ALLIANCE VARIABLE PRODUCTS SERIES FUND INC, 485BPOS, 1999-04-30

ALLIANCE VARIABLE PRODUCTS SERIES FUND INC
485BPOS, 1999-04-30

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<PAGE>

As filed with the Securities and Exchange
Commission on May 3, 1999
File Nos. 33-18647
811-5398

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 27

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

X Amendment No. 28

____________________________________________

ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)

1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)

Registrant's Telephone Number, including Area Code:(800)221-5672
_______________________________________________________________

EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York l0105

(Name and address of agent for service)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004

<PAGE>

It is proposed that this filing will become effective
(check appropriate box)

_X_ Immediately upon filing pursuant to paragraph (b)
___ On (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ On (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ On (date) pursuant to paragraph (a) of Rule 485

If appropriate, check the following box:

This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.

<PAGE>

Class A Prospectus

ALLIANCE VARIABLE PRODUCTS

SERIES FUND

May 3, 1999

Money Market Portfolio
Premier Growth Portfolio
Growth and Income Portfolio
U.S. Government/High Grade Securities Portfolio
High Yield Portfolio
Total Return Portfolio
International Portfolio
Short-Term Multi-Market Portfolio
Global Bond Portfolio
North American Government Income Portfolio
Global Dollar Government Portfolio
Utility Income Portfolio
Conservative Investors Portfolio
Growth Investors Portfolio
Growth Portfolio
Worldwide Privatization Portfolio
Technology Portfolio
Quasar Portfolio
Real Estate Investment Portfolio

This Prospectus describes the Portfolios that are available as underlying
investments through your variable contract. For information about your
variable contract, including information about insurance-related
expenses, see the Prospectus for your variable contract which
accompanies this Prospectus.

The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this
Prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK/RETURN SUMMARY........................................................ 3
Summary of Principal Risks............................................... 26
Principal Risks by Portfolio............................................. 29
GLOSSARY................................................................... 30
DESCRIPTION OF THE PORTFOLIOS.............................................. 32
Investment Objectives and Policies....................................... 32
Description of Investment Practices...................................... 51
Additional Risk Considerations........................................... 64
MANAGEMENT OF THE PORTFOLIOS............................................... 70
PURCHASE AND SALE OF SHARES................................................ 73
How The Portfolios Value Their Shares.................................... 73
How To Purchase and Sell Shares.......................................... 73
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 73
FINANCIAL HIGHLIGHTS....................................................... 74
APPENDIX A................................................................. 84
APPENDIX B................................................................. 88
</TABLE>

2
<PAGE>

Alliance Variable Products Series Fund's investment adviser is Alliance Capital
Management L.P., a global investment manager providing diversified services to
institutions and individuals through a broad line of investments including more
than 100 mutual funds.

RISK/RETURN SUMMARY

The following is a summary of certain key information about Alliance Variable
Products Series Fund. You will find additional information about each Portfolio
of the Fund, including a detailed description of the risks of an investment in
each Portfolio, after this summary.

The Risk/Return Summary describes the Portfolios' objectives, principal
investment strategies and principal risks. Each Portfolio's summary includes a
discussion of some of the principal risks of investing in that Portfolio. A
further discussion of these and other risks starts on page 26.

More detailed descriptions of the Portfolios, including the risks associated
with investing in the Portfolios, can be found further back in this Prospectus.
Please be sure to read this additional information BEFORE you invest. Each of
the Portfolios may at times use certain types of investment derivatives such as
options, futures, forwards, and swaps. The use of these techniques involves
special risks that are discussed in this Prospectus.

The Risk/Return Summary includes a table for each Portfolio showing its average
annual returns and a bar chart showing its annual returns. The table and the
bar chart provide an indication of the historical risk of an investment in each
Portfolio by showing:

. how the Portfolio's average annual returns for one, five, and 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old) compare to those of a broad based securities market index;
and

. changes in the Portfolio's performance from year to year over 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old).

If the Portfolio's returns reflected fees charged by your variable contract,
the returns shown in the table and bar charts for each Portfolio would be
lower.

A Portfolio's past performance, of course, does not necessarily indicate how it
will perform in the future.

Other important things for you to note:

. You may lose money by investing in the Portfolios.

. An investment in the Portfolios is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.

3
<PAGE>

Money Market Portfolio

Objective: The 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.

