio may purchase or write options on securities of the types in which
it is permitted to invest in privately negotiated transactions. A Portfolio
will effect such transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan institutions)
deemed creditworthy by the Adviser, and the Adviser has adopted procedures for
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 Growth Portfolio and the
Worldwide Privatization Portfolio may purchase and sell exchange-traded op-
tions on any securities index composed of the types of securities in which it
may invest. An option on a securities index is similar to an option on a secu-
rity except that, rather than the right to take or make delivery of a security
at a specified price, an option on a securities index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the clos-
ing 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 Quasar Portfolio, may make secured
loans of its portfolio securities to brokers, dealers and financial institu-
tions provided that cash, U.S. Government securities, other liquid high-qual-
ity debt securities or bank letters of credit equal to at least 100% of the
market value of the securities loaned is deposited and maintained by the bor-
rower 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 Port-
52
<PAGE>

folio and the Real Estate Investment Portfolio, of each Portfolio may be
loaned at any time, nor will a Portfolio lend its portfolio securities to any
officer, director, employee or affiliate of either the Fund or the Adviser.

FOREIGN SECURITIES

For a description of the investment policies of the Global Dollar Government
Portfolio, the Worldwide Privatization Portfolio and the Quasar Portfolio with
respect 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. Ex-
cept as noted below, the Portfolios of the Fund may invest in foreign securi-
ties 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 and the Growth and Income Portfolio intends to restrict its
investment in foreign securities to issues of high quality. 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 High Yield Portfolio may purchase
foreign securities, provided the value of issues denominated in foreign cur-
rency shall not exceed 20% of the Portfolio's total assets and the value of
issues denominated in United States currency shall not exceed 25% of the Port-
folio's total assets. The Portfolios may convert U.S. Dollars into foreign
currency, but only to effect securities transactions on a foreign securities
exchange and not to hold such currency as an investment. Each Portfolio, ex-
cept the Technology Portfolio and the U.S. Government/High Grade Securities
Portfolio, may enter into forward foreign currency exchange contracts in order
to protect against uncertainty in the level of future foreign exchange rates.

To the extent a Portfolio, including the Global Dollar Government Portfolio
and the Worldwide Privatization Portfolio, invests in foreign securities, con-
sideration is given to certain factors comprising both risk and opportunity.
The values of foreign securities investments are affected by changes in cur-
rency rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or econom-
ic, taxation or monetary policy (in the United States and abroad) or changed
circumstances in dealings between nations. Currency exchange rate movements
will increase or reduce the U.S. dollar value of the Portfolio's net assets
and income attributable to foreign securities. Costs are incurred in connec-
tion with conversions between various currencies held by a Portfolio. In addi-
tion, there may be substantially less publicly available information about
foreign issuers than about domestic issuers, and foreign issuers may not be
subject to accounting, auditing and financial reporting standards and require-
ments comparable to those of domestic issuers. Foreign issuers are subject to
accounting, auditing and financial standards and requirements that differ, in
some cases significantly, from those applicable to U.S. issuers. In particu-
lar, the assets and profits appearing on the financial statements of a foreign
issuer may not reflect its financial position or results of operations in the
way they

53
<PAGE>

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 con-
stant purchasing power. Inflation accounting may indirectly generate losses or
profits. Consequently, financial data may be materially affected by restate-
ments for inflation and may not accurately reflect the real condition of those
issuers and securities markets. Securities of some foreign issuers are less
liquid and more volatile than securities of comparable 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. Investments in
foreign countries could be affected by other factors not present in the United
States, including expropriation, confiscatory taxation, lack of uniform ac-
counting and auditing standards and potential difficulties in enforcing con-
tractual obligations and could be subject to extended settlement periods.

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 45% through December 29, 1995. On
December 30, 1996 the TOPIX closed down approximately 7% from the end of 1995.
On January 31, 1997 the TOPIX closed down approximately 7% from the end of
1996, after falling approximately 10% during the first full week of 1997. On
April 16, 1997, the TOPIX closed down approximately 2% from January 31, 1997.

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.

54
<PAGE>

goods and services. In June, 1995, the two countries agreed in principle to in-
crease Japanese imports of American automobiles and automotive parts. Neverthe-
less, it is expected that the continuing friction between the U.S. and Japan
with respect to trade issues will thus continue for the foreseeable future.

Each Portfolio's investments in Japanese issuers also will be subject to uncer-
tainty resulting from the instability of recent Japanese ruling coalitions.
From 1955 to 1993, Japan's government was controlled by a single political par-
ty. Between August 1993, and October 1996 Japan was ruled by a series of four
coalition governments. As a result of a general election on October 20, 1996,
however, Japan returned to a single party government led by Prime Minister
Ryutaro Hashimoto. Mr. Hashimoto's party, however, does not control a majority
of the seats in the parliament. For further information regarding Japan, see
the Fund's Statement of Additional Information.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

The Total Return Portfolio, the U.S. Government/High Grade Securities Portfo-
lio, the High-Yield Portfolio, the Global Dollar Government 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).

55
<PAGE>

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.

