ALLIANCE VARIABLE PRODUCTS SERIES FUND INC, 497, 1997-11-18

ALLIANCE VARIABLE PRODUCTS SERIES FUND INC
497, 1997-11-18

Previous: ROYCE GLOBAL TRUST INC, 8-A12B, 1997-11-18

Next: ALLIANCE VARIABLE PRODUCTS SERIES FUND INC, 497, 1997-11-18

<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.

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

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

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO -- seeks the highest level of cur-
rent income, consistent with what the Fund's Adviser considers to be prudent
investment risk, that is available from a portfolio of debt securities issued
or guaranteed by the governments of the United States, Canada and Mexico,
their political subdivisions (including Canadian Provinces but excluding the
States of the United States), agencies, instrumentalities or authorities. The
Portfolio seeks high current yields by investing in government securities de-
nominated in local currency and U.S. Dollars. Normally, the Portfolio expects
to maintain at least 25% of its assets in securities denominated in the U.S.
Dollar.
GLOBAL DOLLAR GOVERNMENT PORTFOLIO -- seeks a high level of current income
through investing substantially all of its assets in U.S. and non-U.S. fixed
income securities denominated only in U.S. Dollars. As a secondary objective,
the Portfolio seeks capital appreciation. Substantially all of the Portfolio's
assets will be invested in high yield, high risk securities that are low-rated
(i.e., below investment grade), or of comparable quality and unrated, and that
are considered to be predominately speculative as regards the issuer's capac-
ity to pay interest and repay principal.
UTILITY INCOME PORTFOLIO -- seeks current income and capital appreciation by
investing primarily in the equity and fixed-income securities of companies in
the "utilities industry." The Portfolio's investment objective and policies
are designed to take advantage of the characteristics and historical perfor-
mance of securities of utilities companies. The utilities industry consists of
companies engaged in the manufacture, production, generation, provision,
transmission, sale and distribution of gas, electric energy, and communica-
tions equipment and services, and in the provision of other utility or utili-
ty-related goods and services.
GROWTH PORTFOLIO -- seeks long-term growth of capital by investing primarily
in common stocks and other equity securities.
WORLDWIDE PRIVATIZATION PORTFOLIO -- seeks long-term capital appreciation by
investing principally in equity securities issued by enterprises that are un-
dergoing, or have undergone, privatization. The balance of the Portfolio's in-
vestment portfolio will include equity securities of companies that are be-
lieved by the Fund's Adviser to be beneficiaries of the privatization process.
TECHNOLOGY PORTFOLIO -- seeks growth of capital through investment in compa-
nies expected to benefit from advances in technology. The Portfolio invests
principally in a diversified portfolio of securities of companies which use
technology extensively in the development of new or improved products or
processes.
QUASAR PORTFOLIO -- seeks growth of capital by pursuing aggressive investment
policies. The Portfolio invests principally in a diversified portfolio of eq-
uity Securities of any company and industry and in any type of security which
is believed to offer possibilities for capital appreciation.
REAL ESTATE INVESTMENT PORTFOLIO -- seeks a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or re-
lated to the real estate industry.

- -------------------------------------------------------------------------------
PURCHASE INFORMATION
- -------------------------------------------------------------------------------
The Fund will offer and sell its shares only to separate accounts of certain
life insurance companies, for the purpose of funding variable annuity con-
tracts and variable life insurance policies. Sales will be made without sales
charge at each Portfolio's per share net asset value. Further information can
be obtained from Alliance Fund Services, Inc. at the address or telephone num-
ber shown above.
An investment in the Fund is not a deposit or obligation of, or guaranteed or
endorsed by, any bank and is not federally insured by the Federal Deposit In-
surance Corporation, the Federal Reserve Board or any other agency.

- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
This Prospectus sets forth concisely the information which a prospective in-
vestor should know about the Fund and each of the Portfolios before applying
for certain variable annuity contracts and variable life insurance policies
offered by participating insurance companies. It should be read in conjunction
with the Prospectus of the separate account of the specific insurance product
which accompanies this Prospectus. A "Statement of Additional Information"
dated May 1, 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>

- --------------------------------------------------------------------------------
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/
MONEY PREMIER AND HIGH GRADE HIGH TOTAL
MARKET GROWTH INCOME SECURITIES YIELD RETURN
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO* PORTFOLIO
--------- --------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees........ .50% .72% .63% .54% 0% .46%
Other Expenses......... .19% .23% .19% .38% .95% .49%
--- --- --- --- --- ---
Total Portfolio
Operating Expenses.... .69% .95% .82% .92% .95% .95%
=== === === === === ===
</TABLE>
- --------
* Estimated.

<TABLE>
<CAPTION>
NORTH
AMERICAN GLOBAL
INTER- GLOBAL GOVERNMENT UTILITY DOLLAR
NATIONAL BOND INCOME INCOME GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees........ .04% .44% .19% .19% 0%
Other Expenses......... .91% .50% .76% .76% .95%
--- --- --- --- ---
Total Portfolio
Operating Expenses.... .95% .94% .95% .95% .95%
=== === === === ===
<CAPTION>
WORLDWIDE REAL ESTATE
GROWTH PRIVATIZATION TECHNOLOGY QUASAR INVESTMENT
PORTFOLIO PORTFOLIO PORTFOLIO** PORTFOLIO** PORTFOLIO(1)**
--------- ------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO
OPERATING EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Management Fees........ .74% .10% .33% 0% 0%
Other Expenses......... .19% .85% .62% .95% .95%
--- --- --- --- ---
Total Portfolio
Operating Expenses.... .93% .95% .95% .95% .95%
=== === === === ===
</TABLE>
- --------
** 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>
Money Market Portfolio......................... $ 7 $22 $38 $ 86
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
International Portfolio........................ $10 $30 $53 $117
Global Bond Portfolio.......................... $ 9 $30 $52 $115
North American Government Income Portfolio..... $10 $30 $53 $117
Utility Income 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. Expense Infor-
mation for the Money Market Portfolio, Premier Growth Portfolio, U.S.
Government/High Grade Securities Portfolio, Total Return Portfolio, Interna-
tional Portfolio, Growth and Income Portfolio and Global Bond Portfolio have
been restated to reflect current fees. The expenses listed in the table for
the Money Market Portfolio, Premier Growth Portfolio, Growth and Income Port-
folio, U.S. Government/High Grade Securities Portfolio, High-Yield Portfolio,
Total Return Portfolio, International Portfolio, Global Bond Portfolio, North
American Government Income Portfolio, Global Dollar Government Portfolio,
Utility Income Portfolio, Growth Portfolio, Worldwide Privatization Portfolio,
Technology Portfolio, Quasar Portfolio and Real Estate Investment Portfolio
are net of voluntary expense reimbursements, which are not required to be con-
tinued indefinitely; however, the Adviser intends to continue such reimburse-
ments for the foreseeable future. The expenses of the following Portfolios,
before expense reimbursements, would be: Money Market Portfolio: Management
Fees -- .50%, Other Expenses -- .19% and Total Portfolio Operating Expenses --
.69%; Premier Growth Portfolio: Management Fees -- 1.00%, Other Expenses --
.23% and Total Portfolio Operating Expenses -- 1.23%; Growth and Income Port-
folio: Management Fees -- .63%, Other Expenses -- .19% and Total Portfolio Op-
erating Expenses -- .82%; U.S. Government/High Grade Securities Portfolio:
Management Fees -- .60%, Other Expenses -- .38% and Total Portfolio Operating
Expenses -- .98%; Total Return Portfolio: Management Fees -- .63%, Other Ex-
penses -- .49% and Total Portfolio Operating Expenses -- 1.12%; International
Portfolio: Management Fees -- 1.00%, Other Expenses -- .91% and Total Portfo-
lio Operating Expenses -- 1.91%; Global Bond Portfolio: Management Fees --
.65%, Other Expenses -- .50% and Total Portfolio Operating Expenses -- 1.15%;
North American Government Income Portfolio: Management Fees -- .65%, Other Ex-
penses -- .76% and Total Portfolio Operating Expenses -- 1.41%; Global Dollar
Government Portfolio: Management Fees -- .75%, Other Expenses -- 1.22% and To-
tal Portfolio Operating Expenses -- 1.97%; Utility Income Portfolio: Manage-
ment Fees -- .75%, Other Expenses -- .76% and Total Portfolio Operating Ex-
penses -- 1.51%; 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>
GLOBAL BOND PORTFOLIO
------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 12.15 $ 9.82 $11.33 $11.24 $11.10
------- ------- ------ ------ ------
INCOME FROM INVESTMENT OPERA-
TIONS
Net investment income(b).... .67(c) .69(c) .57(c) .77(c) .64
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions............... .01 1.73 (1.16) .43 (.13)
------- ------- ------ ------ ------
Net increase (decrease) in
net asset value from opera-
tions...................... .68 2.42 (.59) 1.20 .51
------- ------- ------ ------ ------
LESS: DIVIDENDS AND DISTRIBU-
TIONS
Dividends from net invest-
ment income................ (.84) (.09) (.62) (.85) (.28)
Distributions from net
realized gains............. (.25) -0- (.30) (.26) (.09)
------- ------- ------ ------ ------
Total dividends and distri-
butions.................... (1.09) (.09) (.92) (1.11) (.37)
------- ------- ------ ------ ------
Net asset value, end of pe-
riod....................... $ 11.74 $ 12.15 $ 9.82 $11.33 $11.24
======= ======= ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d)................... 6.21% 24.73% (5.16)% 11.15% 4.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)............ $18,117 $11,553 $7,298 $6,748 $5,876
Ratio to average net assets
of:
Expenses, net of waivers and
reimbursements............. .94% .95% .95% 1.50% 1.50%
Expenses, before waivers and
reimbursements............. 1.15% 1.77% 2.05% 1.50% 1.97%
Net investment income....... 5.76% 6.22% 6.01% 4.85% 5.85%
Portfolio turnover rate..... 191% 262% 102% 125% 78%
</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>
GROWTH AND INCOME PORTFOLIO
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning 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 DIS-
TRIBUTIONS
Dividends from net in-
vestment 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 pe-
riod (000's omitted).. $126,729 $41,993 $41,702 $22,756 $7,803
Ratio to average net
assets of:
Expenses, net of waiv-
ers and reimburse-
ments................. .82% .79% .90% 1.18% .99%
Expenses, before waiv-
ers and reimburse-
ments................. .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>

<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)............. .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 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>
- -------
(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.

7
<PAGE>

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

<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>

<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 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.

8
<PAGE>

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

<TABLE>
<CAPTION>
MONEY MARKET 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..... $ 1.00 $ 1.00 $ 1.00 $1.00 $1.00
------- ------- ------ ----- -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b).............. .05 .05 .03 .22 -0-
Net realized and
unrealized gain on
investments............ -0- -0- -0- -0- -0-
------- ------- ------ ----- -----
Net increase in net
asset value from
operations............. .05 .05 .03 .22 -0-
------- ------- ------ ----- -----
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income...... (.05) (.05) (.03) (.22) -0-
Distributions from net
realized gains......... -0- -0- -0- -0- -0-
------- ------- ------ ----- -----
Total dividends and
distributions.......... (.05) (.05) (.03) (.22) -0-
------- ------- ------ ----- -----
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $1.00 $1.00
======= ======= ====== ===== =====
TOTAL RETURN
Total investment return
based on net asset
value(d)............... 4.71% 4.97% 3.27% 2.25% .02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's omitted). $64,769 $28,092 $6,899 $ 102 $ 30
Ratio of average net
assets of:
Expenses, net of waiv-
ers and reimburse-
ments................. .69% .95% .95% 1.16% 0%
Expenses, before waiv-
ers and reimburse-
ments................. .69% 1.07% 4.46% 68.14% 0%
Net investment income.. 4.64% 4.85% 3.98% 2.15% 3.05%(e)
Portfolio turnover rate. 0% 0% 0% 0% 0%
</TABLE>

<TABLE>
<CAPTION>
GLOBAL DOLLAR NORTH AMERICAN GOVERNMENT
GOVERNMENT PORTFOLIO INCOME PORTFOLIO
-------------------------------------- -----------------------------------------
MAY 2,
1994(A) MAY 3, 1994(A)
YEAR ENDED YEAR ENDED TO YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996 1995 1994
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $11.95 $ 9.84 $10.00 $ 10.48 $ 8.79 $10.00
------ ------ ------ ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. 1.10(c) .92(c) .36(c) 1.26(c) 1.13(c) .50(c)
Net realized and
unrealized loss on in-
vestments and foreign
currency transactions. 1.78 1.32 (.52) .69 .83 (1.71)
------ ------ ------ ------- ------ ------
Net decrease in net
asset value from
operations............ 2.88 2.24 (.16) 1.95 1.96 (1.21)
------ ------ ------ ------- ------ ------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income .... (.48) (.13) -0- (.05) (.27) -0-
Distributions from net
realized gains ....... (.03) -0- -0- (.00) -0- -0-
------ ------ ------ ------- ------ ------
Total dividends and
distributions ........ (.51) (.13) -0- (.05) (.27) -0-
------ ------ ------ ------- ------ ------
Net asset value, end of
period................ $14.32 $11.95 $ 9.84 $ 12.38 $10.48 $ 8.79
====== ====== ====== ======= ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 24.90% 22.98% (1.60)% 18.70% 22.71% (12.10)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $8,847 $3,778 $1,146 $16,696 $7,278 $3,848
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements........ .95% .95% .95%(e) .95% .95% .95%(e)
Expenses, before
waivers and
reimbursements........ 1.97% 4.82% 15.00%(e) 1.41% 2.57% 4.43%(e)
Net investment income.. 8.53% 8.65% 6.02%(e) 11.04% 12.24% 8.49%(e)
Portfolio turnover
rate.................. 155% 13% 9% 4% 35% 15%
</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.

9
<PAGE>

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

<TABLE>
<CAPTION>
UTILITY GROWTH
INCOME PORTFOLIO PORTFOLIO
------------------------------------------ -------------------------------------------------
MAY 10, 1994(A) SEPTEMBER 15, 1994(A)
YEAR ENDED YEAR ENDED TO YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996 1995 1994
------------ ------------ --------------- ------------ ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 12.01 $ 9.96 $10.00 $ 14.23 $ 10.53 $10.00
------- ------ ------ -------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .31(c) .30(c) .28(c) .06(c) .17(c) .03(c)
Net realized and
unrealized gain (loss)
on investments........ .62 1.83 (.32) 3.95 3.54 .50
------- ------ ------ -------- ------- ------
Net increase (decrease)
in net asset value
from operations....... .93 2.13 (.04) 4.01 3.71 .53
------- ------ ------ -------- ------- ------
LESS: DIVIDENDS AND
DISTRIBUTIONS
Dividends from net
investment income..... (.09) (.08) -0- (.04) (.01) -0-
Distributions from net
realized gains ....... (.16) -0- -0- (.28) -0- -0-
------- ------ ------ -------- ------- ------
Total dividends and
distributions ........ (.25) (.08) -0- (.32) (.01) -0-
------- ------ ------ -------- ------- ------
Net asset value, end of
period................ $ 12.69 $12.01 $ 9.96 $ 17.92 $ 14.23 $10.53
======= ====== ====== ======== ======= ======
TOTAL RETURN
Total investment return
based on net asset
value(d).............. 7.88% 21.45% (.40)% 28.49% 35.23% 5.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted).............. $14,857 $6,251 $1,254 $138,688 $45,220 $5,492
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements........ .95% .95% .95%(e) .93% .95% .95%(e)
Expenses, before
waivers and
reimbursements........ 1.51% 3.79% 15.98%(e) .93% 1.27% 4.19%(e)
Net investment income.. 2.61% 2.73% 4.62%(e) .35% 1.31% 1.17%(e)
Portfolio turnover
rate.................. 75% 138% 31% 98% 86% 25%
Average commission rate
paid (f).............. $0.579 -0- -0- $0.578 -0- -0-
</TABLE>

<TABLE>
<CAPTION>
REAL ESTATE
WORLDWIDE PRIVATIZATION PORTFOLIO TECHNOLOGY PORTFOLIO QUASAR PORTFOLIO INVESTMENT PORTFOLIO
------------------------------------------------ -------------------- ----------------- --------------------
JANUARY 9, 1997(A)
YEAR ENDED YEAR ENDED SEPTEMBER 23, 1994(A) JANUARY 11, 1996(A) AUGUST 5, 1996(A) TO
DECEMBER 31, DECEMBER 31, TO TO TO MARCH 31, 1997
1996 1995 DECEMBER 31, 1994 DECEMBER 31, 1996 DECEMBER 31, 1996 (UNAUDITED)
------------ ------------ --------------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 11.17 $10.10 $10.00 $ 10.00 $10.00 $10.00
------- ------ ------ ------- ------ ------
INCOME FROM IN-
VESTMENT OPERA-
TIONS
Net investment
income(b)...... .28(c) .32(c) .10(c) .11(c) .04(c) .10
Net realized and
unrealized loss
on investments. 1.78 .78 -0- .93 .60 .05
------- ------ ------ ------- ------ ------
Net increase
(decrease) in
net asset value
from
operations..... 2.06 1.10 .10 1.04 .64 .15
------- ------ ------ ------- ------ ------
LESS: DISTRIBU-
TIONS
Dividends from
net investment
income......... (.10) (.03) -0- -0- -0- -0-
Distributions
from net real-
ized gains..... -0- -0- -0- -0- -0- -0-
------- ------ ------ ------- ------ ------
Total dividends
and distribu-
tions.......... (.10) (.03) -0- -0- -0- -0-
------- ------ ------ ------- ------ ------
Net asset value,
end of period.. $ 13.13 $11.17 $10.10 $ 11.04 $10.64 $10.15
======= ====== ====== ======= ====== ======
TOTAL RETURN
Total investment
return based on
net asset
value(d)....... 18.51% 10.87% 1.00% 10.40% 6.40% 1.50%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end
of period
(000's
omitted)....... $18,807 $5,947 $1,127 $28,083 $8,842 $2,268
Ratio to average
net assets of:
Expenses, net of
waivers and
reimbursements. .95% .95% .95%(e) .95%(e) .95%(e) .95%
Expenses, before
waivers and
reimbursements. 1.85% 4.17% 18.47%(e) 1.62%(e) 4.44%(e) 6.99%
Net investment
income......... 2.26% 2.96% 4.27%(e) 1.17%(e) .93%(e) 1.18%
Portfolio turn-
over rate...... 47% 23% 0% 22% 40% -0-
Average commis-
sion rate
paid(f)........ $.0148 -0- -0- $.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.

10
<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, 16 of which are offered by this Prospec-
tus: the Money Market Portfolio, the Premier Growth Portfolio, the Growth and
Income Portfolio, the U.S. Government/High Grade Securities Portfolio, the
High-Yield Portfolio, the Total Return Portfolio, the International Portfolio,
the Global Bond Portfolio, the North American Government Income Portfolio, the
Global Dollar Government Portfolio, the Utility Income Portfolio, the Growth
Portfolio, the Worldwide Privatization Portfolio, the Technology Portfolio,
the Quasar Portfolio and the Real Estate Investment Portfolio.