Principal Investment Strategies and Risks: The Portfolio is a "money market
fund" that seeks to maintain a stable net asset value of $1.00 per share.
The Portfolio invests in high-quality, U.S. Dollar denominated money market
securities.

Among the principal risks of investing in the Portfolio are interest rate
risk and credit risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 4.98% 5.06% 4.70%
3-Month Treasury Bill............................. 5.05% 5.11% 4.69%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from December 30, 1992
for the Portfolio and December 31, 1992 for the Treasury Bill.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- --- ---- ---- ----
N/A N/A N/A N/A 2.3 3.3 5.0 4.7 5.1 5.0

You should consider an investment in the Portfolio as a long-term investment.
The Portfolio's returns will fluctuate over long and short periods. For
example, during the period shown in the bar chart, the Portfolio's:

Best quarter was up 1.29%, 4th quarter, 1997; and

Worst quarter was up 0.50%, 2nd quarter, 1993.

4
<PAGE>

Premier Growth Portfolio

Objective: The Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies.

Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of U.S. companies. Unlike most equity funds, the
Portfolio focuses on a relatively small number of intensively researched
companies. Alliance selects the Portfolio's investments from a research
universe of more than 600 companies that have strong management, superior
industry positions, excellent balance sheets, and superior earnings growth
prospects.

Normally, the Portfolio invests in about 40-50 companies, with the 25 most
highly regarded of these companies usually constituting approximately 70%
of the Portfolio's net assets. During market declines, while adding to
positions in favored stocks, the Portfolio becomes somewhat more
aggressive, gradually reducing the number of companies represented in its
portfolio. Conversely, in rising markets, while reducing or eliminating
fully-valued positions, the Portfolio becomes somewhat more conservative,
gradually increasing the number of companies represented in its portfolio.
Through this approach, Alliance seeks to gain positive returns in good
markets while providing some measure of protection in poor markets. The
Portfolio also may invest up to 20% of its net assets in convertible
securities.

Among the principal risks of investing in the Portfolio is market risk.
Because the Portfolio invests in a smaller number of securities than many
other equity funds, your investment has the risk that changes in the value
of a single security may have a more significant effect, either negative
or positive, on the Portfolio's net asset value.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 47.97% 27.85% 25.42%
S&P 500 Index..................................... 28.58% 24.06% 21.27%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from June 26, 1992 for
the Portfolio and June 30, 1992 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A 12.6 -3.0 44.9 22.7 33.9 48.0

Best quarter was up 29.72%, 4th quarter, 1998; and

Worst quarter was down 11.14%, 3rd quarter, 1998.

5
<PAGE>

Growth and Income Portfolio

Objective: The Portfolio's investment objective is reasonable current
income and reasonable opportunity for appreciation through investments
primarily in dividend-paying common stocks of good quality.

Principal Investment Strategies and Risks: The Portfolio invests primarily
in dividend-paying common stocks of large, well-established "blue-chip"
companies. The Portfolio also may invest in fixed-income and convertible
securities and in securities of foreign issuers.

Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. The Portfolio's investments in foreign
securities have foreign risk and currency risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio....................................... 20.89% 21.19% 16.01%
S&P 500 Index................................... 28.58% 24.06% 20.81%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from January 14, 1991
for the Portfolio and December 31, 1990 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A 7.9 11.7 -0.4 35.8 24.1 28.8 20.9

Best quarter was up 23.67%, 4th quarter, 1998; and

Worst quarter was down 14.06%, 3rd quarter, 1998.

6
<PAGE>

U.S. Government/High Grade Securities Portfolio

Objective: The Portfolio's investment objective is high current income
consistent with preservation of capital.

Principal Investment Strategies and Risks: The Portfolio invests primarily
in U.S. Government securities, including mortgage-related securities,
repurchase agreements and forward contracts relating to U.S. Government
securities. The Portfolio also may invest in non-U.S. Government mortgage-
related and asset-backed securities. The average weighted maturity of the
Portfolio's investments varies between one year or less and 30 years.

Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, and market risk. Because the Portfolio may invest in
mortgage-related and asset-backed securities, it may be subject to the
risk that mortgage loans or other obligations will be prepaid when
interest rates decline, forcing the Portfolio to reinvest in securities
with lower interest rates. For this and other reasons, mortgage-related
and asset-backed securities may have significantly greater price and yield
volatility than traditional debt securities.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 8.22% 6.66% 6.55%
67% Lehman Brothers Government Bond Index
33% Lehman Brothers Corporate Bond Index.......... 9.34 7.17 7.43
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since inception return information is from September 17,
1992 for the Portfolio and September 30, 1992 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A 9.2 -4.0 19.3 2.6 8.7 8.2

Best quarter was up 7.15%, 2nd quarter, 1995; and

Worst quarter was down 3.08%, 1st quarter, 1994.