STANDBY COMMITMENT AGREEMENTS

The Global Dollar Government 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 security which may be issued and
sold to the Portfolio at the option of the issuer. The price and coupon of the
security are fixed at the time of the commitment. At the time of entering into
the agreement the Portfolio is paid a commitment fee, regardless of whether or
not the security ultimately is issued, which is typically approximately 0.5%
of the aggregate purchase price of the security which the Portfolio has com-
mitted 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 un-
available 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 and 25%
in the case of the Real Estate Investment Portfolio, of their respective as-
sets 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 liquid
assets 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 secu-
rity 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 de-
clines 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

56
<PAGE>

of the security will thereafter be reflected in the calculation of the Portfo-
lio'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 com-
mitment fee will be recorded as income on the expiration date of the standby
commitment.

HEDGING TECHNIQUES

The Portfolios may utilize a number of other hedging techniques consistent with
their investment policies.

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 outstand-
ing. The Portfolio will purchase such debt instruments with the currency in
which they are denominated and, at maturity, will receive interest and princi-
pal 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 instru-
ment is issued and the date the instrument matures. While such securities en-
tail the risk of loss of principal, the potential for realizing gains as a re-
sult 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 invest-
ments 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 Ex-
change Commission (the "Commission") is currently considering whether the Port-
folio'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 investments
in this type of security and to maintain in such account cash not available for
investment or U.S. Government Securities or other liquid high quality debt se-
curities having a value equal to the aggregate principal amount of outstanding
commercial paper of this type.

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

57
<PAGE>

termined 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.

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.

Options on Foreign Currencies. The Portfolio may purchase and write put and
call options on foreign currencies for the purpose of pro-

58
<PAGE>

tecting against declines in the U.S. Dollar value of foreign currency-
denominated portfolio securities 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 incurring losses. The purchase of an option on a foreign cur-
rency may constitute an effective hedge against fluctuations in exchange rates
although, in the event of rate movements adverse to the Portfolio's position,
it may forfeit the entire amount of the premium plus related transaction
costs. Options on foreign currencies to be written or purchased by the Portfo-
lio are traded on U.S. and foreign exchanges or over-the-counter. There is no
specific percentage limitation on the Portfolio's investments in options or on
foreign currencies. See the Fund's Statement of Additional Information for
further discussion of the use, risks and costs of options on foreign
currencies.

Forward Foreign Currency Exchange Contracts. The Portfolio may purchase or
sell forward foreign currency exchange contracts ("forward contracts") to at-
tempt to minimize the risk to the Portfolio from adverse changes in the rela-
tionship between the U.S. Dollar and foreign currencies. A forward contract is
an obligation to purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded by currency
traders and their customers. Forward contracts reduce the potential gain from
a positive change in the relationship between the U.S. Dollar and other cur-
rencies. Unanticipated changes in currency prices may result in poorer overall
performance for the Portfolio than if it had not entered into such contracts.
The Fund's Custodian will place liquid assets in a segregated account having a
value equal to the aggregate amount of each Portfolio's commitments under for-
ward contracts entered into with respect to position hedges and cross-hedges.

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

59
<PAGE>

entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate to receive payments on a contractually-based prin-
cipal amount from the party selling such interest rate floor.

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

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<PAGE>

rate transactions and forward contracts will depend on the availability of
liquid markets in such instruments. Markets in options and futures with re-
spect to a number of fixed-income securities and currencies are relatively new
and still developing. It is impossible to predict the amount of trading inter-
est 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 pur-
chased 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 Port-
folio may not be able to sell currencies or portfolio securities covering an
option written by the Portfolio until the option expires or it delivers the
underlying futures contract or currency upon exercise. Therefore, no assurance
can be given that the Portfolio will be able to utilize these instruments ef-
fectively for the purposes set forth above. Furthermore, the Portfolio's abil-
ity to engage in options and futures transactions may be limited by tax
considerations.

ILLIQUID SECURITIES

FIXED-INCOME SECURITIES

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<PAGE>

ter 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

INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB

INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES

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 may experience diffi-
culty in valuing such securities and, in turn, the Portfolio's assets.

62
<PAGE>

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 and the Growth Portfolio may invest, contain call
or buy-back features which permit the issuer of the security to call or repur-
chase 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, re-
sulting in a decreased rate of return for the Portfolio.

NON-RATED SECURITIES

Non-rated securities will also be considered for investment by the High-Yield
Portfolio, and Global Dollar Government Portfolio when the Adviser believes
that the financial condition of the issuers of such securities, or the protec-
tion 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.

NON-DIVERSIFIED STATUS

The Global Dollar Government Portfolio and the Worldwide Privatization Portfo-
lio 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 in-
dividual issuers than a diversified portfolio, an investment in these Portfo-
lios may, under certain circumstances, present greater risk to an investor
than an investment in a diversified portfolio. Each Portfolio intends to con-
duct its operations so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue

63
<PAGE>

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 Portfolios' investments in U.S. Government Securities are
not subject to these limitations.

