This is filed pursuant to Rule 497(e).
ALLIANCE CAPITAL ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
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P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
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SUPPLEMENT DATED AUGUST 22, 1997 TO PROSPECTUS DATED MAY 1, 1997.
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This Supplement to the current Prospectus of Alliance Variable Products Series
Fund, Inc. (the "Fund") sets forth disclosure regarding the High-Yield
Portfolio of the Fund. This Supplement should be read in conjunction with the
Prospectus.
THE FUND IS AN OPEN-END SERIES INVESTMENT COMPANY DESIGNED TO FUND VARIABLE
ANNUITY CONTRACTS AND VARIABLE LIFE INSURANCE POLICIES TO BE OFFERED BY THE
SEPARATE ACCOUNTS OF CERTAIN LIFE INSURANCE COMPANIES. THE FUND WILL OFFER AND
SELL SHARES OF THE HIGH-YIELD PORTFOLIO ONLY TO SEPARATE ACCOUNTS OF CERTAIN
LIFE INSURANCE COMPANIES, FOR THE PURPOSE OF FUNDING VARIABLE ANNUITY CONTRACTS
AND VARIABLE LIFE INSURANCE POLICIES. SALES WILL BE MADE WITHOUT SALES CHARGE
AT THE HIGH-YIELD PORTFOLIO'S PER SHARE NET ASSET VALUE.
HIGH-YIELD PORTFOLIO
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The 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
appreciation 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
recognized 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 speculative
with respect to the issuer's capacity to pay interest and repay principal.
R This is a registered mark used under license from the owner, Alliance Capital
Management L.P.
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ALLIANCE CAPITAL ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
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EXPENSE INFORMATION
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SHAREHOLDER TRANSACTION EXPENSES
The High-Yield Portfolio 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.
ANNUAL HIGH-YIELD PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (after waiver) (a) 0%
Other Expenses .95%(b)
Total High-Yield Portfolio Operating Expenses (c) .95%
(a) Net of voluntary fee waiver.
(b) Estimated.
(c) Net of expense reimbursement.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return (cumulatively through the end of each time period).
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ----------- ----------- -----------
$10 $30 $53 $117
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the High-Yield Portfolio
will bear directly and indirectly. "Other Expenses" for the High-Yield
Portfolio are based on estimated amounts for the High-Yield Portfolio's current
fiscal year. The expenses listed in the table for the High-Yield Portfolio 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. THE EXAMPLE SHOULD
NOT BE CONSIDERED REPRESENTATIVE OF FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
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ALLIANCE CAPITAL ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
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INVESTMENT OBJECTIVES AND POLICIES OF THE HIGH-YIELD PORTFOLIO
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The primary investment objective of the High-Yield Portfolio is to earn the
highest level of current income available without assuming undue risk by
investing principally in high-yielding fixed-income securities rated Baa or
lower by Moody's Investors Service, Inc. ("Moody's") or BBB or lower by
Standard & Poor's Rating Services ("S&P") or, if not rated, of comparable
investment quality as determined by Alliance Capital Management L.P. (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 High-Yield Portfolio or
from a general decline in interest rates or a combination of both. Conversely,
capital depreciation may result, for example, from a lowered credit standing or
a general rise in interest rates, or a combination of both.
Consistent with the High-Yield Portfolio's primary investment objective, it is
anticipated that, under normal conditions, at least 65% of the total assets of
the High-Yield Portfolio will be invested in fixed-income securities rated
below Baa by Moody's or below BBB by S&P or, if unrated, of comparable
investment quality as determined by the Adviser. Such high-risk, high-yield
securities (commonly referred to as "junk bonds") are considered to have
speculative or, in, the case of relatively low ratings, predominantly
speculative characteristics. See "Other Investment Policies and
Techniques--Securities Ratings," "--Investments in Lower-Rated Fixed-Income
Securities" and Appendix A in the Prospectus. There is no minimum rating
requirement applicable to the High-Yield Portfolio's investments in
fixed-income securities.
When the spreads between the yields derived from lower-rated securities and
those derived from higher-rated issues are relatively narrow, the High-Yield
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
investment 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 obligations, including municipal bonds issued at a discount.
Dividends on shares attributable to interest on municipal securities held by
the High-Yield 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
Federal, state or municipal regulatory changes, insufficient rate increases or
cost overruns.
MORTGAGE-RELATED SECURITIES. The High-Yield Portfolio may invest without
limitation in mortgage-related securities that provide funds for mortgage loans
made to residential homeowners. These includes securities which represent
interests in pools of fixed and adjustable mortgage loans made by lenders such
as savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled for sale to investors (such as
the High-Yield Portfolio) by various governmental, government-related and
private 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.
Instead, 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 resulting
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
government 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 experience and practices of the poolers the Adviser
determines that the securities meet the Portfolio's investment criteria.