7
<PAGE>

High Yield Portfolio

Objective: The Portfolio's investment objective is to earn the highest
level of current income without assuming undue risk by investing
principally in high-yielding fixed-income securities rated Baa or lower by
Moody's or BBB or lower by S&P, Duff & Phelps or Fitch or, if unrated, of
comparable quality.

Principal Investment Strategies and Risks: The Portfolio primarily invests
in high yield, below investment grade debt securities, commonly known as
"junk bonds." The Portfolio seeks to maximize current income by taking
advantage of market developments, yield disparities, and variations in the
creditworthiness of issuers.

Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, and market risk. Because the Portfolio invests in
lower-rated securities, it has significantly more risk than other types of
bond funds and its returns will be more volatile. The Portfolio's
investments in foreign securities have foreign risk and currency risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio................................................. (3.69)% (0.43)%
First Boston High Yield Index............................. 0.58 % 1.89 %
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from October 27, 1997
for the Portfolio and October 31, 1997 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- --- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A N/A -3.7

Best quarter was up 6.49%, 1st quarter, 1998; and

Worst quarter was down 11.29%, 3rd quarter, 1998.

8
<PAGE>

Total Return Portfolio

Objective: The Portfolio's investment objective is to achieve a high
return through a combination of current income and capital appreciation.

Principal Investment Strategies and Risks: The Portfolio primarily invests
in U.S. Government and agency obligations, bonds, fixed-income senior
securities (including short- and long-term debt securities and preferred
stocks to the extent their value is attributable to their fixed-income
characteristics), and common stocks.

Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, and market risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio...................................... 16.99% 14.20% 13.41%
60% S&P 500 Index
40% Lehman Brothers Government Corporate Bond
Index......................................... 20.95% 17.35% 16.13%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from December 28, 1992
for the Portfolio and December 31, 1992 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A 9.7 -3.8 23.7 15.2 21.1 17.0

Best quarter was up 14.38%, 4th quarter, 1998; and

Worst quarter was down 7.01%, 3rd quarter, 1998.

9
<PAGE>

International Portfolio

Objective: The Portfolio's investment objective is to seek to obtain a
total return on its assets from long-term growth of capital principally
through a broad portfolio of marketable securities of established non-U.S.
companies (i.e., companies incorporated outside the U.S.), companies
participating in foreign economies with prospects for growth, and foreign
government securities.

Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of established non-U.S. companies, companies
participating in foreign economies with prospects for growth, including
U.S. companies having their principal activities and interests outside the
U.S., and foreign government securities. The Portfolio diversifies its
investments broadly among countries and normally invests in companies in
at least three foreign countries, although it may invest a substantial
portion of its assets in one or more foreign countries.

Among the principal risks of investing in the Portfolio are market risk,
foreign risk, and currency risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 13.02% 7.98% 10.12%
MSCI World Index ................................. 24.34% 15.68% 17.32%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- --- ---- ---- ----
N/A N/A N/A N/A 21.6 6.7 9.9 7.3 3.3 13.0

Best quarter was up 18.03%, 4th quarter, 1998; and

Worst quarter was down 17.37%, 3rd quarter, 1998.

10
<PAGE>

Short-Term Multi-Market Portfolio

Objective: The Portfolio's investment objective is to seek the highest
level of current income, consistent with what the Alliance considers to be
prudent investment risk, that is available from a portfolio of high-
quality debt securities having remaining maturities of not more than three
years.

Principal Investment Strategies and Risks: The Portfolio invests in high-
quality debt securities having remaining maturities of not more than three
years, with a high proportion of investments in money market instruments.
The Portfolio seeks investment opportunities in foreign and domestic
securities markets. While the Portfolio normally maintains a substantial
portion of its assets in debt securities denominated in foreign
currencies, it invests at least 25% of its net assets in U.S. Dollar-
denominated debt securities. The Portfolio limits its investments in a
single currency other than the U.S. Dollar to 25% of its net assets except
for the Euro in which the Portfolio may invest up to 50% of its net
assets.

The Portfolio concentrates at least 25% of its total assets in debt
instruments issued by domestic and foreign banking companies. A high
proportion of the Portfolio's investments normally consist of money market
instruments.