DEFENSIVE POSITION

When business or financial conditions warrant, the Premier Growth Portfolio
and the Growth and Income Portfolio may assume a temporary defensive position
and invest without limit in high grade fixed income 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 depos-
it, 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 (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
vary from its investment policies during periods in which economic or politi-
cal conditions warrant. Under such circumstances, the Portfolio may invest
without limit in (i) Government Securities and (ii) the following U.S. dollar-
denominated investments: (a) indebtedness rated Aa or better by Moody's or AA
or better by S&P, or if not so rated, of equivalent investment quality as de-
termined by the Adviser, (b) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal De- posit Insurance Corporation
and (c) commercial paper of prime quality rated A-1 or better by S&P or Prime
1 or better by Moody's or, if not so rated, issued by companies which have an
outstanding debt issue rated AA or better by S&P or Aa or better by Moody's.
The Global Dollar Government Portfolio may also at any time, with respect to
up to 35% of its 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 Growth Portfolio may invest in money
market instruments. The Growth Portfolio may also invest in repurchase agree-
ments.

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

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<PAGE>

term (for this purpose, securities with a remaining maturity of one year or
less) debt securities, including notes and bonds, and short-term foreign cur-
rency 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 currencies 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.

PORTFOLIO TURNOVER

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

The annual portfolio turnover rate of the Premier Growth Portfolio may be in
excess of 100%. Although the Fund cannot accurately predict its annual portfo-
lio turnover rate, the Adviser does not expect the annual portfolio turnover of
the Growth and Income Portfolio, the Total Return Portfolio and the 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 pol-
icy, and may result in correspondingly greater brokerage commissions being paid
by the Portfolio and a higher incidence of short-term capital gain taxable as
ordinary income. It is anticipated that the annual portfolio turnover rate of
the Growth and Income Portfolio may be in excess of 50% but less than 100%. See
"Dividends, Distributions and Taxes."

The High-Yield Portfolio and the U.S. Government/High Grade Securities Portfo-
lio will actively use trading to benefit from yield disparities among different
issues of fixed-income securities or otherwise to achieve their investment ob-
jectives 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 ex-
pected to exceed 250%). An annual turnover rate of 200% occurs, for example,
when all of the securities in a Portfo-

65
<PAGE>

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

The Global Dollar Government 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 Adviser
anticipates that the annual turnover in the Global Dollar Government Portfolio
will not be in excess of 300% (excluding turnover of securities having a matu-
rity 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 pe-
riod of one year.

Management expects that the annual turnover in 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.

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%.

66
<PAGE>

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."

CERTAIN FUNDAMENTAL INVESTMENT POLICIES

Briefly, with respect to 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, these fundamental investment poli-
cies provide that a Portfolio may not: (i) invest in securities of any one is-
suer (including repurchase agreements with any one entity) other than securi-
ties issued or guaranteed by the United States Government, if immediately af-
ter such purchases more than 5% of the value of its total assets would be in-
vested in such issuer, except that 25% of the value of the total assets of a
Portfolio may be invested without regard to such 5% limitation; (ii) acquire
more than 10% of any class of the outstanding securities of any issuer (for
this purpose, all preferred stock of an issuer shall be deemed a single class,
and all indebtedness of an issuer shall be deemed a single class); (iii) in-
vest more than 25% of the value of its total assets at the time an investment
is made in the securities of issuers conducting their principal business ac-
tivities in any one industry, except that there is no such limitation with re-
spect to U.S. Government securities or certificates of deposit, bankers'
acceptances and interest-bearing deposits. For purposes of this investment re-
striction, the electric, gas, telephone and water business shall each be con-
sidered as a separate industry; (iv) borrow money, except that 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 hypothecate any of its assets, except as may be necessary
in connection with permissible 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

67
<PAGE>

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

With respect to the Global Dollar Government Portfolio, these fundamental in-
vestment policies provide that the Portfolio may not: (i) invest 25% or more
of its total assets in securities of companies engaged principally in any one
industry except that this restriction does not apply to U.S. Government Secu-
rities; (ii) borrow money, except (a) the Portfolio may, in accordance with
provisions of the Act, borrow money from banks for temporary or emergency pur-
poses, 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 borrow-
ed) at the time the borrowing is made; outstanding borrowings in excess of 5%
of the value of the Portfolio's total assets will be repaid before any subse-
quent investments are made and (b) the Portfolio may enter into reverse repur-
chase agreements and dollar rolls; or (iii) pledge, hypothecate, mortgage or
otherwise encumber their respective assets, except to secure permitted
borrowings.

With respect to the Growth Portfolio, these fundamental investment policies
provide that the Portfolio may not: (i) invest more than 5% of its total as-
sets in the securities of any one issuer (other than U.S. Government securi-
ties 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) invest 25% or more of its total assets in the securities of any one
industry. (Obligations of a foreign government and its agencies or instrumen-
talities constitute a separate "industry" from those of another foreign gov-
ernment.)