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

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

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

INVESTMENT OBJECTIVES AND POLICIES

GENERAL

11
<PAGE>

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

MONEY MARKET PORTFOLIO

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

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

The Money Market Portfolio will comply with Rule 2a-7 under the Act, as
amended from time to time, including the diversity, quality and maturity con-
ditions imposed by the Rule. Accordingly, in any case in which there is a
variation between the conditions imposed by the Rule and the Portfolio's
investment policies and restrictions, the Portfolio will be governed by the
more restrictive of the two requirements. See the
12
<PAGE>

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

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

PREMIER GROWTH PORTFOLIO

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

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

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

Within the investment framework described herein, Alfred Harrison, who heads
the Adviser's "Large Cap Growth Group," is ultimately responsible for the in-
vestment decisions for the Portfolio. In managing the Portfolio's assets, the
Adviser's investment strategy emphasizes stock selection and investment in the
securities of a limited number of issuers. The Adviser depends heavily upon
the fundamental analysis and research of its large internal research staff in
making investment decisions for the Portfolio. The research staff generally
follows a primary research universe of approximately 600 companies which are
considered by the Adviser to have strong management, superior industry posi-
tions, excellent balance sheets and the ability to demonstrate superior earn-
ings growth. As one of the largest multi-national investment firms, the Ad-
viser has access to considerable information concerning all of the companies
followed, an in-depth understanding of the products, services, markets

13
<PAGE>

and competition of these companies and a good knowledge of the managements of
most of the companies in its research universe.

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

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

In the management of the Portfolio's investment portfolio, the Adviser will
seek to utilize market volatility judiciously (assuming no change in company
fundamentals) to adjust the Portfolio's positions. The Portfolio will strive
to capitalize on apparently unwarranted price fluctuations, both to purchase
or increase positions on weaknesses and to sell or reduce overpriced holdings.
Under normal circumstances, the Portfolio will remain substantially fully in-
vested in equity securities and will not take significant cash positions for
market timing purposes. Rather, during a market decline, while adding to posi-
tions in favored stocks, the Portfolio will tend to become somewhat more
aggressive, gradually reducing somewhat the number of companies represented in
the Portfolio's portfolio. Conversely, in rising markets, while reducing or
eliminating fully valued positions, the Portfolio will tend to become somewhat
more conservative, gradually increasing the number of companies represented in
the Portfolio's portfolio. Through this "buying into declines" and "selling
into strength," the Adviser seeks to gain positive returns in good markets
while providing some measure of protection in poor markets.

14
<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.

15
<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
16
<PAGE>

things, limits the Portfolio to investing no more than 55% of its total assets
in any one investment. For this purpose, all securities issued or guaranteed by
the U.S. Government are considered a single investment. Accordingly, the U.S.
Government/High Grade Securities Portfolio will limit its purchases of U.S.
Government Securities to 55% of the total assets of the Portfolio. Consistent
with this limitation, the Portfolio will, as a matter of fundamental policy,
invest at least 45% of its total assets in U.S. Government Securities. Never-
theless, the Portfolio reserves the right to modify the percentage of its in-
vestments in U.S. Government Securities in order to comply with all applicable
tax requirements.

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

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

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

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

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

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

Other Securities. While the Portfolio's investment strategy normally emphasizes
U.S. Government Securities and high grade debt securities, the Portfolio may,
where consistent with its investment objective, invest up to 35% of its total
assets in other types of securities, including, (i) investment grade corporate
debt securities of a type other than the high grade debt securities described
above (including collateralized mortgage obligations), (ii) certificates of de-
posit, bankers' acceptances and interest-bearing savings deposits of banks hav-
ing total assets of more than $1 billion and which are members of the Federal
Deposit Insurance Corporation, and (iii) put and call options, futures con-
tracts and options on futures contracts. Investment grade debt securities de-
scribed in (i) above are those rated BBB or higher by

17
<PAGE>

S&P or Baa or higher by Moody's or, if not so rated, are of equivalent invest-
ment quality in the opinion of the Adviser. Securities rated BBB by S&P or Baa
by Moody's nor mally provide higher yields but may be considered to have spec-
ulative characteristics. See "Other Investment Policies and Techniques -- Se-
curities Ratings." " -- Investment in Securities Rated Baa and BBB" and Appen-
dix A.

HIGH-YIELD PORTFOLIO

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

Consistent with the High-Yield Portfolio's primary investment objective, it is
anticipated that, under normal conditions, at least 65% of the total assets of
the High-Yield Portfolio will be invested in fixed-income securities rated be-
low Baa by Moody's or below BBB by S&P or, if unrated, of comparable invest-
ment quality as determined by the Adviser. Such highrisk, high-yield securi-
ties (commonly referred to as "junk bonds") are considered to have speculative
or, in, the case of relatively low ratings, predominantly speculative charac-
teristics. See "Other Investment Policies and Techniques -- Securities Rat-
ings," " -- Investments in Lower-Rated Fixed-Income Securities" and Appendix
A. There is no minimum rating requirement applicable to the Portfolio's in-
vestments in fixed-income securities.

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

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

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

Mortgage-Related Securities. The High-Yield Portfolio may invest without limi-
tation in

18
<PAGE>

mortgage-related securities that provide funds for mortgage loans made to res-
idential homeowners. These include securities which represent interests in
pools of fixed and adjustable mortgage loans made by lenders such as savings
and loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled for sale to investors (such as the High-Yield
Portfolio) by various governmental, government-related and private organiza-
tions.

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

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers
may in addition be the originators of the underlying mortgage loans as well as
the guarantors of the mortgage-related securities. Pools created by such non-
governmental issuers generally offer a higher rate of interest than government
and government-related pools because there are no direct or indirect govern-
ment guarantees of payments in such pools. However, timely payment of interest
and principal of these pools is supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance. There
can be no assurance that the private insurers can meet their obligations under
the policies. The High-Yield Portfolio may buy mortgage-related securities
without insurance or guarantees if through an examination of the loan experi-
ence and practices of the poolers the Adviser determines that the securities
meet the Portfolio's investment criteria. Although the market for such securi-
ties is becoming increasingly liquid, securities issued by certain private or-
ganizations may not be readily marketable. The High-Yield Portfolio will not
purchase mortgage-related securities or any other assets which in the Advis-
er's opinion are illiquid if, as a result, more than 10% of the value of the
Portfolio's total assets will be illiquid.

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

19
<PAGE>

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

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

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

Purchasing Put and Call Options. In addition to writing put and call options,
the HighYield Portfolio may purchase put and call options written by others
covering the types of securities in which the Portfolio may invest, and may
purchase put and call options on foreign currencies. The Portfolio may purchase
put and call options to provide protection against adverse price or yield ef-
fects from anticipated changes in prevailing interest rates in the same manner
discussed below under "Other Investment Policies and Techniques -- When-Issued
Securities and Forward Commitments." In purchasing a call option, the Portfolio
would be in a position to realize a gain if, during the option period, the
price of the security increased by an amount in excess of the premium paid. It
would realize a loss if the price of the security declined or remained the same
or did not increase during the period by more than the amount of the premium.
By purchasing a put option, the Portfolio would be in a position to realize a
gain if, during the option period, the price of the security declined by an
amount in excess of the premium paid. It would realize a loss if the price of
the security increased or remained the same or did not decrease during that pe-
riod by more than the amount of the premium. If a put or call option purchased
by the Portfolio were permitted to expire without being sold or exercised, its
premium would represent a realized loss to the Portfolio.

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

20
<PAGE>

tion is more than or less than the cost of the option.

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

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

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

TOTAL RETURN PORTFOLIO

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

INTERNATIONAL PORTFOLIO

The International Portfolio's primary investment objective is to seek to ob-
tain a total return on its assets from long-term growth of capital principally
through a broad portfolio of marketable securities of established non-United
States companies (e.g., companies incorporated outside the United States),
companies participating in foreign

21
<PAGE>

economies with prospects for growth, and foreign government securities. As a
secondary objective, the Portfolio will attempt to increase its current income
without assuming undue risk. The Adviser considers it consistent with these ob-
jectives to acquire securities of companies incorporated in the United States
and having their principal activities and interests outside of the United
States. The International Portfolio intends to be invested primarily in such
issuers and under normal circumstances more than 80% of its assets will be so
invested.

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

The International Portfolio intends to diversify investments broadly among
countries and normally to have represented in the portfolio, business activi-
ties of not less than three different countries. The Portfolio may invest all
or a substantial portion of its assets in one or more of such countries. The
Portfolio may purchase securities of companies, wherever organized, which, in
the judgment of the Adviser, have their principal activities and interests out-
side the United States determined on the basis of such factors as location of
the company's assets, or personnel, or sales and earnings. See "Other Invest-
ment Policies and Techniques -- Foreign Securities."

The Portfolio may purchase or sell forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Portfolio from ad-
verse changes in the relationship between the U.S. Dollar and other currencies.
A forward contract is an obligation to purchase or sell a specific currency for
an agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. The Portfolio's dealings in
forward contracts will be limited to hedging involving either specific transac-
tions or portfolio positions. Transaction hedging is the purchase or sale of
forward contracts with respect to specific receivables or payables of the Port-
folio accruing in connection with the purchase and sale of its portfolio secu-
rities or the payment of dividends and distributions by the Portfolio. Position
hedging is the sale of for-

22
<PAGE>

ward contracts with respect to portfolio security positions denominated or
quoted in such foreign currency. The Portfolio will not speculate in forward
contracts and, therefore, the Adviser believes that the Portfolio will not be
subject to the risks frequently associated with the speculative use of such
transactions. The Portfolio may not position hedge with respect to the cur-
rency of a particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfo-
lio denominated or quoted in that particular foreign currency. If the Portfo-
lio enters into a position hedging transaction, its custodian bank will place
liquid assets in a separate account of the Portfolio in an amount equal to the
value of the Portfolio's total assets committed to the consummation of such
forward contract. If the value of the securities placed in the separate ac-
count declines, additional cash or securities will be placed in the account so
that the value of the account will equal the amount of the Portfolio's commit-
ment with respect to such contracts. Hedging against a decline in the value of
a currency does not eliminate fluctuations in the prices of portfolio securi-
ties or prevent losses if the prices of such securities decline. Such transac-
tions also preclude the opportunity for gain if the value of the hedge cur-
rency should rise. Moreover, it may not be possible for the Portfolio to hedge
against a devaluation that is so generally anticipated that the Portfolio is
not able to contract to sell the currency 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 than 50% of
the Portfolio's total assets would be committed to such contracts.

The Portfolio may also invest in warrants which entitle the holder to buy eq-
uity securities at a specific price for a specific period of time.

It is the present intention of the Adviser to invest the Portfolio's assets in
companies based in (or governments of or within) East Asia (Japan, Hong Kong,
Singapore and Malaysia), Western Europe (the United Kingdom, Germany, The
Netherlands, France and Switzerland), Australia, Canada, and such other areas
and countries as the Adviser may determine from time to time. However, invest-
ments may be made from time to time in companies in, or governments of, devel-
oping countries as well as developed countries. Shareholders should be aware
that investing in the equity and fixed-income markets of developing countries
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less stability
than those of developed countries. The Adviser at present does not intend to
invest more than 10% of the International Portfolio's total assets in compa-
nies in, or governments of, developing countries. On December 31, 1996, 31.5%
of the Portfolio's net assets were invested in debt securities of Japanese is-
suers. For a description of certain risks associated with investing in foreign
securities, see "Other Investment Policies and Techniques -- Foreign Securi-
ties," "-- Investment in Japanese Issuers" and (for a further description of
Japan) Appendix E to the Statement of Additional Information.

GLOBAL BOND PORTFOLIO

The investment objective of the Global Bond Portfolio is to seek a high level
of re-

23
<PAGE>

turn from a combination of current income and capital appreciation by invest-
ing in a globally diversified portfolio of high quality debt securities denom-
inated in the U.S. Dollar and a range of foreign currencies. The average
weighted maturity of the Portfolio's portfolio of fixed-income securities is
expected to vary between one year or less and 10 years. See "Other Investment
Policies and Techniques -- Fixed-Income Securities."

Over the past 14 years, debt securities offered by certain foreign governments
provided higher investment returns than U.S. government debt securities. Such
returns reflect interest rates prevailing in those countries and the effect of
gains and losses in the denominated currencies, which have had a substantial
impact on investment in foreign fixed income securities. The relative perfor-
mance of various countries' fixed income markets historically has reflected
wide variations relating to the unique characteristics of each country's econ-
omy. Year-to-year fluctuations in certain markets have been significant, and
negative returns have been experienced in various markets from time to time.
The Adviser and AIGAM International Limited (the "Sub-Adviser") believe that
investment in a composite of foreign fixed income markets and in the U.S. gov-
ernment and corporate bond market is less risky than a portfolio invested ex-
clusively in foreign debt securities, and provides investors with more oppor-
tunities for attractive total return than a portfolio invested exclusively in
U.S. debt securities.

The Portfolio will invest only in securities of issuers in countries whose
governments are deemed stable by the Adviser and the Sub-Adviser. Their deter-
mination that a particular country should be considered stable depends on
their evaluation of political and economic developments affecting the country
as well as recent experience in the markets for foreign government securities
of the country. Examples of foreign governments which the Adviser and Sub-Ad-
viser currently consider to be stable, among others, are the governments of
Australia, Austria, Canada, Denmark, France, Germany, Ireland, Italy, Japan,
New Zealand, The Netherlands, Norway, Spain, Sweden, Switzerland and the
United Kingdom. The Adviser does not believe that the credit risk inherent in
the obligations of such stable foreign governments is significantly greater
than that of U.S. government debt securities. The Portfolio intends to spread
investment risk among the capital markets of a number of countries and will
invest in securities of the governments of, and companies based in, at least
three, and normally considerably more, such countries. The percentage of the
Portfolio's assets invested in the debt securities of the government of, or a
company based in, a particular country or denominated in a particular currency
will vary depending on the relative yields of such securities, the economies
of the countries in which the investments are made and such countries' finan-
cial markets, the interest rate climate of such countries and the relationship
of such countries' currencies to the U.S. Dollar. Currency is judged on the
basis of fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and economic poli-
cies) as well as technical and political data. Under normal market conditions,
it is expected that approximately 25% of the Portfolio's net assets will be
invested in debt securities denominated in the U.S. Dollar.

24
<PAGE>

On December 31, 1996, 3% of the Portfolio's net assets were invested in debt
securities of Japanese issuers. See "Other Investment Policies and Tech-
niques -- Foreign Securities," "-- Investment in Japanese Issuers" and (for a
further description of Japan) Appendix E, to the Statement of Additional Infor-
mation.

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

The Portfolio may invest in debt securities issued by supranational organiza-
tions such as: the International Bank for Reconstruction and Development (com-
monly referred to as the "World Bank"), which was chartered to finance develop-
ment projects in developing member countries; the European Union, which is a
fifteen-nation organization engaged in cooperative economic activities; the Eu-
ropean Coal and Steel Community, which is an economic cooperative whose members
are various European nations' steel and coal industries; and the Asian Develop-
ment Bank, which is an international development bank established to lend port-
folios, promote investment and provide technical assistance to member nations
in the Asian and Pacific regions.

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

For a description of certain risks associated with investing in foreign securi-
ties, see "Other Investment Policies and Techniques -- Foreign Securities," be-
low.

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO

The North American Government Income Portfolio's investment objective is to
seek the highest level of current income, consis-

25
<PAGE>

tent with what the Adviser considers to be prudent investment risk, that is
available from a portfolio of debt securities issued or guaranteed by the gov-
ernments of the United States, Canada, Mexico and Argentina, their political
subdivisions (including Canadian Provinces but excluding States of the United
States), agencies, instrumentalities or authorities ("Government Securities").
The Portfolio seeks high current yields by investing in Government Securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso. Nor-
mally, the Portfolio expects to maintain at least 25% of its assets in securi-
ties denominated in the U.S. Dollar. In addition, the Portfolio may invest up
to 25% of its total assets in debt securities issued by governmental entities
of Argentina ("Argentine Government securities"). The Portfolio expects that
it will not retain a debt security which is down-graded below BBB or Baa, or,
if unrated, determined by the Adviser to have undergone similar credit quality
deterioration, subsequent to purchase by the Portfolio. There may be circum-
stances, however, such as the downgrading to below investment grade of all of
the securities of a governmental issuer in one of the countries in which the
Portfolio has substantial investments, under which the Portfolio, after con-
sidering all the circumstances, would conclude that it is in the best
interests of the shareholders to retain its holdings in securities of that is-
suer. The average weighted maturity of the Portfolio's portfolio of fixed-in-
come 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.

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

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

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

26
<PAGE>

securities and the relationship of the country's currency to the U.S. Dollar.

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

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

U.S. Government Securities in which the Portfolio may invest also include "zero
coupon" Treasury securities, which are U.S. Treasury bills that are issued
without interest coupons, U.S. Treasury notes and bonds which have been
stripped of their unma-tured interest coupons, and receipts or certificates
representing interests in such stripped debt obligations and coupons. A zero
coupon security is a debt obligation that does not entitle the holder to any
periodic payments prior to maturity but; instead, is issued and traded at a
discount from its face amount. The discount varies depending on the time re-
maining until maturity, prevailing interest rates, liquidity of the security
and perceived credit quality of the issuer. The market prices of zero coupon
securities are generally more volatile than those of interest-bearing securi-
ties, and are likely to respond to changes in interest rates to a greater de-
gree than otherwise comparable securities that do pay periodic interest. Cur-
rent federal tax law requires that a holder (such as the Portfolio) of a zero
coupon security accrue a portion of the discount at which the security was pur-
chased

27
<PAGE>

as income each year, even though the holder receives no interest payment on
the security during the year. As a result, in order to make the distributions
necessary for the Portfolio not to be subject to federal income or excise tax-
es, the Portfolio might be required to pay out as an income distribution each
year an amount, obtained by liquidation of portfolio securities if necessary,
greater than the total amount of cash that the Portfolio has actually received
as interest during the year. The Adviser believes, however, that it is highly
unlikely that it would be necessary to liquidate any portfolio securities for
this purpose.

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

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

28
<PAGE>

All Canadian Provinces have outstanding bond issues and several Provinces also
guarantee bond issues of Provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Spreads in the marketplace are de-
termined by various factors, including the relative supply and the rating as-
signed by the rating agencies.

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

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

Mexican Government Securities. The Portfolio may invest in Mexican Government
Securities of investment grade quality. As of the date of this Prospectus,
there are five Mexican Government Securities denominated in the Mexican Peso
that have been rated investment grade by either S&P or Moody's. These five Mex-
ican Government Securities are Cetes and Tesobonos, each rated A-2 by S&P, and
Ajustabonos, Bondes and Udibonos, each rated BBB+/stable by S&P. The Portfo-
lio's Adviser, however, believes that there are other Peso-denominated Mexican
Government Securities that are of investment grade quality. Currently Floating
Rate Notes, rated BB+/stable by S&P, is the only Mexican Government Security
denominated in U.S. Dollars that is rated investment grade by S&P. If qualified
investments of this nature appear in the future, the Portfolio will consider
them for investment.

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

Argentine Government Securities. The Portfolio may invest up to 25% of its to-
tal assets in Argentine Government Securities that are denominated and payable
in the Argentine Peso. Argentine Government Securities include: (i) Bono de In-
version y Crecimiento ("BIC"), which are investment and growth

29
<PAGE>

bonds issued directly by the Argentine government with maturities of ten
years; (ii) Bono de Consolidacion Economica ("BOCON"), which are economic con-
solidation bonds issued directly by the Argentine government with maturities
of ten years and (iii) Bono de Credito a la Exportacion ("BOCREX"), which are
export credit bonds issued directly by the Argentine government with maturi-
ties of four years. To date, Argentine Government Securities are not rated by
either S&P or Moody's. The Adviser, however, believes that there are Argentine
Government Securities that are of investment grade quality.

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

The Canadian economy is based on the free enterprise system with business or-
ganizations ranging from small owner-operated businesses to large multina-
tional corporations. Manufacturing and resource industries are large contribu-
tors to the country's economic output, but as in many other highly developed
countries, there has been a gradual shift from a largely goods-producing econ-
omy to a predominantly service-based one. Agriculture and other primary pro-
duction play a small but key role in the economy. Canada is also an exporter
of energy to the United States in the form of natural gas (of which Canada has
substantial reserves) and hydroelectric power, and has significant mineral re-
sources.