Although the market for such securities is becoming increasingly liquid,
securities
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ALLIANCE CAPITAL ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
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issued by certain private organizations may not be readily marketable. The
High-Yield Portfolio will not purchase mortgage-related securities or any other
assets which in the Adviser's opinion are illiquid if, as a 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
mortgage or alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to maturity may
differ from customary long-term fixed rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the Adviser
will, consistent with the High-Yield Portfolio's investment objective and
policies, consider making investments in such new types of securities.
The High-Yield Portfolio may invest up to 5% of the value of its total assets
directly in mortgages secured by residential real estate. Unlike pass-through
securities, whole loans constitute direct investment in mortgages inasmuch as
the High-Yield Portfolio, rather than a financial intermediary, becomes the
mortgagee with respect to such loans purchased by the High-Yield 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
covered call options listed on one or more national securities exchanges and on
foreign currencies in an aggregate amount not to exceed 25% of its total
assets. (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 security to
the writer of the option on or before a fixed date at a predetermined price.
When the High-Yield Portfolio writes a put option it maintains in a segregated
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 the
High-Yield Portfolio's total assets.
PURCHASING PUT AND CALL OPTIONS. In addition to writing put and call options,
the High-Yield Portfolio may purchase put and call options written by others
covering the types of securities in which the High-Yield Portfolio may invest,
and may purchase put and call options on foreign currencies. The High-Yield
Portfolio may purchase 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 in the Prospectus under "Other Investment
Policies and Techniques--When-Issued Securities and Forward Commitments." In
purchasing a call option, the High-Yield Portfolio would be in a position to
realize a gain if, during the option period, the price of the security
increased by an amount in excess of the premium paid. It would realize a loss
if the price of the security declined or remained the same or did not increase
during the period by more than the amount of the premium. By purchasing a put
option, the High-Yield 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 High-Yield Portfolio were permitted to expire without being sold or
exercised, its premium would represent a realized loss to the High-Yield
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 High-Yield Portfolio
realizes a profit or loss from a closing sale transaction if the premium
received from the transaction is more than or less than the cost of the option.
When the High-Yield Portfolio purchases put or call options, or when it writes
covered put or call options, or when it writes covered put or call options as
described above, it does so in negotiated transactions. The High-Yield
Portfolio effects such transactions only with investment dealers and other
financial institutions (such as commercial banks or savings and loan
institutions) deemed credit worthy by the Adviser, and the Adviser has adopted
procedures for monitoring the creditworthiness of such entities. Options
purchased or written by the High-Yield Portfolio in negotiated transactions are
illiquid and it may not be possible for the High-Yield Portfolio to effect a
closing sale transaction at a time when the Adviser believes it would be
advantageous to do so. For a further description of options, see "Other
Investment Policies and Techniques--Options" in the Prospectus.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. The High-Yield Portfolio may invest
in financial futures contracts ("futures contracts") and related options
thereon. If the Adviser anticipates that interests rates will rise, the
High-Yield Portfolio
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ALLIANCE CAPITAL ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
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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 its
securities. If the Adviser anticipates that interests rates will decline, the
High-Yield Portfolio may purchase a futures contract or a call option thereon
to protect against an increase in the price of the securities the High-Yield
Portfolio intends to purchase. These futures contracts and related options
thereon will be used only as a hedge against anticipated interest rate changes.
Subject to appropriate regulatory relief, the High-Yield 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 options on futures contracts exceeds 5% of the value of the
High-Yield Portfolio's total assets. The High-Yield Portfolio may not purchase
or sell futures contracts or related options thereon if immediately thereafter
more than 30% of its net assets would be hedged. For a further description of
futures contracts and options on future contracts, see "Other Investment
Policies and Techniques--Hedging Techniques--Futures Contracts and Options on
Futures Contracts" in the Prospectus.
OTHER INVESTMENT POLICIES AND TECHNIQUES OF THE HIGH-YIELD PORTFOLIO
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REPURCHASE AGREEMENTS. The High-Yield Portfolio may enter into agreements
pertaining to U.S. Government Securities. See "Other Investment Policies and
Techniques--Repurchase Agreements" in the Prospectus.
WRITING COVERED CALL OPTIONS. The High-Yield Portfolio may write covered call
options listed on one or more national securities exchanges. See "Other
Investment Policies and Techniques--Writing Covered Call Options" in the
Prospectus.
LOANS OF PORTFOLIO SECURITIES. The High-Yield Portfolio may make secured loans
of its portfolio securities to brokers, dealers and financial institutions
provided that cash, U.S. Government securities, other liquid high quality debt
securities or bank letters of credit equal to at least 100% of the market value
of the securities loaned is deposited and maintained by the borrower with the
High-Yield Portfolio. See "Other Investment Policies and Techniques--Loans of
Portfolio Securities" in the Prospectus.