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

68
<PAGE>

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

69
<PAGE>

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 is-
suer; (ii) purchase the securities of any one issuer, other than the U.S. Gov-
ernment and its agencies or instrumentalities, 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 Portfolio owns more than 25% of the outstanding
securities of any one class of securities of such issuer; (iii) invest 25% or
more of its total assets in the securities of issuers conducting their princi-
pal business activities in any one industry, other than the real estate indus-
try, in which the Portfolio will invest at least 25% or more of its total as-
sets, except that this restriction does not apply to U.S. Government securi-
ties; (iv) purchase or sell real estate, except that it may purchase and sell
securities of companies which deal in real estate or interests therein, in-
cluding Real Estate Equity Securities; or (v) borrow money except for tempo-
rary 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 borrowing is
made.

- -------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

DIRECTORS

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 1992. He is
currently an independent consultant.

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<PAGE>

Dr. James M. Hester is President of the Harry Frank Guggenheim Foundation and
a Director of Union Carbide Corporation since prior to 1992. 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 1992. He is president and
Chief Executive Officer of Wenonah Development Company (investments) and a Di-
rector of Placer Dome, Inc. (mining).

Donald J. Robinson was formerly a partner at Orrick, Herrington & Sutcliffe
and is currently Senior Counsel to that firm. He was also a Trustee of the Mu-
seum of the City of New York from 1977-1995.

ADVISER

Alliance Capital Management L.P. (the "Adviser"), a Delaware limited partner-
ship with principal offices at 1345 Avenue of the Americas, New York, New York
10105 has been retained under an investment advisory agreement (the "Invest-
ment Advisory Agreement") to provide investment advice and, in general, to
conduct the management and investment program of each of the Fund's Portfolios
subject to the general supervision and control of the Board of Directors of
the Fund. The employee of the Adviser principally responsible for the Premier
Growth Portfolio's investment program since its inception is Alfred Harrison,
who is Vice Chairman of ACMC, with which he has been associated since prior to
1992. The employee of the Adviser principally responsible for the Growth and
Income Portfolio's investment program since its inception is Paul Rissman, who
is a Vice President of ACMC with which he has been associated since prior to
1992. The employee of the Adviser principally responsible for the U.S.
Government/High Grade Securities Portfolio's investment program since its in-
ception is Paul J. DeNoon, who is a Vice President of ACMC, with which he has
been associated since prior to 1992. Prior to that, Mr. DeNoon was Vice Presi-
dent of Manufacturers Hanover Trust since prior to 1992. The employee of the
Adviser principally responsible for the Total Return Portfolio's investment
program since 1996 is Paul Rissman, who is a Vice President of ACMC, with
which he has been associated since prior to 1992. The employee of the Adviser
principally responsible for the investment program since inception of the Dol-
lar Government Portfolio is Wayne D. Lyski, an Executive Vice President of
ACMC, with which he has been associated since prior to 1992. The employee of
the Adviser principally responsible for the investment program of the Utility
Income Portfolio since 1996 is Paul Rissman, who is a Vice President of ACMC
with which he has been associated since prior to 1992. The employee of the Ad-
viser 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 asso-
ciated since prior to 1992. The employees of the Adviser principally responsi-
ble for the investment program since inception of the Technology Portfolio are
Peter Anastos and Gerald T. Malone. Mr. Anastos

71
<PAGE>

has been associated with the Adviser since prior to 1992 and Mr. Malone has
been associated with the Adviser since 1992. Prior thereto, Mr. Malone was as-
sociated with College Retirement Equities Fund since prior to 1992. The em-
ployees of the Adviser principally responsible for the Quasar Portfolio's in-
vestment 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 1992.* The employee of the Adviser principally responsible for the Real
Estate 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
1992. The employees of the Adviser principally responsible for the High Yield
Portfolio investment program since its inception are Nelson R. Jantzen and
Wayne C. Tappe. Mr. Jantzen and Mr. Tappe have each been associated with the
Adviser since prior to 1992.*

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 make
recommendations regarding the purchase or sale of securities by the Portfolio
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.
- --------
*Prior to July 22, 1993, with Equitable Capital Management Corporation
(Equitable Capital). On that date Alliance acquired the business and
substantially all of the assets of Equitable Capital and became the investment
adviser to the Fund.

72
<PAGE>

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

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

<TABLE>
<S> <C>
Premier Growth Portfolio 1.000%
Growth and Income Portfolio .625%
U.S. Government/High Grade
Securities Portfolio .600%
High-Yield Portfolio .750%
Total Return Portfolio .625%
Global Dollar Government
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,
1996, the Adviser received no net advisory fees from the Global Dollar Govern-
ment Portfolio, the Quasar Portfolio, the Real Estate Investment Portfolio and
the High Yield Portfolio. For the year ended December 31, 1996 the Adviser re-
ceived an advisory fee from each of the Premier Growth Portfolio, the Growth &
Income Portfolio, the U.S. Government/High Grade Securities Portfolio, the To-
tal Return Portfolio, the Growth Portfolio, the Worldwide Privatization Portfo-
lio, and the Technology Portfolio so that each such Portfolio paid an advisory
fee equal to .72%, .63%, .54%, .46%, .74%, .10%, and .33% of each such Portfo-
lio's average net assets, respectively.