Canadian Dollars are fully exchangeable into U.S. Dollars without foreign ex-
change controls or other legal restriction. Since the major developed country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has been narrower
than the range of fluctuation between the U.S. Dollar and most other major
currencies. Canadian Dollars are fully exchangeable into U.S. Dollars without
foreign exchange controls or other legal restriction. Since the major devel-
oped-country currencies were permitted to float freely against one another,
the range of fluctuation in the U.S. Dollar/Canadian Dollar exchange rate gen-
erally has been narrower than the range of fluctuation between the U.S. Dollar
and most other major currencies. Between 1991 and 1995, Canada experienced a
weakening of its currency. In January 1995, the Canadian Dollar fell to a
nine-year low against the U.S. Dollar, decreasing in value compared to the
U.S. Dollar by approximately 20% from October 1991. During 1995 and 1996, how-
ever, the Canadian Dollar remained steady in value against the U.S. Dollar at
a level of approximately 4% above that low. The range of fluctuation that oc-
curred in the past is not necessarily indicative of the range of fluctuation
that will occur in the future. Future rates of exchange cannot be accurately
predicted.

General Information About The United Mexican States. The United Mexican States
("Mexi-

30
<PAGE>

co") is a nation formed by 31 states and a Federal District (Mexico City). The
Political Constitution of Mexico, which took effect on May 1, 1917, estab-
lished Mexico as a Federal Republic and provides for the separation of execu-
tive, legislative and judicial branches. The President and the members of the
General Congress are elected by popular vote.

While in recent years the Mexican economy has experienced improvement in a
number of areas, including seven consecutive years (1987-1994) of growth in
gross domestic product and a substantial reduction in the rate of inflation
and in public sector financial deficit, beginning in 1994, Mexico has experi-
enced an economic crisis that led to the devaluation of the Peso in December
1994. Much of the past improvement in the Mexican economy has been attribut-
able to a series of economic policy initiatives initiated by the Mexican gov-
ernment over the past decade, which seek to modernize and reform the Mexican
economy, control inflation, reduce the financial deficit, increase public rev-
enues through the reform of the tax system, establish a competitive and stable
currency exchange rate, liberalize trade restrictions and increase investment
and productivity, while reducing the government's role in the economy. In this
regard, the Mexican government has been proceeding with a program for
privatizing certain state owned enterprises, developing and modernizing the
securities markets, increasing investment in the private sector and permitting
increased levels of foreign investment. The adoption effective January 1, 1994
by Canada, the United States and Mexico of the North American Free Trade
Agreement could also contribute to the growth of the Mexican economy.

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

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

While the Mexican economy has stabilized, and is emerging from a recession, it
continues to suffer from high inflation and high interest rates. Its gross do-
mestic product grew in the second quarter of 1996 after declining for five
consecutive quarters. The Mexican government has projected a 3.7% increase in
the gross domestic product for 1996 from 1995 and a 4% increase for 1997 from
1996. In October 1995, and again in October 1996,

31
<PAGE>

the Mexican government announced new accords designed to encourage economic
growth and reduce inflation. It cannot be accurately predicted whether these
accords will achieve their objectives. Mexico's economy may also be influenced
by international economic conditions, particularly those in the United States,
and by world prices for oil and other commodities. The recovery of the economy
will require continued economic and fiscal discipline as well as stable politi-
cal and social conditions. There is no assurance that Mexico's economic policy
initiatives will be successful or that succeeding administrations will continue
these initiatives.

In August 1976, the Mexican government established a policy of allowing the
Mexican Peso to float against the U.S. Dollar and other currencies. Under this
policy, the value of the Mexican Peso consistently declined against the U.S.
Dollar. Under economic policy initiatives implemented since December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual devalua-
tions continued until December 1994. On December 20, 1994, the Mexican govern-
ment announced a new policy that would allow a more substantial yet still con-
trolled devaluation of the Mexican Peso. On December 22, 1994 the Mexican gov-
ernment announced that it would not continue with the policy announced two days
earlier and would instead permit the Peso to float against other currencies,
resulting in a continued decline against the U.S. Dollar. From December 22,
1994 through February 15, 1996, the Mexican Peso decreased in value compared to
the U.S. Dollar by approximately 40%. In 1996, the average annual Peso-Dollar
exchange rate decreased approximately 15% from that in 1995, which itself had
decreased approximately 47% from that in 1994.

Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.

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

The military has intervened in the political process on several occasions since
the 1930's and has ruled the country for 22 of the past 65 years. The most re-
cent military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.

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

In the decade prior to the current announcement of a new economic plan in

32
<PAGE>

March 1991, the Argentine economy was characterized by low and erratic growth,
declining investment rates and rapidly worsening inflation. Despite its
strengths, which include a well-balanced natural resource base and a high lit-
eracy rate, the Argentine economy failed to respond to a series of economic
plans in the 1980's. The 1991 economic plan represented a pronounced departure
from its predecessors in calling for raising revenues, cutting expenditures and
reducing the public deficit. The extensive privatization program commenced in
1989 was accelerated, the domestic economy deregulated and opened up to foreign
trade and the frame-work for foreign investment reformed. As a result of the
economic stabilization reforms, gross domestic product increased for four con-
secutive years before declining in 1995. By the second quarter of 1996, howev-
er, gross domestic product had increased 4.8% from the second quarter of 1995
and preliminary data for the third quarter of 1996 indicate a 6.6% increase
from the third quarter of 1995. The rate of inflation is generally viewed to be
under control.

Significant progress was also made between 1991 and 1994 in rescheduling Argen-
tina's debt with both external and domestic creditors, which improved fiscal
cash flows in the medium terms and allowed a return to voluntary credit mar-
kets. Further reforms are currently being implemented in order to sustain and
continue the progress to date. There is no assurance that Argentina's economic
policy initiatives will be successful or that succeeding administrations will
continue these initiatives.

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

In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by foreign exchange reserves, in an effort
to make the Argentine Peso fully convertible into the U.S. Dollar at a rate of
one to one.

The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been instrumen-
tal in stabilizing the economy, but has not reduced pressures from a slow-
growth economy and record unemployment. It is not clear that the government
will be able to resist pressure to devalue the currency. However, the historic
range is not necessarily indicative of fluctuations that may occur in the ex-
change rate over time and future rates of exchange cannot be accurately pre-
dicted. The Argentine foreign exchange market was highly controlled until De-
cember 1989, when a free exchange rate was established for all foreign currency
transactions. Argentina has eliminated restrictions on foreign direct invest-
ment and capital repatriation. On September 8, 1993, legislation was adopted
abolishing previous requirements of a three-year waiting period for capital re-
patriation. Under the new legislation, foreign investors will be permitted to
remit profits at any time.

33
<PAGE>

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

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

Risks of Investments in Foreign Securities. Investing in securities issued by
foreign governments involves considerations and possible risks not typically
associated with investing in U.S. Government Securities. For a description of
certain risks associated with investing in foreign securities, see "Other In-
vestment Policies and Techniques -- Foreign Securities," below.

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

Currency Risks. Because Portfolio assets will be invested in fixed income se-
curities denominated in the Canadian Dollar, the Mexican Peso and other for-
eign currencies and because a substantial portion of the Portfolio's revenues
will be received in currencies other than the U.S. Dollar, the U.S. Dollar
equivalent of the Portfolio's net assets and distributions will be adversely
affected by reductions in the value of certain foreign currencies relative to
the U.S. Dollar. These changes will also affect the Portfolio's income. If the
value of the foreign currencies in which the Portfolio receives income falls
relative to the U.S. Dollar between receipt of the income and the making of
Portfolio distributions, the Portfolio may be required to liquidate securities
in order to make distributions if the Portfolio has insufficient cash in U.S.
Dollars to meet the distribution requirements that the Portfolio must satisfy
to qualify as a regulated investment company for federal income tax purposes.
Simi-

34
<PAGE>

larly, if an exchange rate declines between the time the Portfolio incurs ex-
penses in U.S. Dollars and the time cash expenses are paid, the amount of the
currency required to be converted into U.S. Dollars in order to pay expenses
in U.S. Dollars could be greater than the equivalent amount of such expenses
in the currency at the time they were incurred. In light of these risks, the
Portfolio may engage in certain currency hedging transactions, which them-
selves involve certain special risks. See "Other Investment Policies and Tech-
niques -- Hedging Techniques."

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

The Global Dollar Government Portfolio's primary investment objective is to
seek a high level of current income. Its secondary investment objective is
capital appreciation. In seeking to achieve these objectives, the Portfolio
will invest at least 65% of its total assets in fixed income securities issued
or guaranteed by foreign governments, including participations in loans be-
tween foreign governments and financial institutions, and interests in enti-
ties organized and operated for the purpose of restructuring the investment
characteristics of instruments issued or guaranteed by foreign governments
("Sovereign Debt Obligations"). The Portfolio's investments in Sovereign Debt
Obligations will emphasize obligations of a type customarily referred to as
"Brady Bonds," that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon obliga-
tions issued by the U.S. government, its agencies or instrumentalities ("Col-
lateralized Brady Bonds"). The Portfolio may also invest up to 35% of its to-
tal assets in U.S. and non-U.S. corporate fixed income securities. The Portfo-
lio will limit its investments in Sovereign Debt Obligations and U.S. and non-
U.S. corporate fixed income securities to U.S. dollar denominated securities.
The Adviser expects that, based upon current market conditions, the Fund's
portfolio of U.S. fixed-income securities will have an average maturity range
of approximately nine to 15 years and the Fund's portfolio of non-U.S. fixed-
income securities will have an average maturity range of approximately 15 to
25 years. The Adviser anticipates that the 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.
corporate fixed income securities, the Fund will emphasize investments in
countries that are considered emerging market countries at the time of pur-
chase. As used in this Prospectus, an "emerging market country" is any country
that is considered to be an emerging or developing country by the
International Bank for Reconstruction and Development (commonly referred to as
the "World Bank"). The Portfolio anticipates that a substantial part of its
initial investment focus will be in the U.S. dollar denominated securities or
obligations of Argentina, Brazil, Mexico, Morocco, the Philippines and Venezu-
ela because these countries are now, or are expected by the Adviser at a fu-
ture date to be, the principal participants in debt restructuring programs
(including, in the case of Argentina, Mexico, the Philippines and Venezuela,
issuers of currently outstanding Brady Bonds) that, in the Adviser's opinion,
will provide the most attractive investment opportunities for the Portfolio.
See Appendix E to the Fund's Statement of Additional Information for informa-
tion

35
<PAGE>

about those six countries. The Adviser anticipates that other countries that
will provide initial investment opportunities for the Portfolio include, among
others, Bolivia, Costa Rica, the Dominican Republic, Ecuador, Nigeria, Panama,
Peru, Poland, Thailand, Turkey and Uruguay. See "Brady Bonds" below.

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

In selecting and allocating assets among countries, the Adviser will develop a
long-term view of those countries and will analyze sovereign risk by focusing
on factors such as a country's public finances, monetary policy, external ac-
counts, financial markets, stability of exchange rate policy and labor condi-
tions. In selecting and allocating assets among corporate issues within a given
country, the Adviser will consider the relative financial strength of issues
and expects to emphasize investments in securities of issuers that, in the Ad-
viser's opinion, are undervalued within each market sector. The Portfolio is
not required to invest any specified minimum amount of its total assets in the
securities or obligations of issues located in any particular country.

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

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

A substantial portion of the Portfolio's investments will be in (i) securities
which were initially issued at discounts from their

36
<PAGE>

face values ("Discount Obligations") and (ii) securities purchased by the Port-
folio 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 "origi-
nal issue discount" previously accrued thereon, i.e., purchased at a "market
discount." Under current federal tax law and in furtherance of its primary in-
vestment objective 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
Portfolio does not receive during the year cash interest payments on the obli-
gation corresponding to the accrued discount. Under the minimum distribution
requirements of the Code, the Portfolio may be required to pay out as an income
distribution each year an amount significantly greater than the total amount of
cash interest the Portfolio has actually received as interest during the year.
Such distributions will be made from the cash assets of the Portfolio, from
borrowings or by liquidation of portfolio securities, if necessary. The risks
associated with holding illiquid may be accentuated at such times. The Portfo-
lio believes, however, that it is highly unlikely that it would be necessary to
liquidate portfolio securities in order to make such required distributions 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 adjusted
at regular intervals thereafter. Certain Brady Bonds are entitled to "value re-
covery payments" in certain circumstances, which in effect constitute supple-
mental interest payments but generally are not collateralized. Brady Bonds are
often viewed as having three or four valuation components: (i) the collateral-
ized repayment of principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to Collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obliga-

37
<PAGE>

tions held as collateral for the payment of principal will not be distributed
to investors, nor will such obligations be sold and the proceeds distributed.
The collateral will be held by the collateral agent to the scheduled maturity
of the defaulted Brady Bonds, which will continue to be outstanding at which
time the face amount of the collateral will equal the principal payments which
would have then been due on the Brady Bonds in the normal course. In addition,
in light of the residual risk of Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by public and pri-
vate entities of countries issuing Brady Bonds, investments in Brady Bonds are
to be viewed as speculative.

Structured Securities. The Portfolio may invest up to 25% of its total assets
in interests in entities organized and operated solely for the purpose of re-
structuring the investment characteristics of Sovereign Debt Obligations. This
type of restructuring involves the deposit with or purchase by an entity, such
as a corporation or trust, of specified instruments (such as commercial bank
loans or Brady Bonds) and the issuance by that entity of one or more classes
of securities ("Structured Securities") backed by, or representing interests
in, the underlying instruments. The cash flow on the underlying instruments
may be apportioned among the newly issued Structured Securities to create se-
curities with different investment characteristics such as varying maturities,
payment priorities and interest rate provisions, and the extent of the pay-
ments made with respect to Structured Securities is dependent on the extent of
the cash flow on the underlying instruments. Because Structured Securities of
the type in which the Portfolio anticipates it will invest typically involve
no credit enhancement, their credit risk generally will be equivalent to that
of the underlying instruments.

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

Certain issuers of Structured Securities may be deemed to be "investment
companies" as defined in the 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
princi-

38
<PAGE>

pal business activities in the same industry (i.e., foreign government). The
Portfolio's investment in Participations typically will result in the Portfo-
lio having a contractual relationship only with the Lender and not with the
borrower. The Portfolio will acquire Participations only if the Lender
interpositioned between the Portfolio and the borrower is a Lender having to-
tal assets of more than $25 billion and whose senior unsecured debt is rated
investment grade or higher (i.e., Baa or higher by Moody's or BBB or higher by
S&P).

When the Portfolio purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential assign-
ors, however, the rights and obligations acquired by the Portfolio as the pur-
chaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. The assignability of certain Sovereign Debt Obliga-
tions is restricted by the governing documentation as to the nature of the as-
signee such that the only way in which the Portfolio may acquire an interest
in a Loan is through a Participation and not an Assignment. The Portfolio may
have difficulty disposing of Assignments and Participations because to do so
it will have to assign such securities to a third party. Because there is no
liquid market for such securities, the Portfolio anticipates that such securi-
ties could be sold only to a limited number of institutional investors. The
lack of a liquid secondary market may have an adverse impact on the value of
such securities and the Portfolio's ability to dispose of particular Assign-
ments or Participations when necessary to meet the Portfolio's liquidity needs
in response to a specific economic event such as a deterioration in the cred-
itworthiness of the borrower. The lack of a liquid secondary market for As-
signments and Participations also may make it more difficult for the Portfolio
to assign a value to these securities for purposes of valuing the Portfolio's
portfolio and calculating its net asset value.

U.S. and Non-U.S. Corporate Fixed Income Securities. U.S and non-U.S. corpo-
rate fixed income securities include debt securities, convertible securities
and preferred stocks of corporate issuers. Differing yields on 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 pol-

39
<PAGE>

icies. During the Fund's fiscal year ended December 31, 1996, on a weighted
average basis, 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 8% in A and above, 8% in Ba
or BB, 4% in B, 1% in CC and 79% in non-rated. See "Certain Risk Considera-
tions" for a discussion of the risks associated with the Portfolio's invest-
ments in U.S. and non-U.S. corporate fixed income securities.

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

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

40
<PAGE>

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

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

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

Short Sales. The Portfolio may make short sales of securities or maintain a
short position only for the purpose of deferring realization of gain or loss
for U.S. federal income tax purposes, provided that at all times when a short
position is open the Portfolio owns an equal amount of such securities of the
same issue as, and equal in amount to, the securities sold short. In addition,
the Portfolio may not make a short sale if more than 10% of the Portfolio's
net assets (taken at market value) is held as collateral for short sales at
any one time. If the price of the security sold short increases 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."

41
<PAGE>

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

Sovereign Debt Obligations. No established secondary markets may exist for
many of the Sovereign Debt Obligations in which the Portfolio will invest. Re-
duced secondary market liquidity may have an adverse effect on the market
price and the Portfolio's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to specific eco-
nomic events such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain Sovereign Debt Obligations may
also make it more difficult for the Portfolio to obtain accurate market quota-
tions for purpose of valuing its portfolio. Market quotations are generally
available on many Sovereign Debt Obligations only from a limited number of
dealers and may not necessarily represent firm bids of those dealers or prices
for actual sales.

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

The Sovereign Debt Obligations in which the Portfolio will invest in most
cases pertain to countries that are among the world's largest debtors to com-
mercial banks, foreign governments, international financial organizations and
other financial institutions. In recent years, the governments of some of
these countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructur-
ing of certain 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 coun-

42
<PAGE>

try develops a trade deficit, it will need to depend on continuing loans from
foreign governments, multilateral organizations or private commercial banks,
aid payments from foreign governments and on inflows of foreign investment.
The access of a country to these forms of external funding may not be certain,
and a withdrawal of external funding could adversely affect the capacity of a
government to make payments on its obligations. In addition, the cost of ser-
vicing debt obligations can be affected by a change in international interest
rates since the majority of these obligations carry interest rates that are
adjusted periodically based upon international rates.

The Portfolio is permitted to invest in Sovereign Debt Obligations that are
not current in the payment of interest or principal or are in default, so long
as the Adviser believes it to be consistent with the Portfolio's investment
objectives. The Portfolio may have limited legal recourse in the event of a
default with respect to certain Sovereign Debt Obligations it holds. For exam-
ple, remedies from defaults on certain Sovereign Debt Obligations, unlike
those on private debt, must, in some cases, be pursued in the courts of the
defaulting party itself. Legal recourse therefore may be significantly dimin-
ished. Bankruptcy, moratorium and other similar laws applicable to issuers of
Sovereign Debt Obligations may be substantially different from those applica-
ble to issuers of private debt obligations. The political context, expressed
as the willingness of an issuer of Sovereign Debt Obligations to meet the
terms of the debt obligation, for example, is of considerable importance. In
addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of securities issued by foreign gov-
ernments in the event of default under commercial bank loan agreements.

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

UTILITY INCOME PORTFOLIO

The Utility Income Portfolio's investment objective is to seek current income
and capital appreciation by investing primarily in equity and fixed-income se-
curities of companies in the utilities industry. The Portfolio may invest in
securities of both United States and foreign issuers, although no more than
15% of the Portfolio's total assets will be invested in issuers in any one
foreign country. The utilities industry consists of companies engaged in (i)
the manufacture,

43
<PAGE>

production, generation, provision, transmission, sale and distribution of gas
and electric energy, and communications equipment and services, including tel-
ephone, telegraph, satellite, microwave and other companies providing communi-
cation facilities for the public, or (ii) the provision of other utility or
utility-related goods and services, including, but not limited to, entities
engaged in water provision, cogeneration, waste disposal system provision,
solid waste electric generation, independent power producers and non-utility
generators. As a matter of fundamental policy, the Portfolio will, under nor-
mal circumstances, invest at least 65% of the value of its total assets in se-
curities of companies in the utilities industry. The Portfolio considers a
company to be in the utilities industry if, during the most recent twelve
month period, at least 50% of the company's gross revenues, on a consolidated
basis, is derived from its utilities activities. At least 65% of the Portfo-
lio's total assets are to be invested in income-producing securities.