FOREIGN SECURITIES. The High-Yield Portfolio may invest in listed and unlisted
foreign securities provided that the value of issues denominated in foreign
currency shall not exceed 20% of the High-Yield Portfolio's total assets and
the value of issues denominated in United States currency shall not exceed 25%
of the High-Yield Portfolio's total assets. The High-Yield Portfolio may enter
into forward foreign currency exchange contracts in order to protect against
uncertainty in the level of future foreign exchange rates. See "Other
Investment Policies and Techniques--Foreign Securities" and "--Forward Foreign
Currency Exchange Contracts" in the Prospectus.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The High-Yield Portfolio may
enter into forward commitments for the purchase or sale of securities,
including purchases on a "when-issued" basis or sales on a "delayed delivery"
basis. No forward commitments will be made by the High-Yield Portfolio if, as a
result, the High-Yield Portfolio's aggregate commitments under such transaction
would be more than 20% of the then current value of the High-Yield Portfolio's
total assets. See "Other Investment Policies--When-Issued Securities and
Forward Commitments" in the Prospectus.
SECURITIES RATINGS. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps Credit Rating Co. and Fitch Investor Service, L.P. are a
generally accepted barometer of credit risk. They are, however, subject to
certain limitations from an investor's standpoint. The rating of an issuer is
heavily weighted by past developments and does not necessarily reflect probable
future conditions. There is frequently a lag between the time a rating is
assigned and the time it is updated. In addition, there may be varying degrees
of difference in credit risk of securities within each rating category.
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 capacity 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 addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities, although the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
Securities rated Ba or BB are judged to have speculative elements or to be
predominantly speculative with respect to the issuer's ability to pay interest
and repay principal. Securities rated B are judged to have highly speculative
elements or to be predominantly speculative. Such securities may have small
assurance of interest and principal payments. Securities rated Baa by Moody's
are also judged to have speculative characteristics.
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ALLIANCE CAPITAL ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
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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
secondary market for lower-rated securities, the High-Yield Portfolio may
experience difficulty in valuing such securities and, in turn, its assets.
Certain lower-rated securities in which the High-Yield Portfolio may invest
contain call or buy-back features which permit the issuer of the security to
call or repurchase it. See "Other Investment Policies and
Techniques--Investment in Lower-Rated Fixed Income Securities" in the
Prospectus.
NON-RATED SECURITIES. Non-rated securities will also be considered for
investment by the High-Yield Portfolio when the Adviser believes that the
financial condition of the issuers of such securities, or the protection
afforded by the terms of the securities themselves, limits the risk to the
High-Yield Portfolio to a degree comparable to that of rated securities which
are consistent with the High-Yield Portfolio's objective and policies.
PORTFOLIO TURNOVER
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The High-Yield Portfolio will actively use trading to benefit from yield
disparities among different issues of securities or fixed-income to achieve its
investment objective and policies. The Adviser anticipates that the High-Yield
Portfolio's annual rate of portfolio turnover may be in excess of 200% (but is
not expected to be in excess of 250%). The 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
High-Yield Portfolio. See "Other Investment Policies and Techniques--Portfolio
Turnover" in the Prospectus.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES OF THE HIGH-YIELD PORTFOLIO
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The High-Yield Portfolio has adopted certain fundamental investment policies
which may not be changed without the approval of the shareholders of the
High-Yield Portfolio.
The High-Yield Portfolio may not: (i) invest in securities of any one issuer
(including repurchase agreements with any one entity) other than securities
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 the High-Yield
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) invest
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
activities in any one industry, except that there is no such limitation with
respect to U.S. Government securities or certificates of deposit, bankers'
acceptances and interest-bearing deposits. For purposes of this investment
restriction, the electric, gas, telephone and water business shall each be
considered as a separate industry; (iv) borrow money, except that the
High-Yield 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 the High-Yield Portfolio); (vi) invest in illiquid securities if
immediately after such investment more than 10% of the High-Yield Portfolio's
total assets (taken at market value) would be invested in such securities.
Illiquid securities purchased by the High-Yield Portfolio may include: (i)
subordinated debentures or other debt securities issued in the course of
acquisition financing such as that associated with leveraged buyout
transactions, and (ii) participation interests in loans to domestic companies,
or to foreign companies and governments, originated by commercial banks and
supported by letters of credit or other credit facilities offered by such banks
or other financial institutions; or (vii) invest more than 10% of the value of
its total assets in repurchase agreements not terminable within seven days.
PORTFOLIO MANAGEMENT
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The employees of the Adviser principally responsible for the High-Yield
Portfolio's investment program since its inception are Nelson R. Jantzen and
Wayne C. Tappe. Mr. Jantzen and Mr. Tappe have been associated with the Adviser
since prior to 1992. Prior to July 22, 1993, they were associated with
Equitable Capital Management Corporation (Equitable Capital). On that date the
Adviser acquired the business and substantially all of the assets of Equitable
Capital.
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ALLIANCE CAPITAL ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
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ADVISORY FEE
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The High-Yield Portfolio pays the Adviser at an annual rate of .750% of the
average daily value of its net assets. The fees are accrued daily and paid
monthly. For the year ended December 31, 1996 the Advisor received no net
advisory fees from the High-Yield Portfolio.
YOU SHOULD RETAIN THIS SUPPLEMENT WITH YOUR PROSPECTUS FOR FUTURE REFERENCE.
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