EXPENSES OF THE FUND

In addition to the payments to the Adviser under the Investment Advisory Agree-
ment described above, the Fund pays certain

73
<PAGE>

other costs including (a) custody, transfer and dividend disbursing expenses,
(b) fees of Directors who are not affiliated with the Adviser, (c) legal and
auditing expenses, (d) clerical, accounting and other office costs, (e) costs
of printing the Fund's prospectuses and shareholder reports, (f) cost of main-
taining the Fund's existence, (g) interest charges, taxes, brokerage fees and
commissions, (h) costs of stationery and supplies, (i) expenses and fees re-
lated to registration and filing with the Commission and with state regulatory
authorities, and (j) cost of certain personnel of the Adviser or its affili-
ates rendering clerical, accounting and other services to the Fund.

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

For the year ended December 31, 1996, the ordinary operating expenses of the
Growth and Income Portfolio were .82%, the Premier Growth Portfolio were .95%,
the U.S. Government/High Grade Portfolio were .92%, the Total Return Portfolio
were .95%, the Global Dollar Government Portfolio were .95%, the Growth Port-
folio were .93%, the Worldwide Privatization Portfolio were .95%, the Technol-
ogy Portfolio were .95% and the Quasar Portfolio were .95% of each such Port-
folio's average net assets, all net of voluntary expense reimbursements.

- -------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- -------------------------------------------------------------------------------

PURCHASE OF SHARES

74
<PAGE>

York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time), fol-
lowing receipt of a purchase or redemption order by the Fund, on each Fund
business day on which such an order is received and trading in the types of
securities in which the Fund invests might materially affect the value of Fund
shares. The Fund's per share net asset value is computed by dividing the value
of the Fund's total assets, less its liabilities, by the total number of its
shares then outstanding. A Fund business day is any 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 determined on the basis of market quotations or, if
such quotations are not readily available, such other methods as the Directors
believe would accurately reflect fair market value. Portfolio securities may
also be valued on the basis of prices provided by a pricing service when such
prices are believed by the Adviser to reflect the fair market value of such
securities.

REDEMPTION OF SHARES

An insurance company separate account may redeem all or any portion of the
shares of any Portfolio in its account at any time at the net asset value per
share of that Portfolio next determined after a redemption request in proper
form is furnished to the Fund or the Principal Underwriter. Any certificates
representing shares being redeemed must be submitted with the redemption re-
quest. Shares redeemed are 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.

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

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

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, with-
out regard to depreciation and amortization. As a result, a portion of the
distributions paid to the Fund

75
<PAGE>

and subsequently distributed to shareholders is a return 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 calendar year.

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
applicable diversification requirements. Under the Regulations, if a regulated
investment company satisfies certain conditions, a segregated asset account
owning shares of the regulated investment company will not be treated as a
single investment for these purposes, but rather the account will be treated
as owning its proportionate share of each of the assets of the regulated in-
vestment company. Each Portfolio plans to satisfy these conditions at all
times so that the shares of each Portfolio owned by a segregated asset account
of a life insurance company will be subject to this treatment under the Code.

- -------------------------------------------------------------------------------
GENERAL INFORMATION
- -------------------------------------------------------------------------------

PORTFOLIO TRANSACTIONS

or major dealers acting as principals, while transactions for the Premier
Growth Portfolio, the Growth and Income Portfolio, the Growth Portfolio, the
Worldwide Privatization Portfolio, the Technology Portfolio and the Quasar
Portfolio are normally effected by brokers, and transactions for the Total Re-
turn Portfolio and the Real Estate Investment Portfolio are normally effected
through any one or more of the foregoing entities.

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, which may, without share-
holder 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 substantially the same manner. Mary-
land law does not require a registered investment company to hold annual meet-
ings of shareholders and it is anticipated 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 Port-
folio are freely transferable, are entitled to dividends as determined by the
Board of Directors and, in liquidation of the Fund, are entitled to receive the
net assets of that Portfolio. Share-

77
<PAGE>

holders have no preference, pre-emptive or conversion rights. In accordance
with current law, it is anticipated that an insurance company issuing a vari-
able annuity contract or variable life insurance policy that participates in
the Fund will request voting instructions from contract or policyholders and
will vote shares in the separate account in accordance with the voting in-
structions 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

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.

78
<PAGE>

Week and Forbes or other media on behalf of the Fund.

ADDITIONAL INFORMATION

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

79
<PAGE>

APPENDIX A

BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

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

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

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-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.

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.

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

A-3
<PAGE>

FITCH INVESTORS SERVICE, INC.

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.

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

A-5

<PAGE>

This is filed pursuant to Rule 497(e)
File Nos. 33-18647 and 811-05398

<PAGE>

[LOGO OF ALLIANCE CAPITAL APPEARS HERE]
ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.

- -------------------------------------------------------------------------------
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520 TOLL FREE (800) 221-5672
- -------------------------------------------------------------------------------
Alliance Variable Products Series Fund, Inc. (the "Fund") is an open-end se-
ries investment company designed to fund variable annuity contracts and vari-
able life insurance policies to be offered by the separate accounts of certain
life insurance companies. The Fund currently offers an opportunity to choose
among the separately managed pools of assets (the "Portfolios") described be-
low which have differing investment objectives and policies.