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

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

The Portfolio may maintain up to 35% of its net assets in fixed-income securi-
ties rated be-

44
<PAGE>

low Baa by Moody's or below BBB by S&P or Fitch Investors Service, Inc.
("Fitch") or, if not rated, 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," "--Investment in Lower-Rated
Fixed-Income Securities" and Appendix A. The Portfolio will not retain a secu-
rity which is down-graded below B, or if unrated, determined by the Adviser to
have undergone similar credit quality deterioration subsequent to purchase.

Convertible Securities. Utilities frequently issue convertible securities. Con-
vertible securities include bonds, debentures, corporate notes and preferred
stocks that are convertible at a stated exchange rate into common stock. Prior
to their conversion, convertible securities have the same general character-
istics as non-convertible debt securities, which provide a stable stream of in-
come with generally higher yields than those of equity securities of the same
or similar issuers. As with all debt securities, the market value of convert-
ible securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. While convertible securities generally of-
fer lower interest or dividend yields than non-convertible debt securities of
similar quality, they do enable the investor to benefit from increases in the
market price of the underlying common stock. The Portfolio may invest up to 30%
of its net assets in the convertible securities of companies whose common
stocks are eligible for purchase by the Portfolio under the investment policies
described above.

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

UTILITIES INDUSTRY

United States Utilities. The United States utilities industry has experienced
significant changes in recent years. Electric utility companies in general have
been favorably affected by lower fuel costs, the full or near completion of ma-
jor construction programs and lower financing costs. In addition, many utility
companies have generated cash flows in excess of current operating expenses and
construction expenditures, permitting some degree of diversification into un-
regulated businesses. Some electric utilities have also taken advantage of the
right to sell power outside of their historical territories. At this time,
there are certain institutional impediments to the wide-scale deregulation of
electric utilities, including among other things, limitations on the redistri-
bution of power. The Adviser believes, however, that recent developments, in-
cluding the enactment of the Energy Policy Act of 1992, may alleviate certain
existing restrictions.

Electric utilities that use coal in connection with the production of electric
power are particularly susceptible to environmental regulation, including the
requirements of the federal Clean Air Act and of similar state laws. Such regu-
lation may necessitate large capital expenditures in order for the utility to
achieve compliance. Due to the

45
<PAGE>

public, regulatory and governmental concern with the cost and safety of nuclear
power facilities in general, certain electric utilities with uncompleted nu-
clear power facilities may have problems completing and licensing such facili-
ties. Regulatory changes with respect to nuclear and conventionally fueled gen-
erating facilities could increase costs or impair the ability of such electric
utilities to operate such facilities, thus reducing their ability to service
dividend payments with respect to the securities they issue. Electric utilities
that utilize nuclear power facilities must apply for recommissioning from the
Nuclear Regulatory Commission after 40 years. Failure to obtain recommissioning
could result in an interruption of service or the need to purchase more expen-
sive power from other entities, and could subject the utility to significant
capital construction costs in connection with building new nuclear or
alternative-fuel power facilities, upgrading existing facilities or converting
such facilities to alternative fuels.

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

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

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

Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs on borrowings needed for
capital construction programs, costs associated with compliance with environ-
mental and nuclear safety regulations, service interruption due to environmen-
tal, operational or other mishaps,

46
<PAGE>

the effects of economic slowdowns, surplus capacity, competition and changes in
the regulatory climate. In particular, regulatory changes with respect to nu-
clear and conventionally fueled generating facilities could increase costs or
impair the ability of utility companies to operate such facilities, thus reduc-
ing utility companies' earnings or resulting in losses. There can also be no
assurance that regulatory policies or accounting standard changes will not neg-
atively affect utility companies' earnings or dividends. Utility companies are
subject to regulation by various authorities and may be affected by the imposi-
tion of special tariffs and changes in tax laws. To the extent that rates are
established or reviewed by governmental authorities, utility companies are sub-
ject to the risk that such authorities will not authorize increased rates. In
addition, because of the Portfolio's policy of concentrating its investments in
securities of utility companies, the Portfolio may be more susceptible than an
investment company without such a policy to any single economic, political or
regulatory occurrence affecting the utilities industry. Under market conditions
that are unfavorable to the utilities industry, the Adviser may significantly
reduce the Portfolio's investment in that industry.

The average common stock yield of utilities historically has exceeded that of
industrial stocks by a wide margin. For example, the stocks in the Standard &
Poor's Utilities index had an average yield of 4.97% for 1996, more than twice
the 1.93% average yield for the stocks in the Standard & Poor's Industrials in-
dex. As the dividends on utility common stocks have increased, average total
returns experienced by investors in utility stocks over the last ten years have
been superior to those provided by industrial stocks when measured by such
widely accepted indexes as Standard & Poor's. There can be no assurance that
the historical investment performance for any industry, including the utilities
industry, is indicative of future performance.

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

The Portfolio's investment policies are designed to enable it to capitalize on
evolving investment opportunities throughout the world. For example, the rapid
growth of certain foreign economies will necessitate expansion of capacity in
the utility industries in those countries. Although many foreign utility compa-
nies currently are government-owned, thereby limiting current investment oppor-
tunities for the Portfolio, the Adviser believes that, in order to attract sig-
nificant

47
<PAGE>

capital for growth, some foreign governments may engage in a program of
privatization of their utilities industry, and that the securities issued by
privatized utility companies may offer attractive investment opportunities
with the potential for long-term growth.

Privatization, which refers to the trend toward investor ownership, rather
than government ownership, of assets is expected to occur both in newer, fast-
er-growing economies and in mature economies. In addition, efforts toward mod-
ernization in Eastern Europe, as well as the potential of economic unification
of European markets, in the view of the Adviser, may improve economic growth,
reduce costs and increase competition in Europe, which could result in oppor-
tunities for investment by the Portfolio in utilities industries in Europe.
There can be no assurance that securities of privatized companies will be of-
fered to the public or to foreign companies such as the Portfolio, or that in-
vestment opportunities in foreign markets for the Portfolio will increase for
this or other reasons.

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

OTHER SECURITIES

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

U.S. Government Securities. U.S. Government Securities include: (i) U.S. Trea-
sury obligations, which differ only in their interest rates, maturities and
times of issuance: U.S. Treasury bills (maturity of one year or less), U.S.
Treasury notes (maturities of one to 10 years), and U.S. Treasury bonds (gen-
erally

48
<PAGE>

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 guaran-
teed by U.S. Government agencies or instrumentalities, including government
guaranteed mortgage-related securities. Some such obligations are backed by
the full faith and credit of the U.S. Treasury, e.g., direct pass-through cer-
tificates of the Government National Mortgage Association, some 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 are backed only by the credit of
the issuer itself, e.g., obligations of the Student Loan Marketing Associa-
tion. See Appendix A to the Statement of Additional Information for a further
description of obligations issued or guaranteed by U.S. Government agencies or
instrumentalities.

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

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

In addition to purchasing corporate securities of foreign issuers in foreign
securities markets, the Portfolio may invest in American Depositary Receipts
(ADRs), Global Depositary Receipts (GDRs) and other types of Depository Re-
ceipts (which, together with ADRs and GDRs, are hereinafter referred to as
"Depositary Receipts"). Depositary Receipts may not necessarily be denominated
in the same currency as the underlying securities into which they may be con-
verted. In addition, the issuers of the stock of unsponsored Depositary Re-
ceipts are not obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such information and
the market value of the Depositary Receipts. ADRs are Depositary Receipts typ-
ically issued by a United States bank or trust company which evidence owner-
ship of underlying securities issued by a foreign corporation. GDRs and other
types of Depositary Receipts are typically issued by foreign banks or trust
companies, although they

49
<PAGE>

also may be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United
States corporation. Generally, Depositary Receipts in registered form are de-
signed for use in the U.S. securities markets and Depositary Receipts in
bearer form are designed for use in foreign securities markets. For purposes
of the Portfolio's investment policies, the Portfolio's investments in ADRs
will be deemed to be investments in securities issued by United States issuers
and the Portfolio's investments in GDRs and other types of Depositary Receipts
will be deemed to be investments in the underlying securities.

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

INVESTMENT PRACTICES

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

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

50
<PAGE>

tion only for the purpose of deferring realization of gain or loss for U.S.
federal income tax purposes, provided that at all times when a short position
is open the Portfolio owns an equal amount of such securities of the same issue
as, and equal in amount to, the securities sold short. In addition, the Portfo-
lio may not make a short sale if more than 10% of the Portfolio's net assets
(taken at market value) is held as collateral for short sales at any one time.
If the price of the security sold short increases between the time of the short
sale and the time the Portfolio replaces the borrowed security, the Portfolio
will incur a loss; conversely, if the price declines, the Portfolio will real-
ize a capital gain.

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

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 se-
curities are expected to vary inversely with changes in interest rates general-
ly, 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 description of the
ratings referred to above, see Appendix A. For temporary defensive purposes,
the Portfolio may invest in money market instruments and repurchase agreements.

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

The value of foreign investments measured in U.S. dollars will rise or fall be-
cause of decreases or increases, respectively, in the value of the U.S. dollar
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 foreign
currencies, foreign currency futures contracts (and related options) and deal
in forward foreign currency exchange contracts in connection with the purchase
and sale of foreign investments. For a description of certain risks associated
with in-

51
<PAGE>

vesting in foreign securities, see "Other Investment Policies and Tech-
niques -- 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 Portfolio), the Portfolio will not be
obligated to dispose of such security and may continue to hold the obligation
if, in the opinion of the Adviser, such investment is considered appropriate
in the circumstances.

Convertible Securities. 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

52
<PAGE>

degree with changes in the price of the underlying stock although in some mar-
ket conditions the higher yield tends to make the convertible security less
volatile than the underlying common stock. In addition, the price of the con-
vertible security will also vary to some degree inversely with interest rates.
Convertible debt securities that are rated below BBB (S&P) or Baa (Moody's) or
comparable unrated securities as determined by the Adviser may share some or
all of the risks of high-yield securities. For a description of these risks,
see "Investments in High-Yield Securities" above.

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

Futures and Options. The Portfolio may buy and sell stock index futures con-
tracts ("index futures") and may buy options on index futures and on stock in-
dices for hedging purposes. The Portfolio may buy and sell call and put op-
tions on index futures or on stock indices in addition to, or as an alterna-
tive to, purchasing or selling index futures or, to the extent permitted by
applicable law, to earn additional income. The Portfolio may also, for hedging
purposes, purchase and sell futures contracts, options thereon and options
with respect to the U.S. Treasury securities, including U.S. Treasury bills,
notes and bonds. The Portfolio may also seek to increase its current return by
writing covered call and put options on securities its owns or in which it may
invest.

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

53
<PAGE>

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 assets.
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 Port-
folio 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 se-
curities 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 assets
in equity securities that are issued by enterprises that are undergoing, or
that have undergone, privatization as described below, although normally, sig-
nificantly more of the Portfolio's total assets will be invested in such secu-
rities. The balance of the Portfolio's investment portfolio will include secu-
rities of companies that are believed by the Adviser to be beneficiaries of the
privatization process. Equity securities include common stock, preferred stock,
rights or warrants to subscribe for or purchase common or preferred stock, se-
curities (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 Western
Europe and Scandinavia, Australia, New Zealand, Latin America, Asia and Eastern
and Central Europe and, to a lesser degree, Canada and the United States.

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 "initial
equity offering"). Secondly, the Portfolio may invest in the securities of a
current or former state enterprise following its initial equity offering, in-
cluding 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 eq-
uity interests in joint ventures, cooperatives or partnerships. In the opinion
of the Adviser, substantial potential for appreciation in the value of equity
securities of an enterprise undergoing or following privatization exists as the
enterprise rationalizes its management structure, operations and business
strategy to position itself to compete efficiently in a market economy, and the
Portfolio will seek to emphasize investments in the equity securities of such
enterprises.

The Portfolio intends to spread its portfolio investments among the capital
markets of a

54
<PAGE>

number of countries and, under normal market conditions, will invest in the
equity securities of issuers based in at least four, and normally considerably
more, countries. The percentage of the Portfolio's assets invested 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 securi-
ties. There is no restriction, however, on the percentage of the Portfolio's
assets that may be invested in countries within any one region of the world.
To the extent that the Portfolio's assets are invested within any one region,
the Portfolio may be subject to any special risks that may be associated with
that region. Notwithstanding the foregoing, no more than 15% of the Portfo-
lio's total assets will be invested in securities of issuers in any one for-
eign country, except that the Portfolio may invest up to 30% of its total as-
sets in securities of issuers in any one of France, Germany, Great Britain,
Italy and Japan.

Privatization is a process through which the ownership and control of compa-
nies or assets changes in whole or in part from the public sector to the pri-
vate sector. Through privatization a government or state divests or transfers
all or a portion of its interest in a state enterprise to some form of private
ownership. In contrast, nationalization is the process through which a govern-
ment or state assumes control of a privately owned enterprise. Privatizations
may take the form of individually negotiated transactions, including trade
sales or management buy-outs, or an offering of equity securities. Governments
and states with established economies, including, among others, France, Great
Britain, Germany and Italy, and those with developing economies, including,
among others, Argentina, Mexico, Chile, Indonesia, Malaysia, Poland and Hunga-
ry, are currently engaged in privatizations. The Portfolio will invest in the
securities of enterprises, in any country, that in the Adviser's opinion pre-
sent attractive investment opportunities, and the countries in which the Port-
folio will invest may change from time to time. It is the Adviser's intention
to invest approximately 70% of the Portfolio's total assets in securities of
enterprises located in countries with established economies and the remainder
of the Portfolio's assets in securities of enterprises located in countries
with developing economies.

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

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

55
<PAGE>

the potential for significant managerial and operational efficiency gains,
which, among other factors, can increase their earnings due to the re-
structuring that accompanies privatization and the incentives management fre-
quently 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 employees and
citizens that, with the assistance of international managers, operates one or
many state enterprises for a set term, after which the government may divest
itself of its remaining interest. Foreign investors are often permitted to be-
come minority shareholders of these investment funds. In less gradual
privatizations, state enterprises are auctioned to qualified investors through
competitive bidding processes in private transactions. Alternatively, equity
offerings may be made directly through the local and international securities
markets.

56
<PAGE>

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 total assets in debt securities and convertible debt securities
of issuers whose common stocks are eligible for purchase by the Portfolio un-
der the investment policies described above. Debt securities include bonds,
debentures, corporate notes and preferred stocks. Convertible debt securities
are such instruments that are convertible at a stated exchange rate into com-
mon stock. Prior to their conversion, convertible securities have the same
general characteristics as non-convertible debt securities which provide a
stable stream of income with generally higher yields than those of equity se-
curities of the same or similar issuers. The market value of debt securities
and convertible

57
<PAGE>

debt securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. While convertible securities generally of-
fer lower interest yields than non-convertible debt securities of similar qual-
ity, 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 currency swaps are individ-
ually negotiated, the Portfolio expects to achieve an acceptable degree of cor-
relation between its portfolio investments and its currency 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 exchange for the other desig-
nated currency. Therefore the entire principal value of a currency swap is sub-
ject to the risk that the other party to the swap will default on its contrac-
tual delivery obligations. The net amount of the excess, if any, of the Portfo-
lio's obligations over its entitlements with respect to each currency swap will
be accrued on a daily basis and an amount of

58
<PAGE>

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 unless the credit quality of the unsecured senior debt or the claims-pay-
ing ability of the other party thereto is rated in the highest rating category
of at least one nationally recognized rating organization at the time of enter-
ing into the transaction. If there is a default by the other party to such a
transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transactions.

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

Most state enterprises or former state enterprises go through an internal
reorganiza-

59
<PAGE>

tion of management prior to mailing an initial equity offering in an attempt to
better enable these enterprises to compete in the private sector. However, cer-
tain reorganizations could result in a management team that does not function
as well as the enterprise's prior management and may have a negative effect on
such enterprise. After making an initial equity offering enterprises which may
have enjoyed preferential treatment from the respective state or government
that owned or controlled them may no longer receive such preferential treatment
and may become subject to market competition from which they were previously
protected. Some of these enterprises may not be able to effectively operate in
a competitive market and may suffer losses or experience bankruptcy due to such
competition. In addition, the privatization of an enterprise by its government
may occur over a number of years, with the government continuing to hold a con-
trolling 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 cer-
tain 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 distribu-
tions, the Portfolio may be required to liquidate securities in order to make
distributions if the Portfolio has insufficient cash in U.S. dollars to meet
distribution requirements. Similarly, if an exchange rate declines between the
time the Portfolio incurs expenses in U.S. dollars and the time cash expenses
are paid, the amount of the currency required to be converted into U.S. dollars
in order to pay expenses in U.S. dollars could be greater than the equivalent
amount of such expenses in the currency at the time they were incurred. In
light of these risks, the Portfolio may engage in certain currency hedging
transactions, which themselves involve certain special risks. See "Other
Investment Policies and Techniques -- Hedging Techniques."

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

TECHNOLOGY PORTFOLIO

The Technology Portfolio is a diversified investment portfolio that emphasizes
growth of capital and invests for capital appreciation, and only incidentally
for current income. The Portfolio invests primarily in securities of companies
expected to benefit from technological advances and improvements (i.e., compa-
nies that use technology extensively in the development of new or improved
products or processes). The Portfolio will normally have at least 80% of its
assets invested in the securities of these companies. The Portfolio normally
will have substantially all its assets invested in equity

60
<PAGE>

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 foreign 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 total assets or more than 10% of the Port-
folio'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

61
<PAGE>

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 a Portfolio in negotiated transactions are il-
liquid and it may not be possible for the Portfolio to effect a closing trans-
action at a time when the Adviser believes it would be advantageous to do so.
See "Illiquid Securities." See Appendix D in the Statement of Additional In-
formation for a further discussion of the use, risks and costs of option trad-
ing.

The Technology Portfolio may purchase and sell exchange-traded options on any
securities index composed of the types of securities in which it may invest.
An option on a securities index is similar to an option on a security except
that, rather than the right to take or make delivery of a security at a speci-
fied price, an option on a securities index gives the holder the right to re-
ceive, upon exercise of the option, an amount of cash if the closing level of
the chosen index is greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option.

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

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

QUASAR PORTFOLIO

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

The Portfolio invests in any company and industry and in any type of security
with potential for capital appreciation. It invests in well-known and estab-
lished companies and in new and unseasoned companies. When se-

62
<PAGE>

lecting securities, the Adviser considers economic and Political outlook, the
values of specific securities relative to other investments, trends in the de-
terminants 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.

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

63
<PAGE>

during periods when market prices of the underlying securities appreciate.

The Portfolio will not write a call option if, as a result, the aggregate of
the Portfolio's securities subject to outstanding call options (valued at the
lower of the option price or market value of such securities) would exceed 15%
of the Portfolio's total assets or more than 10% of the Portfolio's assets
would be committed to all options that at time of sale have a remaining term
of more than 100 days. The aggregate cost of all outstanding options purchased
and held by the Portfolio will at no time exceed 10% of the Portfolio's total
assets.

Short Sales. The Portfolio may only make short sales of securities "against
the box". A short sale is effected by selling a security that the Portfolio
does not own, or if the Portfolio does own such security, it is not to be 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 issuers that
are primarily engaged in or related to the real estate industry.