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.

- -------------------------------------------------------------------------------
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.

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

This Prospectus sets forth concisely the information which a prospective in-
vestor should know about the Fund and each of the Portfolios before applying
for certain variable annuity contracts and variable life insurance policies
offered by participating insurance companies. It should be read in conjunction
with the Prospectus of the separate account of the specific insurance product
which accompanies this Prospectus. A "Statement of Additional Information"
dated May 1, 1997, which provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to some investors,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, call or write Alliance Fund Services,
Inc. at the address or telephone number shown above.

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

PROSPECTUS/May 1, 1997
Investors are advised to carefully read this Prospectus and to retain it for
future reference.
<PAGE>

- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------

SHAREHOLDER TRANSACTION EXPENSES

The Fund has no sales load on purchases or reinvested dividends, deferred
sales load, redemption fee or exchange fee. Shareholder transaction expenses
shown are net of expense reimbursement.

<TABLE>
<CAPTION>
TECHNOLOGY QUASAR
PORTFOLIO* PORTFOLIO*
---------- ----------
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees....................................... .33% 0%
Other Expenses........................................ .62% .95%
--- ---
Total Portfolio Operating Expenses.................... .95% .95%
=== ===
</TABLE>
- --------
* Annualized

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>
Technology Portfolio............................ $10 $30 $53 $117
Quasar Portfolio................................ $10 $30 $53 $117
</TABLE>

The purpose of the foregoing table is to assist the investor in understand-
ing the various costs and expenses that an investor in the Fund will bear di-
rectly and indirectly. Technology Portfolio and Quasar Portfolio are net of
voluntary expense reimbursements, which are not required to be continued in-
definitely; however, the Adviser intends to continue such reimbursements for
the foreseeable future. The estimated expenses of the Technology Portfolio be-
fore expense reimbursements would be: Management Fees -- 1.00%, Other
Expenses -- .62% and Total Operating Expenses -- 1.62%. The estimated expenses
of the Quasar Portfolio before expense reimbursements would be: Management
Fees -- 1.00%, Other Expenses -- 3.44% and Total Operating Expenses -- 4.44%.
The example should not be considered representative of future expenses; actual
expenses may be greater or less than those shown.

2
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following information as to net asset value, ratios and certain supple-
mental data for each of the periods shown below has been audited by Ernst &
Young LLP, the Fund's independent auditors, whose unqualified report thereon
(referring to Financial Highlights) appears in the Statement of Additional In-
formation. The following information should be read in conjunction with the fi-
nancial statements and related notes included in the Statement of Additional
Information. 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 available
without charge upon request.

<TABLE>
<CAPTION>
TECHNOLOGY PORTFOLIO QUASAR PORTFOLIO
-------------------- -----------------
JANUARY 11, 1996(A) AUGUST 5, 1996(A)
TO TO
DECEMBER 31, 1996 DECEMBER 31, 1996
-------------------- -----------------
<S> <C> <C>
Net asset value, beginning of period.... $ 10.00 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b).............. .11(c) .04(c)
Net realized and unrealized loss on
investments.......................... .93 .60
------- ------
Net increase (decrease) in net asset
value from operations................ 1.04 .64
------- ------
LESS: DISTRIBUTIONS
Dividends from net investment income.. -0- -0-
Distributions from net realized
gains................................ -0- -0-
------- ------
Total dividends and distributions..... -0- -0-
------- ------
Net asset value, end of period........ $ 11.04 $10.64
======= ======
TOTAL RETURN
Total investment return based on net
asset value(d)....................... 10.40% 6.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omit-
ted)................................. $28,083 $8,842
Ratio to average net assets of:
Expenses, net of waivers and reim-
bursements......................... .95%(e) .95%(e)
Expenses, before waivers and reim-
bursements......................... 1.62%(e) 4.44%(e)
Net investment income............... 1.17%(e) .93%(e)
Portfolio turnover rate............... 22% 40%
Average commission rate paid(f)....... $.0553 $.0511
</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.
(f) For fiscal years beginning on or after September 1, 1995, a fund is re-
quired to disclose its average commission rate per share for trades on
which commissions are charged.

3
<PAGE>

- --------------------------------------------------------------------------------
DESCRIPTION OF THE PORTFOLIOS
- --------------------------------------------------------------------------------

INTRODUCTION TO THE FUND

The Fund currently has 19 Portfolios, 2 of which are offered by this Prospec-
tus: the Technology Portfolio and the Quasar 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.

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

4
<PAGE>

designated "fundamental policies" within the meaning of the Act upon notice to
shareholders of the Portfolio, but without their approval. The types of portfo-
lio securities in which each Portfolio may invest are described in greater de-
tail below.

TECHNOLOGY PORTFOLIO

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 to-tal assets and invest up to 10% of its total assets in foreign
securities.

5
<PAGE>

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 sub-
ject 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 as-
sets or more than 10% of the Portfolio's assets would be committed to call op-
tions that at the 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.

For a further description of the Technology Portfolio's investment policies and
tech-

6
<PAGE>

niques, 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, Alliance Capital Management L.P., the Portfolio's adviser (the "Advis-
er"), considers economic and Political outlook, the values of specific securi-
ties relative to other investments, trends in the determinants of corporate
profits and management capability and practices.

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 Investment Company Act of 1940, as amended (the "Act"). Except as
otherwise indicated, the investment policies of the Portfolio are not "funda-
mental policies" and may, therefore, be changed by the Board of Directors
without shareholder approval.

In purchasing an option, the Portfolio would be in a position to realize a
gain, if,

7
<PAGE>

during the option period, the price of the underlying security increased (in
the case of a call) or decreased (in the case of a put) by an amount in excess
of the premium paid; otherwise the portfolio would experience a loss equal to
the premium paid for the option.

8
<PAGE>

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:

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
underlying security covered by the call (ii) has an absolute and immediate
right to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by the Fund's Cus-
todian) upon conversion or exchange of other portfolio securities, or (iii)
holds a call on the same security in the same principal amount as the call
written where the exercise price of the call held (i) is equal to or less than
the exercise price of the call written or (ii) is greater than the exercise
price of the call written if the difference is maintained by the Portfolio in
liquid assets in a segregated account with the Fund's Custodian. A put option
written by a Portfolio is "covered" if the Portfolio maintains liquid assets
with a value equal to the exercise price in a segregated account with the
Fund's Custodian, or else holds a put on the same security in the same princi-
pal amount as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written. The premium
paid by the purchaser of an option will reflect, among other things, the rela-
tionship of the exercise price to the market price and volatility of the un-
derlying security, the remaining term of the option, supply and demand and in-
terest rates.

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

9
<PAGE>

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

LOANS OF PORTFOLIO SECURITIES

The Technology Portfolio may make secured loans of its portfolio securities to
brokers, dealers and financial institutions provided that cash, U.S. Govern-
ment securities, other liquid high-quality debt securities or bank letters of
credit equal to at least 100% of the market value of the securities loaned is
deposited and maintained by the borrower with the Portfolio.

The risks in lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the borrower fail
financially. In determining whether to lend securities to a particular borrow-
er, the Adviser (subject to review by the Directors) will consider all rele-
vant facts and circumstances, including the creditworthiness of the borrower.
While securities are on loan, the borrower will pay the Portfolio any income
earned thereon and the Portfolio may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed upon
amount of income from a borrower who has delivered equivalent collateral. The
Technology 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. The Technol-
ogy Portfolio may pay reasonable finders', administrative and custodial fees
in connection with a loan. The Directors will monitor the lending of securi-
ties by the Technology Portfolio. No more than 30% of the value of the assets
of the Technology Portfolio may be loaned at any time, nor will the Technology
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 Quasar Portfolio with re-
spect to for-

10
<PAGE>

eign securities, see above. The Technology Portfolio may invest in listed and
unlisted foreign securities. The Technology Portfolio will not purchase a for-
eign 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 securi-
ties. The Portfolios may convert U.S. Dollars into foreign currency, but only
to effect securities transactions on a foreign securities exchange and not to
hold such currency as an investment.

To the extent that either 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
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.

11
<PAGE>

kets move in an unexpected manner, the Portfolio may not achieve the antici-
pated benefits of its investment strategies or may realize losses and thus be
in a worse position than if such strategies had not been used.

A Portfolio's ability to dispose of its positions in options will depend on the
availability of liquid markets in such instruments. If a secondary market does
not exist with respect to an option purchased or written by the Quasar Portfo-
lio 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 Portfo-
lio to realize any profit and (ii) the Portfolio may not be able to sell port-
folio securities covering an option written by the Portfolio until the option
expires or it delivers the underlying security upon exercise. Therefore, no as-
surance can be given that a Portfolio will be able to utilize these instruments
effectively for the purposes set forth above. Furthermore, the Portfolio's
ability to engage in options transactions may be limited by tax considerations.

ILLIQUID SECURITIES

Subject to any more restrictive applicable investment policies, neither of the
Portfolios will maintain more than 15% of its net assets in illiquid securi-
ties. For purposes of each Portfolio's investment objectives and policies and
investment restrictions, illiquid securities include, among others, (a) direct
placements or other securities which are subject to legal or contractual re-
strictions on resale or for which there is no readily available market (e.g.,
trading in the security is suspended or, in the case of unlisted securities,
market makers do not exist or will not entertain bids or offers), (b) options
purchased by the Portfolio over-the-counter and the cover for options written
by the Portfolio over-the-counter, and (c) repurchase agreements not terminable
within seven days. Securities eligible for resale under Rule 144A under the Se-
curities Act of 1933, as amended, that have legal or contractual restrictions
on resale but have a readily available market are not deemed illiquid for pur-
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.