64
<PAGE>

which the Portfolio will invest for this purpose consist of common stock,
shares of beneficial interest of REITs and securities with common stock char-
acteristics, such as preferred stock or convertible securities ("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
derive income primarily from the collection of rents. Equity REITs can also
realize capital gains by selling properties that have appreciated in value.
Mortgage REITs invest the majority of their assets in real estate mortgages
and derive income from the collection of interest payments. Similar to invest-
ment companies such as the Portfolio, REITs are not taxed on income distrib-
uted to shareholders provided they comply with several requirements of the In-
ternal Revenue Code of 1986, as amended ("the Code"). The Portfolio will indi-
rectly bear its proportionate share of expenses incurred by REITs in

65
<PAGE>

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 Securities. The
Portfolio's research and investment process is designed to identify those com-
panies with strong property fundamentals and strong management teams. This
process is comprised of real estate market research, specific property inspec-
tion and securities analysis.

The universe of property-owning real estate industry firms consists of approxi-
mately 115 companies of sufficient size and quality to merit consideration for
investment by the Portfolio. In implementing the Portfolio's research and in-
vestment 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 approx-
imately 9,000 properties owned by these companies. Using proprietary databases
and algorithms, Koll analyzes local market rent, expense and occupancy trends,
market specific transaction pricing, demographic and economic trends, and lead-
ing indicators of real estate supply such as building permits. Over 300 asset-
type specific geographic markets are analyzed and ranked on a relative scale by
Koll in compiling its REIT . Score database. The relative attractiveness of
these real estate industry companies is similarly ranked based on the composite
rankings of the properties they own. See "Management of the Fund" for more in-
formation about Koll.

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

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

66
<PAGE>

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 assets such as whole loans or
private mortgage pass-through securities. Debt service on CMOs is provided
from payments of principal and interest on collateral of mortgaged assets and
any reinvestment income thereon.

A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property
and other permitted investments. Investors may purchase "regular" and "residu-
al" interest shares of bene-

67
<PAGE>

ficial interest in REMIC trusts although the Portfolio does not intend to in-
vest 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 maintain a short position
but only if at all times when a short position is open not more than 25% of
the Portfolio's net assets (taken at market value) is held as collateral or
placed in a segregated account for such sales; and (viii) invest in illiquid
securities unless, as a result, more than 15% of its net assets would be so
invested.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt secu-

68
<PAGE>

rities, 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 un-
derlying stock, although the higher yield tends to make the convertible secu-
rity less volatile than the underlying common stock. As with debt securities,
the market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. While convertible securities
generally offer lower interest 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.

69
<PAGE>

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
acquire 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 estate
and with the real estate industry in general. These risks include, among oth-
ers: possible declines in the value of real estate; risks related to general
and local economic conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition, prop-
erty taxes and operating expenses; changes in zoning laws; costs resulting from
the clean-up of, and liability to third parties for damages resulting from, en-
vironmental problems; casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations
in rents; and changes in interest rates. To the extent that assets underlying
the Portfolio's 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 Portfolio's
ability to retain its tax status as a regulated investment company. See "Divi-
dends, Distributions and Taxes." Investments by the Portfolio in securities of
companies providing mortgage servicing will be subject to the risks associated
with refinancings and their impact on servicing rights.

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

REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate obliga-
tions can be ex-

70
<PAGE>

pected to rise. Conversely, when interest rates rise, the value of a REIT's
investment in fixed rate obligations can be expected to decline. In contrast,
as interest rates on adjustable rate mortgage loans are reset periodically,
yields on a REIT's investments in such loans will gradually align themselves
to reflect changes in market interest rates, causing the value of such invest-
ments to fluctuate less dramatically in response to interest 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 Securities causes these securities to experience signifi-
cantly greater price and yield volatility than that experienced by traditional
fixed-income securities. Under certain interest rate and prepayment rate sce-
narios, the Portfolio may fail to recoup fully its investment in Mortgage-
Backed Securities notwithstanding 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,

71
<PAGE>

Mortgage-Backed Securities, and adjustable rate mortgage pass-through securi-
ties in particular, may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.

Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps
Credit Rating Co. ("Duff & Phelps") and Fitch Investors Service, Inc. ("Fitch")
are a generally accepted barometer of credit risk. They are, however, subject
to certain limitations from an investor's standpoint. The rating of an issuer
is heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may be varying de-
grees of difference in credit risk of securities within each rating category.

OTHER INVESTMENT POLICIES AND TECHNIQUES

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

REPURCHASE AGREEMENTS

Any Portfolio, except the Total Return Portfolio, Technology Portfolio and the
Quasar Portfolio may enter into agreements pertaining to U.S. Government Secu-
rities or, in the case of the North American Government Income Portfolio, the
Global Dollar Government Portfolio, the Utility Income Portfolio and the Growth
Portfolio, pertaining to the types of securities in which it invests, with mem-
ber banks of the Federal Reserve System or "primary dealers" (as designated by
the Federal Reserve Bank of New York) and, in the case of the Money Market
Portfolio, with State Street Bank and Trust Company, the Fund's Custodian, in
such securities. The Real Estate Investment Portfolio may enter into 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 Government Portfolio, the North American
Government Income Portfolio, the Utility Income Portfolio, the Worldwide
Privatization Portfolio and the Real Estate Investment Portfolio to enter into
repurchase agreements. The North American Government Income Portfolio, the
Utility Income Portfolio and the Real Estate Investment Portfolio currently in-
tend to enter into repurchase agreements only with the Fund's Custodian and
such primary dealers.

A repurchase agreement arises when a buyer purchases a security and simultane-
ously agrees to resell it to the vendor at an agreed-upon future date, normally
one day or a few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon interest rate. Such agreements permit the
Portfolio to keep all of its assets at work while retaining "overnight" flexi-
bility in pursuit of investment of a longer-term nature. Each Portfolio re-
quires continual maintenance for its account in the Federal Reserve/Treasury
Book Entry System of collateral in an amount equal to, or in excess of, the re-
sale price. In the event a vendor defaulted on its repurchase obligation, the
Portfolio might suffer a loss to the extent that the proceeds from the sale of
the collateral were less than the repurchase price. In the event of a vendor's
bankruptcy, the Portfolio might be delayed in, or prevented from, selling the
collateral for its

72
<PAGE>

benefit. The Fund's Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Adviser monitors the
creditworthiness of the dealers with which the Portfolios enter into repur-
chase agreement transactions.

WRITING COVERED CALL OPTIONS

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

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

OPTIONS

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

The purchaser of an option, upon payment of a premium, obtains, in the case of
a put option the right to deliver to the writer of the option, and in the case
of a call option, the right to call upon the writer to deliver, a specified
amount of a security on or before a fixed date at a predetermined price. A
call option written by a Portfolio is "covered" if the Portfolio (i) owns the
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

73
<PAGE>

segregated account by the Fund's Custodian) upon conversion or exchange of
other portfolio securities, or (iii) holds a call on the same security in the
same principal amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call written or
(ii) is greater than the exercise price of the call written if the difference
is maintained by the Portfolio in cash and liquid high-grade debt securities
in a segregated account with the Fund's Custodian. A put option written by a
Portfolio is "covered" if the Portfolio maintains 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 principal amount as the
put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The premium paid by the purchaser
of an option will reflect, among other things, the relationship of the exer-
cise price to the market price and volatility of the underlying security, the
remaining term of the option, supply and demand and interest rates.

A call option is written for cross-hedging purposes if a Portfolio does not
own the underlying security, but seeks to provide a hedge against a decline in
value in another security which the Portfolio owns or has the right to ac-
quire. In such circumstances, the Portfolio collateralizes its obligation un-
der the option (which is not covered) by maintaining in a segregated account
with the Fund's Custodian 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 transaction. See Appendix D to the Statement
of Additional Information. A Portfolio retains the premium received from writ-
ing a put or call option whether or not the option is exercised.

74
<PAGE>

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

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

LOANS OF PORTFOLIO SECURITIES

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

The risks in lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the borrower fail
financially. In determining whether to lend securities to a particular borrow-
er, the Adviser (subject to review by the Directors) will consider all rele-
vant facts and circumstances, including the creditworthiness of the borrower.
While securities are on loan, the borrower will pay the Portfolio any income
earned thereon and the Portfolio may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed upon
amount of income from a borrower who has delivered equivalent collateral. Each
Portfolio will have the right to regain record ownership of loaned securities
to exercise beneficial rights such as voting rights, subscription rights and
rights to dividends, interest or other distributions. Each Portfolio may pay
reasonable finders', administrative and custodial fees in connection with a
loan. The Directors will monitor the lending of securities by each Portfolio.
No more than 30% of the value of the assets (25% in the case of the Worldwide
Privatization Portfolio and the Real Estate Investment Portfolio and 20% in
the case of the Global Bond Portfolio, the North American Government Income
Portfolio and the Utility Income Portfolio) of each Portfolio may be loaned at
any time, nor will a Portfolio lend its port-

75
<PAGE>

folio 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 Bond Portfolio, the
North American Government Income Portfolio, the Global Dollar Government Port-
folio, the Utility Income 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 Portfo-
lio and the Real Estate Investment Portfolio, may invest in listed and un-
listed foreign securities subject to the limitation that the International
Portfolio may invest only in the securities of foreign issuers or U.S. compa-
nies having their principal activities and interests outside the United
States. The other Portfolios of the Fund may invest in foreign securities
without limitation, although the Total Return Portfolio has no intention of so
investing in the future, the Premier Growth Portfolio intends to invest at
least 85% of the value of its total assets in the equity securities of Ameri-
can companies, the Growth and Income Portfolio intends to restrict its invest-
ment in foreign securities to issues of high quality and the Money Market
Portfolio is limited to investing in those foreign securities described above
in "Investment Objectives and Policies -- Money Market Portfolio." The Tech-
nology 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 pur-
chase foreign securities, provided the value of issues denominated in foreign
currency 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 Bond Portfolio, the North
American Government Income Portfolio, the Global Dollar Government Portfolio,
the Utility Income Portfolio and the Worldwide Privatization Portfolio, in-
vests 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 account-
76
<PAGE>

ing, auditing and financial 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 signifi-
cantly, from those applicable to U.S. issuers. In particular, the assets and
profits appearing on the financial statements of a foreign issuer may not re-
flect 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 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. Con-
sequently, financial data may be materially affected by restatements for infla-
tion and may not accurately reflect the real condition of those issuers and se-
curities 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 governmen-
tal 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 contractual obligations and
could be subject to extended settlement periods.

Investment in Japanese Issuers. Investment in securities of Japanese issuers
involves certain considerations not present with investment in securities of
U.S. issuers. As with any investment not denominated in the U.S. Dollar, the
U.S. Dollar value of each Portfolio's investments denominated in the Japanese
Yen will fluctuate with Yen-Dollar exchange rate movements. 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, how-

77
<PAGE>

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

When forward commitment transactions are negotiated, the price, which gener-
ally is expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date, nor-
mally within two months after the transaction, delayed settlements beyond two
months may be negotiated. To the extent a Portfolio sells (i.e., writes) caps
and floors it will maintain in a segregated account with the Fund's Custodian
liquid 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 sub-
ject 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 secu-
rity purchased or, if a sale, the proceeds to be received, in determining its
net asset value. Any unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be cancelled in the
event that the required condition did not occur and the trade was cancelled.

78
<PAGE>

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

A Portfolio's right to receive or deliver a security under a forward commit-
ment may be sold prior to the settlement date, but the Portfolio will enter
into forward commitments only with the intention of actually receiving or de-
livering the securities, as the case may be. If the Portfolio, however,
chooses to dispose of the right to receive or deliver a security subject to a
forward commitment prior to the settlement date of the transaction, it may in-
cur a gain or loss. In the event the other party to a forward commitment
transaction were to default, the Portfolio might lose the opportunity to in-
vest money at favorable rates or to dispose of securities at favorable prices.

STANDBY COMMITMENT AGREEMENTS

The Global Dollar Government Portfolio, Utility Income Portfolio, Worldwide
Privatization Portfolio and the Real Estate Investment Portfolio may from time
to time enter into standby commitment agreements. Such agreements commit a
Portfolio, for a stated period of time, to purchase a stated amount of a secu-
rity which may be issued and sold to the Portfolio at the option of the issu-
er. The price and coupon of the security are fixed at the time of the commit-
ment. At the time of entering into the agreement the Portfolio is paid a com-
mitment fee, regardless of whether or not the security ultimately is issued,
which is typically approximately 0.5% of the aggregate purchase price of the
security which the Portfolio has committed to purchase. Each Portfolio will
enter into such agreements only for the purpose of investing in the security
underlying the commitment at a yield and price which are considered advanta-
geous to the Portfolio and which are unavailable on a firm commitment basis.
Except for the Real Estate Investment Portfolio, none of the Portfolios will
enter into a standby commitment with a remaining term in excess of 45 days.
Each Portfolio will limit its investment in such commitments so that the ag-
gregate purchase price of the securities subject to the commitments will not
exceed 50%, in the cases of the Global Dollar Government Portfolio and the
Worldwide Privatization Portfolio, 25% in the case of the Real Estate Invest-
ment Portfolio, and 20%, in the case of the Utility Income Portfolio, of their
respective assets taken at the time of acquisition of such commitment. The
Portfolios will at all times maintain a segregated account with the Fund's
custodian of 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

79
<PAGE>

less than its purchase price. Since the issuance of the security underlying
the commitment is at the option of the issuer, a Portfolio will bear the risk
of capital loss in the event the value of the security declines and may not
benefit from an appreciation in the value of the security during the commit-
ment period if the issuer decides not to issue and sell the security to the
Portfolio.

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

HEDGING TECHNIQUES

The following hedging techniques are utilized by the Global Bond Portfolio,
the North American Government Income Portfolio and the Utility Income Portfo-
lio. In addition, the High-Yield Portfolio may utilize futures contracts and
options on futures contracts subject to the restrictions disclosed above with
respect to the Portfolio, the Worldwide Privatization Portfolio may utilize
futures contracts and options on futures contracts, options on foreign curren-
cies and forward foreign currency exchange contracts and the Global Dollar
Government Portfolio may utilize interest rate transactions.

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

Indexed Debt Securities. The Portfolios may invest without limitation in debt
instruments that are indexed to certain specific foreign currency exchange
rates. The terms of such securities provide that their principal amount is ad-
justed upwards or downwards (but not below zero) at maturity to reflect

80
<PAGE>

changes in the exchange rate between two currencies while the obligation is
outstanding. A Portfolio will purchase such debt instruments with the currency
in which they are denominated and, at maturity, will receive interest and prin-
cipal 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 a Portfolio to hedge
(or cross-hedge) against a decline in the U.S. Dollar value of investments de-
nominated in foreign currencies while providing an attractive money market rate
of return. A Portfolio will purchase such debt instruments for hedging purposes
only, not for speculation. The staff of the Securities and Exchange Commission
(the "Commission") is currently considering whether the Portfolios' purchase of
this type of security would result in the issuance of a "senior security"
within the meaning of the Act. The Portfolios believe that such investments do
not involve the creation of such a senior security, but nevertheless the Port-
folios have 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 securities having
a value equal to the aggregate principal amount of outstanding commercial paper
of this type.

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

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

The purchaser of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified dollar multi-
ple of the value of the index on the expiration date of

81
<PAGE>

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 a 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 a 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 a Portfolio's securities or
adversely affect the prices of securities which a 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.

A 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. A Portfolio may purchase and write put and call
options on foreign currencies for the purpose of protecting 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 ac-
quired. As in the case of other kinds of options, however, the writing of an
option on a foreign currency constitutes only a partial hedge, up to the
amount of the premium received, and a Portfolio could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incur-
ring losses. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to a Portfolio's position, it may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign cur-
rencies to be written or purchased by a Portfolio are traded on U.S. and for-
eign exchanges or over-the-counter. There is no

82
<PAGE>

specific percentage limitation on a Portfolio's investments in options or on
foreign currencies. See the Fund's Statement of Additional Information for fur-
ther discussion of the use, risks and costs of options on foreign currencies.

Forward Foreign Currency Exchange Contracts. A Portfolio may purchase or sell
forward foreign currency exchange contracts ("forward contracts") to attempt to
minimize the risk to a Portfolio from adverse changes in the relationship be-
tween the U.S. Dollar and foreign currencies. A forward contract is an obliga-
tion 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 posi-
tive change in the relationship between the U.S. Dollar and other currencies.
Unanticipated changes in currency prices may result in poorer overall perfor-
mance for a 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 a Port-
folio's investments from interest rate or currency cross-rate fluctuations, a
Portfolio may enter into various hedging transactions, such as interest rate
swaps and may purchase or sell (i.e. write) interest rate caps and floors. The
Portfolios expect to enter into these transactions primarily to preserve a re-
turn or spread on a particular investment or portion of its portfolio. The
Portfolios may also enter into these transactions to protect against any in-
crease in the price of securities a Portfolio anticipates purchasing at a later
date. The Portfolios do not intend to use these transactions in a speculative
manner. Interest rate swaps involve the exchange by a Portfolio with another
party of their respective commitments to pay or receive interest, e.g., an ex-
change 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 a Portfolio receiving or paying, as the case may be, only the net amount
of the two payments. The purchase of an interest rate cap entitles the purchas-
er, to the extent that a specified index exceeds a predetermined interest rate,
to receive payments on a contractually-based principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate to receive payments on a contractually-based principal amount
from the party selling such interest rate floor.

The Portfolios may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether a Portfolio is hedg-
ing its assets or its liabilities. The net amount of the excess, if any, of a
Portfolio's obligations over its entitlements with respect to each interest
rate swap will be accrued on a daily basis and an amount of liquid assets hav-
ing 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 a Portfolio en-
ters into an interest rate swap on other than a net basis, a Portfolio will
maintain a segregated account with the Fund's

83
<PAGE>

Custodian in the full amount accrued on a daily basis of a Portfolio's obliga-
tions with respect to the swap. The Portfolios will not enter into any inter-
est 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 high-
est rating category of at least one nationally recognized statistical rating
organization at the time of entering into the transaction. The Adviser will
monitor the creditworthiness of counter parties to its interest rate swap, cap
and floor transactions on an ongoing basis. If there is a default by the other
party to such a transaction, a 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 util-
izing 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 de-
veloped and, accordingly, they are less liquid than swaps. To the extent that
a 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 a Portfolio's obligations with respect to the caps or floors.

General. The successful use of the foregoing investment practices draws upon
the Adviser's special skills and experience with respect to such instruments
and usually depends on the Adviser's ability to forecast interest rate and
currency exchange rate movements correctly. Should interest or exchange rates
move in an unexpected manner, a Portfolio may not achieve the anticipated ben-
efits 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 Portfolios' ability to dispose of their positions in futures contracts,
options, 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 a 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

84
<PAGE>

futures contract or currency upon exercise. Therefore, no assurance can be
given that a Portfolio will be able to utilize these instruments effectively
for the purposes set forth above. Furthermore, a Portfolio's ability to engage
in options and futures transactions may be limited by tax considerations.

ILLIQUID SECURITIES

Subject to any more restrictive applicable investment policies, none of the
Portfolios will maintain more than 15% of its net assets in illiquid securi-
ties. For purposes of each Portfolio's investment objectives and policies and
investment restrictions, illiquid securities include, among others, (a) direct
placements or other securities which are subject to legal or contractual re-
strictions on resale or for which there is no readily available market (e.g.,
trading in the security is suspended or, in the case of unlisted securities,
market makers do not exist or will not entertain bids or offers), (b) options
purchased by the Portfolio over-the-counter and the cover for options written
by the Portfolio over-the-counter, and (c) repurchase agreements not 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.

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 Port-
folio's investments will change as the general level of interest rates fluctu-
ates. During periods of falling interest rates, the values of a Portfolio's se-
curities 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 realiza-
tion of capital losses on securities in a Portfolio's portfolio will be un-
avoidable. Moreover, medium- and lower-rated securities and non-rated securi-
ties of comparable quality may be subject to wider fluctuations in yield and
market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the net asset value of a
Portfolio.

Certain debt securities in which the Global Dollar Government Portfolio may in-
vest 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 se-
curities, the Portfolio may be subject to greater risk during periods of de-
clining interest rates.

SECURITIES RATINGS

85
<PAGE>

sarily 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 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 in-
terest 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 addi-
tion, lower-rated securities may be more susceptible to real or perceived ad-
verse economic conditions than investment grade securities, although the market
values of securities rated below investment grade and comparable unrated secu-
rities 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 specu-
lative 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 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 may experience difficulty
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,

86
<PAGE>

and the experience and managerial strength of the issuer.

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

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

NON-RATED SECURITIES

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

NON-DIVERSIFIED STATUS

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

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

87
<PAGE>

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

DEFENSIVE POSITION

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

For temporary defensive purposes, the Global Dollar Government Portfolio may
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-term (for this purpose, securities with a remaining matu-
rity of one year or less) debt securities, including notes and bonds, and
short-term foreign currency denominated debt securities rated A or higher by
S&P or

88
<PAGE>

Moody's or, if not so rated, of equivalent investment quality as determined by
Alliance. For this purpose the Portfolio will limit its investments in foreign
currency denominated debt securities to securities that are denominated in cur-
rencies in which the Portfolio anticipates its subsequent investments will be
denominated.

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

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

PORTFOLIO TURNOVER

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

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

The annual portfolio turnover rate of the Premier Growth Portfolio may be in
excess of 100%. Although the Fund cannot accurately predict its annual portfo-
lio turnover rate, the Adviser does not expect the annual portfolio turnover of
the Growth and Income Portfolio, the Total Return Portfolio, the International
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 capi-
tal 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 turnover rate of the Growth and Income Portfolio may be in ex-
cess of 50% but less than 100%. See "Dividends, Distributions and Taxes."

The High-Yield Portfolio, the U.S. Government/High Grade Securities Portfolio
and the Global Bond Portfolio will actively use trading to benefit from yield
disparities among different issues of fixed-income securities or otherwise to
achieve

89
<PAGE>

their investment objectives and policies. Management anticipates that the an-
nual turnover in the High-Yield Portfolio may be in excess of 200% in future
years (but is not expected to exceed 250%). An annual turnover rate of 200% oc-
curs, for example, when all of the securities in a Portfolio 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 accurately predict its
portfolio turnover rate, it is anticipated that the annual turnover rate for
the U.S. Government/High Grade Securities Portfolio and the Global Bond Portfo-
lio 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 ex-
ample, 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 in-
vestment companies. These Portfolios may be subject to a greater degree of
turnover and, thus, a higher incidence of short-term capital gain taxable as
ordinary income than might be expected from investment companies which invest
substantially all of their funds on a long-term basis and correspondingly
larger mark-up charges can be expected to be borne by the Portfolios. See "Div-
idends, 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 anticipates that the annual turnover in the North
American Government Income Portfolio will not be in excess of 400%. An annual
turnover rate of 400% occurs, for example, when all of the securities in the
Portfolio are replaced four times in a period of one year. Management antici-
pates that the annual turnover in the Utility Income Portfolio will not be in
excess of 200%. An annual turnover rate of 200% occurs, for example, when all
the securities in the Portfolio are replaced twice in a period 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

90
<PAGE>

have deteriorated, irrespective of the length of time that such security has
been held. The Adviser anticipates that the Portfolio's annual rate of portfo-
lio 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%.

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 pe-
riod of one year. A higher rate of portfolio turnover involves correspondingly
greater brokerage and other expenses than a lower rate, which must be borne by
the Portfolio and its shareholders. High portfolio turnover also may result in
the realization of substantial net short-term capital gains. See "Dividends,
Distributions and Taxes."

A high rate of portfolio turnover involves correspondingly greater expenses
than a lower rate, which expenses must be borne by the Portfolio and its share-
holders. High portfolio turnover also may result in the realization of substan-
tial net short-term capital gains. In order to continue to qualify as a regu-
lated 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, Distributions 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 ap-
proval of the shareholders of a Portfolio. Certain of those fundamental invest-
ment policies are set forth below. For a complete listing of such fundamental
investment policies, see the Statement of Additional Information.

Briefly, with respect to the Money Market Portfolio, the Premier Growth Portfo-
lio, the Growth and Income Portfolio, the U.S. Government/High Grade Securities
Portfolio, the High-Yield Portfolio, the Total Return Portfolio and the Inter-
national Portfolio, these fundamental investment policies provide that a Port-
folio 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 a Portfolio may be invested without re-
gard to such 5% limitation; (ii) acquire more than 10% of any class of the out-
standing 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 in-

91
<PAGE>

vestment is made in the securities of issuers conducting their principal busi-
ness activities in any one industry, except that there is no such limitation
with respect to U.S. Government securities or certificates of deposit, bank-
ers' acceptances and interest-bearing deposits. For purposes of this invest-
ment restriction, the electric, gas, telephone and water business shall each
be considered as a separate industry; (iv) borrow money, except that a Portfo-
lio may borrow money only for extraordinary or emergency purposes and then
only in amounts not exceeding 15% of its total assets at the time of
borrowing; (v) mortgage, pledge or hypothecate any of its assets, except as
may be necessary in connection with permissible borrowings described in para-
graph (iv) above (in an aggregate amount not to exceed 15% of total assets of
a Portfolio), or as permitted in connection with short sales of securities
"against the box" by the Growth Portfolio, as described above; (vi) invest in
illiquid securities if immediately after such investment more than 10% of the
Portfolio's total assets (taken at market value) would be invested in such se-
curities. Illiquid securities purchased by the High-Yield Portfolio may in-
clude: (i) subordinated debentures or other debt securities issued in the
course of acquisition financing such as that associated with leveraged buyout
transactions, and (ii) participation interests in loans to domestic companies,
or to foreign companies and governments, originated by commercial banks and
supported by letters of credit or other credit facilities offered by such
banks or other financial institutions; or (vii) invest more than 10% of the
value of its total assets in repurchase agreements not terminable within seven
days.

With respect to the Global Bond Portfolio, these fundamental investment poli-
cies 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 ex-
cept 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 disposi-
tion of securities; borrowing in the aggregate may not exceed 15%, and borrow-
ing for purposes other than meeting redemptions may not exceed 5% of the value
of the Portfolio's total assets (including the amount borrowed) less liabili-
ties (not including the amount borrowed) at the time the borrowing is made;
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 val-
ue) would be invested in such securities.

With respect to the North American Government Income Portfolio and the Global
Dollar Government Portfolio, these fundamental investment policies provide
that a Portfolio may not: (i) invest 25% or more of their respective total as-
sets in securities of companies engaged principally in any one industry except
that this restriction does not apply to U.S. Government Securities; (ii) bor-
row money, except (a) the North American Government Income Portfolio and the
Global Dollar Government Portfolio may, in accordance with provisions of the
Act, bor-

92
<PAGE>

row money from banks for temporary or emergency purposes, including the meeting
of redemption requests which might require the untimely disposition of securi-
ties; borrowing in the aggregate may not exceed 15%, and borrowing for purposes
other than meeting redemptions may not exceed 5% of the value of the Portfo-
lio's total assets (including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the value of the Portfolio's
total assets will be repaid before any subsequent investments are made and
(b) the Global Dollar Government Portfolio may enter into reverse repurchase
agreements and dollar rolls; or (iii) pledge, hypothecate, mortgage or other-
wise encumber their respective assets, except to secure permitted borrowings.

As a matter of fundamental policy, the Utility Income Portfolio may not: (i)
invest more than 5% of its total assets in the securities of any one issuer ex-
cept the U.S. Government, although with respect to 25% of its total assets it
may invest in any number of issuers; (ii) invest 25% or more of its total as-
sets in the securities of issuers conducting their principal business activi-
ties in any one industry, other than the utilities industry, except that this
restriction does not apply to U.S. Government Securities; (iii) purchase more
than 10% of any class of the voting securities of any one issuer; (iv) borrow
money except from banks or temporary or emergency purposes, including the meet-
ing of redemption requests which might require the untimely disposition of se-
curities; borrowing in the aggregate may not exceed 15%, and borrowing for pur-
poses 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 subsequent investments are made; or (v) purchase a security
if, as a result (unless the security is acquired pursuant to a plan of reorga-
nization or an offer of exchange), the Portfolio would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than 5% of the value of the
Portfolio's net assets would be invested in securities of any one or more
closed-end investment companies.

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

With respect to the Worldwide Privatization Portfolio, these fundamental poli-
cies provide that the Portfolio may not: (i) invest 25% or more of its total
assets in securities of issuers conducting their principal business activities
in the same industry, except that this restriction does not apply to (a) U.S.
Government Securities; or (b) the

93
<PAGE>

purchase of securities of issuers whose primary 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 invest-
ments and anticipated returns, that the Portfolio's ability to achieve its in-
vestment objective would be adversely affected if the Portfolio were not per-
mitted to invest more than 25% of its total assets in those securities, and so
long as the Portfolio notifies its shareholders of any decision by the Board
of Directors to permit or cease to permit the Portfolio to invest more than
25% of its total assets in those securities, such notice to include a discus-
sion of any increased investment risks to which the Portfolio may be subjected
as a result of the Board's determination; (ii) borrow money except from banks
for temporary or emergency purposes, including the meeting of redemption re-
quests 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 be-
fore any investments are made; or (iii) pledge, hypothecate, mortgage or oth-
erwise 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

94
<PAGE>

amount not exceeding 5% of its total assets at the time the borrowing is made.

With respect to the Real Estate Investment Portfolio these fundamental poli-
cies provide that the Portfolio may not: (i) with respect to 75% of its total
assets, have such assets represented by other than: (a) cash and cash items,
(b) U.S. Government securities, or (c) securities of any one issuer (other
than the U.S. Government and its agencies or instrumentalities) not greater in
value than 5% of the Portfolio's total assets, and not more than 10% of the
outstanding voting securities of such issuer; (ii) purchase the securities of
any one issuer, other than the U.S. Government and its agencies or instrumen-
talities, if as a result (a) the value of the holdings of the Portfolio in the
securities of such issuer exceeds 25% of its total assets, or (b) the Portfo-
lio owns more than 25% of the outstanding securities of any one class of secu-
rities of such issuer; (iii) invest 25% or more of its total assets in the se-
curities of issuers conducting their principal business activities in any one
industry, other than the real estate industry, in which the Portfolio will in-
vest at least 25% or more of its total assets, except that this restriction
does not apply to U.S. Government securities; (iv) purchase or sell real es-
tate, except that it may purchase and sell securities of companies which deal
in real estate or interests therein, including Real Estate Equity Securities;
or (v) borrow money except for temporary or emergency purposes or to meet re-
demption requests, in an amount not exceeding 5% of the value of its total as-
sets at the time the borrowing is made.

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

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

DIRECTORS

John D. Carifa, Chairman of the Board and President, is President and Chief
Operating Officer, the Chief Financial Officer and a Director of Alliance Cap-
ital Management Corporation ("ACMC"), the sole general partner of the Adviser,
with which he has been associated since prior to 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

95
<PAGE>

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 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 Money
Market Portfolio's investment program since its inception is Pamela F. Rich-
ardson, who is a Vice President of ACMC. Ms. Richardson has been associated
with ACMC since prior to 1992. The employee of the Adviser principally respon-
sible for the Premier Growth Portfolio's investment program since its incep-
tion is Alfred Harrison, who is Vice Chairman of ACMC, with which he has been
associated since prior to 1992. The employee of the Adviser principally re-
sponsible for the Growth and Income Portfolio's investment program since its
inception is Paul Rissman, who is a Vice President of ACMC with which he has
been associated since prior to 1992. The employee of the Adviser principally
responsible for the U.S. Government/High Grade Securities Portfolio's invest-
ment program since its inception is Paul J. DeNoon, who is a Vice President of
ACMC, with which he has been associated since prior to 1992. Prior to that,
Mr. DeNoon was Vice President 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 Pres-
ident of ACMC, with which he has been associated since prior to 1992. The em-
ployee of the Adviser principally responsible for the International Portfo-
lio's investment program since 1996 is Steven Beinhacker, a Vice President of
ACMC with which he has been associated since prior to 1992. The person princi-
pally responsible for the investment program of the Global Bond Portfolio
since its inception is Ian Coulman, an Investment Man-

96
<PAGE>

ager of the Sub-Adviser. The employee of the Adviser principally responsible
for the investment program since inception of the North American Government In-
come Portfolio and the Global Dollar 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 Adviser principally responsible for the investment program
since inception of the Growth Portfolio is Tyler J. Smith, who is a Senior Vice
President of the Adviser. Prior to joining the Adviser in July 1993, Mr. Smith
was employed by Equitable Capital or its affiliates since prior to 1992. The
employee of the Adviser principally responsible for the investment program
since inception of the Worldwide Privatization Portfolio is Mark H. Breedon, a
Vice President of the Adviser and a Director and Vice President of Alliance
Capital Limited, an indirect wholly-owned subsidiary of the Adviser, with which
he has been associated since prior to 1992. The employees of the Adviser prin-
cipally responsible for the investment program since inception of the Technol-
ogy Portfolio are Peter Anastos and Gerald T. Malone. Mr. Anastos has been as-
sociated with the Adviser since prior to 1992 and Mr. Malone has been associ-
ated with the Adviser since 1992. Prior thereto, Mr. Malone was associated with
College Retirement Equities Fund since prior to 1992. The employees of the Ad-
viser 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.* The employee
of the Adviser principally responsible for the Real Estate Investment Portfo-
lio'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.*

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

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

In providing advisory services to the Real Estate Investment Portfolio and
other clients
- --------
*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.

97
<PAGE>

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 ex-
pense, 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 recommenda-
tions 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 pri-
vate-sector sources as well as Koll's proprietary database of 45,000 commercial
property transactions representing over $250 billion of investment property and
over 2,000 tracked properties which report rent and expense data quarterly.
Koll has previously provided access to its REIT . Score model results primarily
to the institutional market through subscriptions. The model is no longer pro-
vided to any research publications, and the Portfolio and another mutual fund
managed by the Adviser are currently the only mutual funds available to retail
investors that have access to Koll's REIT . Score model.

The Adviser is a leading international investment manager supervising client
accounts with assets as of 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, 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 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."

98
<PAGE>

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>
Money Market Portfolio .500%
Premier Growth Portfolio 1.000%
Growth and Income Portfolio .625%
U.S. Government/High
Grade Securities Portfolio .600%
High-Yield Portfolio .750%
Total Return Portfolio .625%
International Portfolio 1.000%
Global Bond Portfolio .650%
North American Government
Income Portfolio .650%
Utility Income Portfolio .750%
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 Global
Bond Portfolio, the Growth & Income Portfolio, the U.S. Government/High Grade
Securities Portfolio, the Total Return Portfolio, the International Portfolio,
the Money Market Portfolio, the North American Government Income Portfolio,
the Utility Income Portfolio, the Growth Portfolio, the Worldwide
Privatization Portfolio and the Technology Portfolio so that each such Portfo-
lio paid an advisory fee equal to .72%, .44%, .63%, .54%, .46%, .04%, .50%,
.19%, .19%, .74%, .10% and .33% of each such Portfolio's average net assets,
respectively.

For the year ended December 31, 1996, for its services as Sub-Adviser to the
Global Bond Portfolio, the Sub-Adviser received from the Adviser a monthly fee
at the annual rate of .40% of that Portfolio's average daily net asset value.

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 af-
99
<PAGE>

filiates 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 Global Bond Portfolio were .94%,
the Money Market Portfolio were .69%, the Premier Growth Portfolio were .95%,
the U.S. Government/High Grade Portfolio were .92%, the Total Return Portfolio
were .95%, the International Portfolio were .95%, the North American Govern-
ment Income Portfolio were .95%, the Global Dollar Government Portfolio were
.95%, the Utility Income Portfolio were .95%, the Growth Portfolio were .93%,
the Worldwide Privatization Portfolio were .95%, the Technology Portfolio were
.95% and the Quasar 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.

100
<PAGE>

number of its shares then outstanding. A Fund business day is any weekday ex-
clusive of days on which the Exchange is closed (most national holidays and
Good Friday). For purposes of this computation, the securities in each Portfo-
lio are valued at their current market value (in the case of the Money Market
Portfolio, amortized cost value is used) determined on the basis of market
quotations or, if such quotations are not readily available, such other meth-
ods as the Directors believe would accurately reflect fair market value. Port-
folio securities may also be valued on the basis of prices provided by a pric-
ing service when such prices are believed by the Adviser to reflect the fair
market value of such securities. In the case of the Money Market Portfolio,
per share net asset value is expected to be constant at $1.00 per share, al-
though this price is not guaranteed.

REDEMPTION OF SHARES

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

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

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

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

Each of the other Portfolios will declare and distribute dividends from net
investment in-

101
<PAGE>

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 Portfo-
lios.

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

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

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

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

102
<PAGE>

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

PORTFOLIO TRANSACTIONS

Subject to the general supervision of the Board of Directors of the Fund, the
Adviser is responsible for the investment decisions and the placing of the or-
ders for portfolio transactions for the Fund. Portfolio transactions for the
Money Market Portfolio, the U.S. Government/High Grade Securities Portfolio,
the High-Yield Portfolio, the Global Bond Portfolio, the North American Govern-
ment Income Portfolio, the Utility Income Portfolio and the Global Dollar Gov-
ernment Portfolio occur primarily with issuers, underwriters or major dealers
acting as principals, while transactions for the Premier Growth Portfolio, the
Growth and Income Portfolio, the International 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 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 Conduct Rules of the National Associ-
ation of Securities Dealers, Inc., and subject to seeking best price and execu-
tion, the Fund may consider sales of shares of the Fund as a factor in the se-
lection of brokers and dealers to enter into portfolio transactions with the
Fund.

The Fund may from time to time place orders for the purchase or sale of 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

103
<PAGE>

be divided into an unlimited number of series. Such shares are currently di-
vided 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 Direc-
tors, that affect all Portfolios in substantially the same manner. Maryland
law does not require a registered investment company to hold annual meetings
of shareholders and it is anticipated that shareholder meetings will be held
only when specifically required by federal or state law. Shareholders have
available certain procedures for the removal of Directors. Shares of each
Portfolio are freely transferable, are entitled to dividends as determined by
the Board of Directors and, in liquidation of the Fund, are entitled to re-
ceive the net assets of that Portfolio. Shareholders have no preference, pre-
emptive or conversion rights. In accordance with current law, it is antici-
pated that an insurance company issuing a variable annuity contract or vari-
able life insurance policy that participates in the Fund will request voting
instructions from contract or policyholders and will vote shares in the sepa-
rate account in accordance with the voting instructions received.

PRINCIPAL UNDERWRITER

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

CUSTODIAN

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

REGISTRAR AND DIVIDEND-DISBURSING AGENT

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

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.

104
<PAGE>

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.

105
<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 APPEARS HERE]
ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.

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.

PREMIER GROWTH PORTFOLIO -- seeks growth of capital rather than current in-
come. In pursuing its investment objective, the Premier Growth Portfolio will
employ aggressive investment policies. Since investments will be made based
upon their potential for capital appreciation, current income will be inciden-
tal to the objective of capital growth. The Portfolio is not intended for in-
vestors whose principal objective is assured income or preservation of capi-
tal.

GLOBAL BOND PORTFOLIO -- seeks a high level of return from a combination of
current income and capital appreciation by investing in a globally diversified
portfolio of high quality debt securities denominated in the U.S. Dollar and a
range of foreign currencies.