PORTFOLIO TURNOVER

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

Although the Fund cannot accurately predict its annual portfolio turnover rate,
the Adviser does not expect the annual portfolio turnover of 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 pol-
icy, and may result in correspondingly greater brokerage commissions being paid
by the Portfolio and a higher incidence of short-

12
<PAGE>

term capital gain taxable as ordinary income. See "Dividends, Distributions
and Taxes."

Generally, the Quasar Portfolio's policy with respect to turnover of securi-
ties 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%.

CERTAIN FUNDAMENTAL INVESTMENT POLICIES

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 assets may be invested without
regard to these 5% and 10% limitations; (ii) invest more than 25% of its total
assets in any particular indus-

13
<PAGE>

try; 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.

- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

DIRECTORS

John D. Carifa, Chairman of the Board and President, is President of Alliance
Capital Management Corporation ("ACMC"), the sole general partner of the Ad-
viser, with which he has been associated since prior to 1992.

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 1992.

Clifford L. Michel is a member of the law firm of Cahill Gordon & Reindel,
with which he has been associated since prior to 1992. He is President and
Chief Executive Officer of Wenonah Development Company (investments) and a Di-
rector of Placer Dome, Inc. (mining).

Donald S. Robinson was formerly a partner at Orrick, Herrington & Sutcliffe
and is currently Senior Counsel to that firm. He was also a Trustee of the Mu-
seum of the City of New York from 1977-1995.

ADVISER

agreement (the "Investment 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 employees of the Adviser principally re-
sponsible for the investment program since inception of the Technology Portfo-
lio are Peter Anastos and Gerald T. Malone. Mr. Anastos has been associated
with the Adviser since prior to 1992 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 1992. The employees of the Adviser
principally responsible 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 1992.* Prior hereto, Mr. Stew-
art and Mr. Haase each was associated with Equitable Capital Management Corpo-
ration since prior to 1991.

The Adviser is a leading international investment manager supervising client
accounts with assets as of December 31, 1996 totaling more than $182 billion (of
which approximately $63 billion represented the assets of investment compa-
nies). The Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations and
endowment funds. The 52 registered investment companies managed by the Adviser
comprising 110 separate investment portfolios currently have over two million
shareholders. As of December 31, 1996, the Adviser was retained as an invest-
ment manager by 34 of the Fortune 100 companies.

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

<TABLE>
<S> <C>
Technology Portfolio 1.000%
Quasar Portfolio 1.000%
</TABLE>

The fees are accrued daily and paid monthly. For the year ended December 31,
1996, the Adviser received no net advisory fees

- --------
*Prior to July 22, 1993, with Equitable Capital Management Corporation
(Equitable Capital). On that date Alliance acquired the business and
substantially all of the assets of Equitable Capital and became the investment
adviser to the Fund.

<PAGE>

from the Quasar Portfolio and received an advisory fee from the Technology
Portfolio equal to .33% of the Portfolio's average net assets.

EXPENSES OF THE FUND

For the year ended December 31, 1996 the ordinary operating expenses of the
Technology Portfolio and the Quasar Portfolio were .95% of each such Portfo-
lio's average net assets, all net of voluntary expense reimbursement.

- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------

PURCHASE OF SHARES

Shares of each Portfolio of the Fund are offered on a continuous basis di-
rectly by the Fund and by Alliance Fund Distributors, Inc., the Fund's Princi-
pal Underwriter, to the separate accounts of certain life insurance companies
without any sales or other charge, at each Portfolio's net asset value, as de-
scribed below. The separate accounts of insurance companies place orders to
purchase shares of each Portfolio based on, among other things, the amount of
premium payments to be invested and surrender and transfer requests to be ef-
fected on that day pursuant to variable annuity contracts and variable life
insurance policies which are funded by shares of the Portfolios. The Fund re-
serves the right to suspend the sale of the Fund's shares in response to con-
ditions in the securities markets or for other reasons. Individuals may not
place orders directly with the Fund. See the Prospectus of the separate ac-
count of the participating insurance company for more information on the pur-
chase of Portfolio shares.

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demption order by the Fund, on each Fund business day on which such an order
is received and trading in the types of securities in which the Fund invests
might materially affect the value of Fund shares. The Fund's per share net as-
set 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 de-
termined on the basis of market quotations or, if such quotations are not
readily available, such other methods as the Directors believe would accu-
rately reflect fair market value. Portfolio securities may also be valued on
the basis of prices provided by a pricing service when such prices are be-
lieved by the Adviser to reflect the fair market value of such securities.

REDEMPTION OF SHARES

The Technology Portfolio and the Quasar Portfolio will each declare and dis-
tribute dividends from net investment income and will distribute its net capi-
tal gains, if any, at least annually. Such income and capital gains distribu-
tions will be made in shares of such Portfolios. Net income consists of all
accrued interest income on Portfolio assets less the Portfolio's expenses (in-
cluding 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.

17
<PAGE>

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

- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------

PORTFOLIO TRANSACTIONS

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vide research, statistical and other information to the Adviser.

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

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

ORGANIZATION

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.

19
<PAGE>

CUSTODIAN

REGISTRAR AND DIVIDEND-DISBURSING AGENT

PERFORMANCE INFORMATION

ADDITIONAL INFORMATION

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