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

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>

- --------------------------------------------------------------------------------
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 contracts
and variable life insurance policies. Sales will be made without sales charge
at each Portfolio's per share net asset value. Further information can be ob-
tained from Alliance Fund Services, Inc. at the address or telephone number
shown above.

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

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information which a prospective in-
vestor should know about the Fund and each of the Portfolios before applying
for certain variable annuity contracts and variable life insurance policies of-
fered by participating insurance companies. It should be read in conjunction
with the Prospectus of the separate account of the specific insurance product
which accompanies this Prospectus. A "Statement of Additional Information"
dated May 1, 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>

- --------------------------------------------------------------------------------
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>
PREMIER GLOBAL
GROWTH BOND
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees..................................... .72% .44%
Other Expenses...................................... .23% .50%
--- ---
Total Portfolio Operating Expenses.................. .95% .94%
=== ===
</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).

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Premier Growth Portfolio........................ $10 $30 $53 $117
Global Bond Portfolio........................... $ 9 $30 $52 $115
</TABLE>

The purpose of the foregoing table is to assist the investor in understand-
ing the various costs and expenses that an investor in the Fund will bear di-
rectly and indirectly. Expense Information for the Premier Growth Portfolio
and Global Bond Portfolio have been restated to reflect current fees. The ex-
penses listed in the table for the Premier Growth Portfolio and Global Bond
Portfolio are net of voluntary expense reimbursements, which are not required
to be continued indefinitely; however, the Adviser intends to continue such
reimbursements for the foreseeable future. The expenses of the Portfolios, be-
fore expense reimbursements, would be: Premier Growth Portfolio: Management
Fees --1.00%, Other Expenses -- .23% and Total Portfolio Operating Expenses --
1.23%; and Global Bond Portfolio: Management Fees -- .65%, Other Expenses --
.50% and Total Portfolio Operating Expenses -- 1.15%. The example should not
be considered representative of future expenses; actual expenses may be
greater or less than those shown.

3
<PAGE>

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

<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)............. .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 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>
GLOBAL BOND PORTFOLIO
------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 12.15 $ 9.82 $11.33 $11.24 $11.10
------- ------- ------ ------ ------
INCOME FROM INVESTMENT OPERA-
TIONS
Net investment income(b).... .67(c) .69(c) .57(c) .77(c) .64
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions............... .01 1.73 (1.16) .43 (.13)
------- ------- ------ ------ ------
Net increase (decrease) in
net asset value from opera-
tions...................... .68 2.42 (.59) 1.20 .51
------- ------- ------ ------ ------
LESS: DIVIDENDS AND DISTRIBU-
TIONS
Dividends from net invest-
ment income................ (.84) (.09) (.62) (.85) (.28)
Distributions from net
realized gains............. (.25) -0- (.30) (.26) (.09)
------- ------- ------ ------ ------
Total dividends and distri-
butions.................... (1.09) (.09) (.92) (1.11) (.37)
------- ------- ------ ------ ------
Net asset value, end of pe-
riod....................... $ 11.74 $ 12.15 $ 9.82 $11.33 $11.24
======= ======= ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(d)................... 6.21% 24.73% (5.16)% 11.15% 4.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)............ $18,117 $11,553 $7,298 $6,748 $5,876
Ratio to average net assets
of:
Expenses, net of waivers and
reimbursements............. .94% .95% .95% 1.50% 1.50%
Expenses, before waivers and
reimbursements............. 1.15% 1.77% 2.05% 1.50% 1.97%
Net investment income....... 5.76% 6.22% 6.01% 4.85% 5.85%
Portfolio turnover rate..... 191% 262% 102% 125% 78%
</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.

4
<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 Premier Growth Portfolio and the Global Bond Portfolio.

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

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

INVESTMENT OBJECTIVES AND POLICIES

GENERAL

Each Portfolio has different investment objectives which it pursues through
separate investment policies as described herein. The differences in objec-
tives and policies between the Portfolios determine the types of portfolio se-
curities in which each Portfolio invests, and can be expected to affect the
degree of risk to which each Portfolio is subject and each Portfolio's yield
or return. Each Portfolio's investment objectives cannot be changed without
approval by the holders of a majority of such Portfolio's outstanding voting
securities, as defined in the Investment Company Act of 1940, as amended (the
"Act"). The Fund may change each Portfolio's investment pol-

5
<PAGE>

icies that are not designated "fundamental policies" within the meaning of the
Act upon notice to shareholders of the Portfolio, but without their approval.
The types of portfolio securities in which each Portfolio may invest are de-
scribed in greater detail below.

PREMIER GROWTH PORTFOLIO

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

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

Within the investment framework described herein, Alfred Harrison, who heads
the Adviser's "Large Cap Growth Group," is ultimately responsible for the in-
vestment decisions for the Portfolio. In managing the Portfolio's assets, the
Adviser's investment strategy emphasizes stock selection and investment in the
securities of a limited number of issuers. The Adviser depends heavily upon the
fundamental analysis and research of its large internal research staff in mak-
ing investment decisions for the Portfolio. The research staff generally fol-
lows a primary research universe of approximately 600 companies which are con-
sidered by the Adviser to have strong management, superior industry positions,
excellent balance sheets and the ability to demonstrate superior earnings
growth. As one of the largest multi-national investment firms, the Adviser has
access to considerable information concerning all of the companies followed, an
in-depth understanding of the products, services, markets

6
<PAGE>

and competition of these companies and a good knowledge of the managements of
most of the companies in its research universe.

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

7
<PAGE>

viser seeks to gain positive returns in good markets while providing some
measure of protection in poor markets.

8
<PAGE>

any call option if such sale would result in more than 10% of the Portfolio's
assets being committed to call options written by the Portfolio, which, at the
time of sale by the Portfolio, have a remaining term of more than 100 days.

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

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

GLOBAL BOND PORTFOLIO

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

Over the past 14 years, debt securities offered by certain foreign governments
pro-vided higher investment returns than U.S. government debt securities. Such
returns reflect interest rates prevailing in those countries and the effect of
gains and losses in the denominated currencies, which have had a substantial
impact on investment in foreign fixed income securities. The relative perfor-
mance of various countries' fixed income markets historically has reflected
wide variations relating to the unique characteristics of each country's econo-
my. Year-to-year fluctuations in certain markets have been significant, and
negative returns have been experienced in various markets from time to time.
The Adviser and AIGAM International Limited (the "Sub-Adviser") believe that
investment in a composite of foreign fixed income markets and in the U.S. gov-
ernment and corporate bond market is less risky than a portfolio invested ex-
clusively in foreign debt securities, and provides investors with more opportu-
nities for attractive total return than a portfolio invested exclusively in
U.S. debt securities.

The Portfolio will invest only in securities of issuers in countries whose gov-
ernments are deemed stable by the Adviser and the Sub-Adviser. Their determina-
tion that a particular country should be considered stable depends on their
evaluation of political and economic developments affecting the

9
<PAGE>

country as well as recent experience in the markets for foreign government se-
curities of the country. Examples of foreign governments which the Adviser and
Sub-Adviser currently consider to be stable, among others, are the governments
of Australia, Austria, Canada, Denmark, France, Germany, Ireland, Italy, Ja-
pan, New Zealand, The Netherlands, Norway, Spain, Sweden, Switzerland and the
United Kingdom. The Adviser does not believe that the credit risk inherent in
the obligations of such stable foreign governments is significantly greater
than that of U.S. government debt securities. The Portfolio intends to spread
investment risk among the capital markets of a number of countries and will
invest in securities of the governments of, and companies based in, at least
three, and normally considerably more, such countries. The percentage of the
Portfolio's assets invested in the debt securities of the government of, or a
company based in, a particular country or denominated in a particular currency
will vary depending on the relative yields of such securities, the economies
of the countries in which the investments are made and such countries' finan-
cial markets, the interest rate climate of such countries and the relationship
of such countries' currencies to the U.S. Dollar. Currency is judged on the
basis of fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and economic poli-
cies) as well as technical and political data. Under normal market conditions,
it is expected that approximately 25% of the Portfolio's net assets will be
invested in debt securities denominated in the U.S. Dollar.

On December 31, 1996, 3% of the Portfolio's net assets were invested in debt
securities of Japanese issuers. See "Other Investment Policies and Tech-
niques -- Foreign Securities" and (for a further description of Japan) Appen-
dix E, to the Statement of Additional Information.

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

10
<PAGE>

Union, which is a fifteen-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic cooper-
ative whose members are various European nations' steel and coal industries;
and the Asian Development Bank, which is an international development bank es-
tablished to lend portfolios, promote investment and provide technical assis-
tance to member nations in the Asian and Pacific regions.

For a description of certain risks associated with investing in foreign securi-
ties, see "Other Investment Policies and Techniques -- Foreign Securities," be-
low.

OTHER INVESTMENT POLICIES AND TECHNIQUES

Except as otherwise noted below, the following description of other investment
policies is applicable to both Portfolios:

REPURCHASE AGREEMENTS

Each Portfolio may enter into agreements pertaining to U.S. Government Securi-
ties.

WRITING COVERED CALL OPTIONS

11
<PAGE>

options but may not do so unless it at all times during the option period owns
the optioned securities, or securities convertible or carrying rights to
acquire the optioned securities at no additional cost. The Premier Growth
Portfolio may not write covered call options in excess of 25% of its assets.

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

LOANS OF PORTFOLIO SECURITIES

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

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

FOREIGN SECURITIES

For a description of the investment policies of the Global Bond Portfolio with
respect to foreign securities, see above. The Premier Growth Portfolio may in-
vest in listed and unlisted foreign securities without limitation, although it
intends to invest at least 85% of the value of its total assets in the equity
securities of American companies.

12
<PAGE>

The Portfolios may convert U.S. Dollars into foreign currency, but only to ef-
fect securities transactions on a foreign securities exchange and not to hold
such currency as an investment. Each Portfolio may enter into forward foreign
currency exchange contracts in order to protect against uncertainty in the
level of future foreign exchange rates.

To the extent that each 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 with-
holding taxes, changes in governmental administration or economic, taxation or
monetary policy (in the United States and abroad) or changed circumstances in
dealings between nations. Currency exchange rate movements will increase or
reduce the U.S. dollar value of the Portfolio's net assets and income at-
tributable to foreign securities. Costs are incurred in connection with con-
versions 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 re-
flected 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.

HEDGING TECHNIQUES

The following hedging techniques are utilized by the Global Bond Portfolio.

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

13
<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 as-
set value of a Portfolio's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a for-
ward exchange contract to sell a different foreign currency, where such con-
tract is available on terms more advantageous to a Portfolio than a contract
to sell the currency in which the position being hedged is denominated. It is
the Adviser's belief that cross-hedges can therefore provide significant pro-
tection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against ex-
change rate risks perfectly, and if the Adviser is incorrect in its judgment
of future exchange rate relationships, a Portfolio could be in a less advanta-
geous position than if such a hedge had not been established.

Indexed Debt Securities. The Portfolio may invest without limitation in debt
instruments that are indexed to certain specific foreign currency exchange
rates. The terms of such securities provide that their principal amount is ad-
justed upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
outstanding. The Portfolio will purchase such debt instruments with the cur-
rency in which they are denominated and, at maturity, will receive interest
and principal payments thereon in that currency, but the amount of principal
payable by the issuer at maturity will change in proportion to the change (if
any) in the exchange rate between the two specified currencies between the
date the instrument is issued and the date the instrument matures. While such
securities entail the risk of loss of principal, the potential for realizing
gains as a result of changes in foreign currency exchange rates enables the
Portfolio to hedge (or cross-hedge) against a decline in the U.S. Dollar value
of investments denominated in foreign currencies while providing an attractive
money market rate of return. The Portfolio will purchase such debt instruments
for hedging purposes only, not for speculation. The staff of the Securities
and Exchange Commission (the "Commission") is currently considering whether
the Portfolio's purchase of this type of security would result in the issuance
of a "senior security" within the meaning of the Act. The Portfolio believes
that such investments do not involve the creation of such a senior security,
but nevertheless the Portfolio has undertaken, pending the resolution of this
issue by the staff, to establish a segregated account with respect to its in-
vestments in this type of security and to maintain in such account cash not
available for investment or U.S. Government Securities or other liquid high
quality debt securities having a value equal to the aggregate principal amount
of outstanding commercial paper of this type.

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

14
<PAGE>

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

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.

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

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

15
<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.

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

16
<PAGE>

Portfolio may also enter into these transactions to protect against any in-
crease in the price of securities the Portfolio anticipates purchasing at a
later date. The Portfolio does not intend to use these transactions in a spec-
ulative manner. Interest rate swaps involve the exchange by the Portfolio with
another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments. Interest
rate swaps are entered into on a net basis, i.e., the two payment streams are
netted out, with the Portfolio receiving or paying, as the case may be, only
the net amount of the two payments. The purchase of an interest rate cap enti-
tles the purchaser, to the extent that a specified index exceeds a predeter-
mined interest rate, to receive payments on a contractually-based principal
amount from the party selling such interest rate cap. The purchase of an in-
terest rate floor entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate to receive payments on a contractu-
ally-based principal amount from the party selling such interest rate floor.

The Portfolio may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether the Portfolio is
hedging its assets or its liabilities. The net amount of the excess, if any,
of the Portfolio's obligations over its entitlements with respect to each in-
terest rate swap will be accrued on a daily basis and an amount of liquid as-
sets having an aggregate net asset value at least equal to the accrued excess
will be main-tained 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.

17
<PAGE>

manner, the Portfolio may not achieve the anticipated benefits of futures con-
tracts, options, interest rate transactions or forward contracts or may real-
ize 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 unlimited extent over a period of time. In ad-
dition, the correlation between movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could produce un-
anticipated losses.

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

ILLIQUID SECURITIES

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

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 invest-

18
<PAGE>

ments. 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 Portfolio's securities generally rise. Conversely, during pe-
riods of rising interest rates, the values of a Portfolio's securities gener-
ally decline.

In seeking to achieve a Portfolio's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and reali-
zation of capital losses on securities in a Portfolio's portfolio will be un-
avoidable.

SECURITIES RATINGS

The ratings of fixed-income securities by S&P and Moody's are a generally ac-
cepted barometer of credit risk. They are, however, subject to certain limita-
tions from an investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned
and the time it is updated. In addition, there may be varying degrees of dif-
ference in credit risk of securities within each rating category.

NON-DIVERSIFIED STATUS

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

DEFENSIVE POSITION

When business or financial conditions warrant, the Premier Growth Portfolio
may assume a temporary defensive position and invest without limit in high
grade fixed income securities or hold their assets in cash equivalents, in-
cluding (i) short-term obligations of the U.S. Government and its agencies or
instrumentalities, (ii) certificates of deposit, bankers' acceptances and in-
terest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit 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.

19
<PAGE>

PORTFOLIO TURNOVER

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

The annual portfolio turnover rate of the Premier Growth Portfolio may be in
excess of 100%. A 100% annual portfolio turnover rate would occur, for exam-
ple, if all of the stocks in a portfolio were replaced in a period of one
year. A 100% turnover rate is greater than that of most other investment com-
panies, including those which emphasize capital appreciation as a basic poli-
cy, and may result in correspondingly greater brokerage commissions being paid
by the Portfolio and a higher incidence of short-term capital gain taxable as
ordinary income. See "Dividends, Distributions and Taxes."

The Global Bond Portfolio will actively use trading to benefit from yield dis-
parities among different issues of fixed-income securities or otherwise to
achieve their investment objectives and policies. Although management cannot
accurately predict its portfolio turnover rate, it is anticipated that the an-
nual turnover rate for the Global Bond Portfolio generally will not exceed
400% (excluding turnover of securities having a maturity of one year or less).
The annual turnover rate of 400% occurs, for example, when all of the securi-
ties in the Portfolio are replaced four times in a period of one year. A 400%
turnover rate is greater than that of most other investment companies. The
Global Bond Portfolio may be subject to a greater degree of turnover and,
thus, a higher incidence of short-term capital gain taxable as ordinary income
than might be expected from investment companies which invest substantially
all of their funds on a long-term basis and correspondingly larger mark-up
charges can be expected to be borne by the Global Bond Portfolio. See "Divi-
dends, Distributions and Taxes."

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

CERTAIN FUNDAMENTAL INVESTMENT POLICIES

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

Briefly, with respect to the Premier Growth Portfolio these fundamental in-
vestment policies provide that it may not: (i) invest in securities of any one
issuer (including repurchase agreements with any one entity) other than secu-
rities issued or guaranteed

20
<PAGE>

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 with-
out 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 secu-
rities or certificates of deposit, bankers' acceptances and interest-bearing
deposits. For purposes of this investment restriction, the electric, gas, tel-
ephone and water business shall each be considered as a separate industry;
(iv) borrow money, except that the Premier Growth Portfolio may borrow money
only for extraordinary or emergency purposes and then only in amounts not ex-
ceeding 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 Premier Growth Portfolio),
(vi) invest in illiquid securities if immediately after such investment more
than 10% of the Premier Growth Portfolio's total assets (taken at market val-
ue) would be invested in such securities; or (vii) invest more than 10% of the
value of its total assets in repurchase agreements not terminable within seven
days.

With respect to the Global Bond Portfolio, these fundamental investment poli-
cies provide that it may not: (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one in dustry except that
this restriction does not apply to U.S. Government Securities; (ii) borrow
money except from banks for temporary or emergency purposes, including the
meeting of redemption requests which might require the untimely disposition of
securities; borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the value of the
Global Bond Portfolio's total assets (including the amount borrowed) less lia-
bilities (not including the amount borrowed) at the time the borrowing is
made; securities will not be purchased while borrowings in excess of 5% of the
value of the Global Bond Portfolio's total assets are outstanding; (iii)
pledge, hypothecate, mortgage or otherwise encumber its assets, except to se-
cure permitted borrowings; or (iv) invest in illiquid securities if immedi-
ately after such investment more than 10% of the Global Bond Portfolio's total
assets (taken at market value) would be invested in such securities.

21
<PAGE>

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

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

The Adviser has retained under a sub-advisory agreement a sub-adviser, AIGAM

22
<PAGE>

International Limited (the "Sub-Adviser"), an indirect, majority owned subsidi-
ary of American International Group, Inc., a major international financial
service company to provide research and management services to the Global Bond
Portfolio. In 1994, the Sub-Adviser changed its name from Dempsey & Company
International Limited, which was founded in 1988.

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 insur-
ance companies in the United States and a wholly owned subsidiary of the Equi-
table 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 In-
formation 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%
Global Bond Portfolio .650%
</TABLE>

The fees are accrued daily and paid monthly. For the year ended December 31,
1996, the Adviser received an advisory fee from each of the Premier Growth
Portfolio and the Global Bond Portfolio equal to .72% and .44% of their average
net assets, respectively.

EXPENSES OF THE FUND

In addition to the payments to the Adviser under the Investment Advisory Agree-
ment

23
<PAGE>

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 prospec-
tuses and shareholder reports, (f) cost of maintaining the Fund's existence,
(g) interest charges, taxes, brokerage fees and commissions, (h) costs of sta-
tionery and supplies, (i) expenses and fees related to registration and filing
with the Commission and with state regulatory authorities, and (j) cost of
certain personnel of the Adviser or its affiliates rendering clerical, ac-
counting and other services to the Fund.

For the year ended December 31, 1996, the ordinary operating expenses of each
of the Global Bond Portfolio and the Premier Growth Portfolio were .94% and
.95%, respectively, of each Portfolio's average net assets, both net of volun-
tary 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 surren-
der and transfer requests to be effected on that day pursuant to variable an-
nuity contracts and variable life insurance policies which are funded by
shares of the Portfolios. The Fund reserves the right to suspend the sale of
the Fund's shares in response to conditions in the securities markets or for
other reasons. Individuals may not place orders directly with the Fund. See
the Prospectus of the separate account of the participating insurance company
for more information on the purchase of Portfolio shares.

24
<PAGE>

sets, less its liabilities, by the total number of its shares then outstand-
ing. A Fund business day is any weekday exclusive of days on which the Ex-
change 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 quota-
tions 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 securi-
ties.

REDEMPTION OF SHARES

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

The Premier Growth Portfolio and the Global Bond Portfolio will each declare
and distribute dividends from net investment income and will distribute its
net capital gains, if any, at least annually. Such income and capital gains
distributions will be made in shares of such Portfolios.

Each Portfolio qualified and intends to continue to qualify to be taxed as a
regulated investment company under Subchapter M of the Internal Revenue Code
(the "Code"). If so qualified, each Portfolio will not be subject to Federal
income or excise taxes on its investment company taxable income and net capi-
tal gains to the extent such investment company taxable income and net capital
gains are distributed to the separate accounts of insurance companies which
hold its shares. Under current tax law, capital gains or dividends from either
Portfolio are

25
<PAGE>

not currently taxable when left to accumulate within a variable annuity (other
than an annuity interest owned by a person who is not a natural person) or
variable life insurance contract. Distributions of net investment income and
net short-term capital gain will be treated as ordinary income and distribu-
tions of net long-term capital gain will be treated as long-term capital gain
in the hands of the insurance companies.

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

26
<PAGE>

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

PORTFOLIO TRANSACTIONS

Subject to the general supervision of the Board of Directors of the Fund, the
Adviser is responsible for the investment decisions and the placing of the or-
ders for portfolio transactions for the Fund. Portfolio transactions for the
Global Bond Portfo-lio, occur primarily with issuers, underwriters or major
dealers acting as principals, while transactions for the Premier Growth Port-
folio are normally effected by brokers.

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

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

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

ORGANIZATION

27
<PAGE>

held only when specifically required by federal or state law. Shareholders
have available certain procedures for the removal of Directors. Shares of each
Portfolio are freely transferable, are entitled to dividends as determined by
the Board of Directors and, in liquidation of the Fund, are entitled to re-
ceive the net assets of that Portfolio. Shareholders have no preference, pre-
emptive or conversion rights. In accordance with current law, it is antici-
pated that an insurance company issuing a variable annuity contract or vari-
able life insurance policy that participates in the Fund will request voting
instructions from contract or policyholders and will vote shares in the sepa-
rate account in accordance with the voting instructions received.

PRINCIPAL UNDERWRITER

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

CUSTODIAN

REGISTRAR AND DIVIDEND-DISBURSING AGENT

PERFORMANCE INFORMATION

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.

28
<PAGE>

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 Magazine, Changing Times,
Business 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.

<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.

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.

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

The Fund will offer and sell its shares only to separate accounts of certain
life insurance companies, for the purpose of funding variable annuity con-
tracts and variable life insurance policies. Sales will be made without sales
charge at each Portfolio's per share net asset value. Further information can
be obtained from Alliance Fund Services, Inc. at the address or telephone num-
ber shown above.
An investment in the Fund is not a deposit or obligation of, or guaranteed or
endorsed by, any bank and is not federally insured by the Federal Deposit In-
surance Corporation, the Federal Reserve Board or any other agency.

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

This Prospectus sets forth concisely the information which a prospective in-
vestor should know about the Fund and each of the Portfolios before applying
for certain variable annuity contracts and variable life insurance policies
offered by participating insurance companies. It should be read in conjunction
with the Prospectus of the separate account of the specific insurance product
which accompanies this Prospectus. A "Statement of Additional Information"
dated May 1, 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.

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>
PREMIER REAL ESTATE
GROWTH INVESTMENT
PORTFOLIO PORTFOLIO(1)*
--------- -------------
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees..................................... .72% 0%
Other Expenses...................................... .23% .95%
--- ---
Total Portfolio Operating Expenses.................. .95% .95%
=== ===
</TABLE>
- --------
* Annualized.
(1) Inception (1/9/97) through 3/31/97.

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
Real Estate Investment 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. Expense Information for the Premier Growth Portfolio
has been restated to reflect current fees and the expenses listed in the table
for the Premier Growth 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 Premier Growth Portfolio, before
expense reimbursements, would be: Management Fees -- 1.00%, Other Expenses --
.23% and Total Portfolio Operating Expenses-- 1.23%. The estimated expenses
of the Real Estate Investment Portfolio before expense reimbursement would be:
Management Fees -- .90%, Other Expenses -- 5.10% and Total Operating Ex-
penses -- 6.00%. 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
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 avail-
able without charge upon request.

<TABLE>
<CAPTION>
REAL ESTATE
PREMIER GROWTH PORTFOLIO INVESTMENT PORTFOLIO
------------------------------------------------------------- --------------------
JANUARY 9, 1997(A)
YEAR ENDED DECEMBER 31, JUNE 26, 1992(A) TO
---------------------------------------- TO MARCH 31, 1997
1996 1995 1994 1993 DECEMBER 31, 1992 (UNAUDITED)
------- ------- ------- ------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period.......... $ 17.80 $ 12.37 $ 12.79 $ 11.38 $10.00 $10.00
------- ------- ------- ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b).............. .08(c) .09(c) .03(c) -0-(c) .06(c) .10
Net realized and
unrealized gain (loss)
on investments......... 3.29 5.44 (.41) 1.43 1.32 .05
------- ------- ------- ------- ------ ------
Net increase (decrease)
in net asset value from
operations............. 3.37 5.53 (.38) 1.43 1.38 .15
------- ------- ------- ------- ------ ------
LESS: DIVIDENDS AND DIS-
TRIBUTIONS
Dividends from net in-
vestment income........ (.10) (.03) (.01) (.01) -0- -0-
Distributions from net
realized gains......... (5.37) (.07) (.03) (.01) -0- -0-
------- ------- ------- ------- ------ ------
Total dividends and dis-
tributions............. (5.47) (.10) (.04) (.02) -0- -0-
------- ------- ------- ------- ------ ------
Net asset value, end of
period................. $ 15.70 $ 17.80 $ 12.37 $ 12.79 $11.38 $10.15
======= ======= ======= ======= ====== ======
TOTAL RETURN
Total investment return
based on net asset val-
ue(d).................. 22.70% 44.85% (2.96)% 12.63% 13.80% 1.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted)... $96,434 $29,278 $37,669 $13,659 $3,760 $2,268
Ratio to average net as-
sets of:
Expenses, net of waivers
and reimbursements..... .95% .95% .95% 1.18% .95%(e) .95%
Expenses, before waivers
and reimbursements..... 1.23% 1.19% 1.40% 2.05% 4.20%(e) 6.99%
Net investment income... .52% .55% .42% .22% .96%(e) 1.18%
Portfolio turnover rate. 32% 97% 38% 42% 14% -0-
Average commission rate
paid(f) $.0609 -0- -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.

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 Premier Growth Portfolio and the Real Estate Investment Portfolio.

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

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
share-

4
<PAGE>

holders 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

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

5
<PAGE>

in one or more identified sectors and/or industries, the lateral structure of
the Adviser's research organization and constant communication among the ana-
lysts result in decision-making based on the relative attractiveness of stocks
among industry sectors. The focus during this process is on the early recogni-
tion of change on the premise that value is created through the dynamics of
changing company, industry and economic fundamentals. Research emphasis is
placed on the identification of companies whose substantially above average
prospective earnings growth is not fully reflected in current market valua-
tions.

6
<PAGE>

500 Composite Stock Price Index, a widely recognized unmanaged index of market
activity 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.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES OF PREMIER GROWTH PROTFOLIO

7
<PAGE>

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 se-
curity except that, rather than the right to take or make delivery of a secu-
rity 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.

REAL ESTATE INVESTMENT PORTFOLIO

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

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

8
<PAGE>

this determination, the Adviser will take into account fundamental trends in
underlying property markets as determined by proprietary models, site visits
conducted by individuals knowledgeable in local real estate markets, price-
earnings ratios (as defined for real estate companies), cash flow growth and
stability, the relationship between asset value and market price of the secu-
rities, dividend payment history, and such other factors which the Adviser may
determine from time to time to be relevant. The Adviser will attempt to pur-
chase for the Portfolio Real Estate Equity Securities of companies whose un-
derlying portfolios are diversified geographically and by property type.

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

9
<PAGE>

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 rigorous financial models and by engaging in regular contact with man-
agement 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
industries. This information is then used to further interpret management's
strategic plans. Financial ratio analysis is used to isolate those companies
with the ability to make value-added acquisitions. This information is com-
bined with property market trends and used to project future earnings poten-
tial.

Multiple-Class Pass-Through Securities and Collateralized Mortgage Obliga-
tions. Mortgage-

10
<PAGE>

Backed Securities also include CMOs and REMIC pass-through or participation
certificates, which may be issued by, among others, U.S. Government 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 certifi-
cates in various ways. Each class of CMOs or REMIC certificates, often re-
ferred 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. Gen-
erally, interest is paid or accrues on all classes of CMOs or REMIC certifi-
cates on a monthly basis. The Portfolio will not invest in the lowest tranche
of CMOs and REMIC certificates.

11
<PAGE>

have undergone similar credit quality deterioration, subsequent to purchase by
the Portfolio.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES OF REAL ESTATE INVESTMENT
PORTFOLIO

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.

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 de-

12
<PAGE>

cline. When the Portfolio makes a short sale of a security 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 Port-
folio may be required to pay a fee to borrow particular 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 col-
lateral deposited with a broker-dealer qualified as a custodian and will con-
sist of cash or securities. Depending on the arrangements the Portfolio makes
with the broker-dealer from which it borrowed the security regarding remittance
of any payments received by the Portfolio on such security, the Portfolio may
not receive any payments (including interest) on its collateral deposited with
the broker-dealer.

If the price of the security sold short increases between the time of the short
sale and the time the Portfolio replaces the borrowed security, the Portfolio
will incur a loss; conversely, if the price declines, the Portfolio will real-
ize a short-term capital gain. Any gain will be decreased, and any loss in-
creased, by the transaction costs described above. Although the Portfolio'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 acquire at no
additional cost the identical security.

CERTAIN RISK CONSIDERATIONS APPLICABLE TO THE REAL ESTATE INVESTMENT
PORTFOLIO

The Real Estate Industry. Although the Portfolio does not invest directly in
real estate, it does invest primarily in Real Estate Equity Securities and does
have a policy of concentration of its investments in the real estate industry.
Therefore, an investment in the Portfolio is subject to certain risks associ-
ated with the direct ownership of real estate and with the real estate industry
in general. These risks include, among others: possible declines in the value
of real estate; risks related to general and local economic conditions; possi-
ble lack of availability of mortgage funds; overbuilding; extended vacancies of
properties; increases in competition, property taxes and operating expenses;
changes in zoning laws; costs resulting from the clean-up of, and liability to
third parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natu-
ral 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 de-

13
<PAGE>

fault on securities the Portfolio owns, the receipt of such income may ad-
versely affect the Portfolio's ability to retain its tax status as a regulated
investment company. See "Dividends, Distributions and Taxes." Investments by
the Portfolio in securities of companies providing mortgage servicing will be
subject to the risks associated with refinancings and their impact on servic-
ing rights.

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

14
<PAGE>

clude more frequent interest and principal payments (usually monthly), the
adjustability of interest rates, and the possibility that prepayments of prin-
cipal may be made substantially earlier than their final distribution dates.

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

OTHER INVESTMENT POLICIES AND TECHNIQUES

Except as otherwise noted below, the following description of other investment
policies is applicable to both Portfolios:

REPURCHASE AGREEMENTS

The Portfolios may enter into agreements pertaining to U.S. Government
Securities. The Real Estate Investment Portfolio may enter into repurchase
agreements with member banks of the Federal Reserve System or primary dealers.
There is no percentage restriction on the ability of the Real Estate Investment
Portfolio to enter into repurchase agreements; it currently intends to enter
into repurchase agreements only with the Fund's Custodian and such primary
dealers.

15
<PAGE>

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
established procedures, which are periodically reviewed by the Board, pursuant
to which the Adviser monitors the creditworthiness of the dealers with which
the Portfolios enter into repurchase agreement transactions.

WRITING COVERED CALL OPTIONS

The Premier Growth Portfolio may write covered call options listed on one or
more national securities exchanges. A call option gives the purchaser of the
option, upon payment of a premium to the writer of the option, the right to
purchase from the writer of the option a specified number of shares of a speci-
fied security on or before a fixed date, at a predetermined price. The Premier
Growth Portfolio may not write call options unless the Portfolio at all times
during the option period owns the optioned securities, or securities convert-
ible or carrying rights to acquire the optioned securities at no additional
cost. The Premier Growth Portfolio may not write covered call options in excess
of 25% of its assets.

The Premier Growth Portfolio may terminate its obligation to the holder of an
option written by 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 realizes a profit or loss from a closing purchase transaction if
the cost of the transaction is more or less than the premium received by the
Portfolio from writing the option. Although the writing of covered call options
only on national securities exchanges increases the likelihood of the Portfolio
being able to make closing purchase transactions, there is no assurance that
the Portfolio will be able to effect closing purchase transactions at any par-
ticular time or at an acceptable price. The writing of covered call options
could result in increases in the portfolio turnover of the Portfolio, espe-
cially during periods when market prices of the underlying securities appreci-
ate.

LOANS OF PORTFOLIO SECURITIES

Both Portfolios 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 Portfolio.

16
<PAGE>

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 Portfolios will have the right to regain record
ownership of loaned securities to exercise beneficial rights such as voting
rights, subscription rights and rights to dividends, interest or other
distributions. Each Portfolio may pay reasonable finders', administrative and
custodial fees in connection with a loan. The Directors will monitor the
lending of securities by each Portfolio. No more than 30% of the value of the
assets of the Premier Growth Portfolio, and 25% in the case of the Real Estate
Investment Portfolio, may be loaned at any time. Neither Portfolio will lend
its portfolio securities to any officer, director, employee or affiliate of
either the Fund or the Adviser.

FOREIGN SECURITIES

The Premier Growth Portfolio may invest in listed and unlisted foreign securi-
ties. Both Portfolios of the Fund may invest in foreign securities without lim-
itation, although the Premier Growth Portfolio intends to invest at least 85%
of the value of its total assets in the equity securities of American compa-
nies. The Portfolios may convert U.S. Dollars into foreign currency, but only
to effect securities transactions on a foreign securities exchange and not to
hold such currency as an investment. Each Portfolio may enter into forward for-
eign currency exchange contracts in order to protect against uncertainty in the
level of future foreign exchange rates.

To the extent a 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 monetary
policy (in the United States and abroad) or changed circumstances in dealings
between nations. Currency exchange rate movements will increase or reduce the
U.S. dollar value of the Portfolio's net assets and income attributable to
foreign securities. Costs are incurred in connection with conversions between
various currencies held by a Portfolio. In addition, there may be substantially
less publicly available information about foreign issuers than about domestic
issuers, and foreign issuers may not be subject to accounting, auditing and
financial reporting standards and 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 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

17
<PAGE>

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
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 accounting and
auditing standards and potential difficulties in enforcing contractual
obligations and could be subject to extended settlement periods.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS

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

When forward commitment transactions are negotiated, the price, which 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 the 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 the Portfolio enters into a forward commitment, it
will record the transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in determining its net
asset value. Any unrealized appreciation or depreciation reflected in such 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 the 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 the Portfolio if, as a result, the Portfolio's aggregate commitments
under such transactions would be more than 30% of the then current value of the
Portfolio's total assets.

The Real Estate Investment Portfolio's right to receive or deliver a security
under a forward commitment may be sold prior to the

18
<PAGE>

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

STANDBY COMMITMENT AGREEMENTS

The Real Estate Investment Portfolio may from time to time enter into standby
commitment agreements. Such agreements commit the Portfolio, for a stated pe-
riod 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 approxi-
mately 0.5% of the aggregate purchase price of the security which the Portfo-
lio has committed to purchase. The Portfolio will enter into such agreements
only for the purpose of investing in the security underlying the commitment at
a yield and price which are considered advantageous to the Portfolio and which
are unavailable on a firm commitment basis. The Portfolio will limit its in-
vestment in such commitments so that the aggregate purchase price of the secu-
rities subject to the commitments will not exceed 25% of its assets taken at
the time of acquisition of such commitment. The Portfolio 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, the 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.

ILLIQUID SECURITIES

Subject to any more restrictive applicable investment policies, neither Port-
folio will maintain more than 15% of its net assets in illiquid securities.
For purposes of each Portfolio's investment objectives and policies and
investment restrictions, illiquid securities include, among others, (a) direct
place-

19
<PAGE>

ments or other securities which are subject to legal or contractual restric-
tions on resale or for which there is no readily available market (e.g., trad-
ing in the security is suspended or, in the case of unlisted securities, mar-
ket 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 Information for further discussion of illiquid
securities.

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

NON-RATED SECURITIES

Non-rated securities will also be considered for investment by the Real Estate
Investment Portfolio when the Adviser believes that the financial condition of
the issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the Portfolio's objec-
tive and policies.

DEFENSIVE POSITION

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

For temporary defensive purposes, the Real Estate Investment Portfolio may in-
crease

20
<PAGE>

without limit its position in short-term, liquid, high-grade debt securities,
which may include securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government securities"), bank deposits,
money market instruments and 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 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%. The Adviser anticipates that the Real Estate Investment Port-
folio's annual rate of turnover will not 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 capi-
tal 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. A higher rate of portfolio
turnover involves correspondingly 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." In order
to continue to qualify as a regulated investment company for Federal tax pur-
poses, 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.

CERTAIN FUNDAMENTAL INVESTMENT POLICIES

Briefly, with respect to the Premier Growth Portfolio, these fundamental in-
vestment policies provide that the 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 imme-
diately 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 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

21
<PAGE>

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 Portfolio may borrow money only for extraordinary or emergency pur-
poses 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, ex-
cept 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 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 invested in such securities; or (vii) invest more than
10% of the value of its total assets in repurchase agreements not terminable
within seven days.

22
<PAGE>

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.

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

23
<PAGE>

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.

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 transac-
tions 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 Port-
folio nor will it be responsible for making investment decisions involving
Portfolio assets.

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

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

24
<PAGE>

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 Additional Information under
"Management of the Fund."

<TABLE>
<S> <C>
Premier Growth 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 Real Estate Invest-
ment Portfolio. For the year ended December 31, 1996 the Adviser received an
advisory fee from the Premier Growth Portfolio equal to .72%, of its average
net assets.

EXPENSES OF THE FUND

For the year ended December 31, 1996, the ordinary operating expenses of the
Premier Growth Portfolio was .95% of its average net assets, all net of volun-
tary expense reimbursements.

25
<PAGE>

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.

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

The right of redemption may be suspended or the date of payment may be post-
poned for any period during which the Exchange is

26
<PAGE>

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 reason-
ably practicable or as a result of which it is not reasonably practicable for
the Fund fairly to determine the value of a Portfolio's net assets, or for such
other periods as the Commission may by order permit for the protection of secu-
rity holders of the Fund. For information regarding how to redeem shares in the
Fund please see your insurance company separate account prospectus.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The Premier Growth Portfolio and Real Estate Investment Portfolio will each de-
clare and distribute dividends from net investment income and will distribute
its net capital gains, if any, at least annually. Such income and capital gains
distributions will be made in shares of such Portfolios.

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

27
<PAGE>

tion 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 propor-
tionate 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 the Portfolios owned by a segregated asset account of a life insurance com-
pany will be subject to this treatment under the Code.

GENERAL INFORMATION

PORTFOLIO TRANSACTIONS

28
<PAGE>

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

REGISTRAR AND DIVIDEND-DISBURSING AGENT

PERFORMANCE INFORMATION

29
<PAGE>

ADDITIONAL INFORMATION

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

30
<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

00250292.BF5