The Portfolio also may:

.use derivatives strategies;
.invest in prime commercial paper or unrated paper of equivalent quality;
.enter into repurchase agreements; and
.invest in variable, floating, and inverse floating rate instruments.

Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk and market risk. The Portfolio's investments in debt
securities denominated in foreign currencies have foreign risk and
currency risk. In addition, the Portfolio is "non-diversified" meaning
that it invests more of its assets in a smaller number of issuers than
many other funds. Changes in the value of a single security may have a
more significant effect, either negative or positive, on the Fund's net
asset value.

11
<PAGE>

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 6.32% 3.99% 4.28%
Merrill Lynch 1-3 Year Treasury Index............. 7.00% 5.99% 6.74%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from November 28, 1990
for the Portfolio and November 30, 1990 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- --- ---- ---- ----
N/A N/A 6.9 0.8 6.6 -6.5 6.8 9.6 4.6 6.3

Best quarter was up 5.55%, 2nd quarter, 1995; and

Worst quarter was down 7.30%, 4th quarter, 1994.

12
<PAGE>

Global Bond Portfolio

Objective: The Portfolio's investment objective is to seek 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.

Principal Investment Strategies and Risks: The Portfolio primarily invests
in debt securities of U.S. or foreign governments, and supranational
entities, U.S. and non-U.S. companies. The Fund's foreign investments are
generally denominated in foreign currencies.

The Portfolio normally invests at least 65% of its total assets in debt
securities of at least three countries and invests approximately 25% of its
total assets in U.S. Dollar-denominated debt securities. The average
weighted maturity of the Portfolio's investments in fixed-income securities
is expected to vary between one year or less and 10 years.

Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, market risk and leveraging risk. The Portfolio's
investments in foreign issuers have foreign risk and currency risk. To the
extent the Portfolio invests in lower-rated securities, your investment is
subject to more risk than a fund that invests primarily in higher-rated
securities. The Portfolio's use of derivatives strategies has derivatives
risk. In addition, the Fund is "non-diversified" meaning that it invests
more of its assets in a smaller number of issuers than many other funds.
Changes in the value of a single security may have a more significant
effect, either negative or positive, on the Fund's net asset value.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio........................................ 14.12% 7.62% 8.72%
Solomon World Government Bond Index (unhedged in
U.S. dollars)................................... 15.30% 7.85% 9.75%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from July 15, 1991 for
the Portfolio and July 31, 1991 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A 4.9 11.2 -5.2 24.7 6.2 0.7 14.1

Best quarter was up 10.69%, 1st quarter, 1995; and

Worst quarter was down 4.27%, 1st quarter, 1999.

13
<PAGE>

North American Government Income Portfolio

Objective: The Portfolio's investment objective is to seek the highest
level of current income, consistent with what Alliance considers to be
prudent investment risk, that is available from a portfolio of debt
securities issued or guaranteed by the United States, Canada, or Mexico,
their political subdivisions (including Canadian provinces, but excluding
states of the United States), agencies, instrumentalities or authorities.

Principal Investment Strategies and Risks: The Portfolio primarily invests
in debt securities issued or guaranteed by: (i) the federal governments of
the United States, Canada, and Mexico; (ii) government-related entities in
the United States, Canada, and Mexico; and (iii) the provincial governments
of Canada and Mexico. The Portfolio also invests significantly in debt
securities issued by Argentine government entities. The Portfolio also may
invest in debt securities of other Central and South American countries.
These investments are investment grade securities generally denominated in
each country's currency, but at least 25% of the Portfolio's assets are in
U.S. Dollar-denominated securities. The average weighted maturity of the
Portfolio is expected to vary between one year or less and 30 years.

The Portfolio may use significant borrowings for leverage. The Portfolio also
may:

.use derivative strategies; and

.invest in variable, floating, and inverse floating rate instruments.

Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, market risk and leveraging risk. The Portfolio's
investments in debt securities of Canada, Mexico, and Argentina have
foreign risk and currency risk. Your investment also has the risk that
market changes or other events affecting these countries, including
potential instability and unpredictable economic conditions, may have a
more significant effect on the Portfolio's net asset value. In addition,
the Portfolio is "non-diversified" meaning that it invests more of its
assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either
negative or positive, on the Portfolio's net asset value.

14
<PAGE>

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio................................................. 4.07% 8.45%
Lehman Brothers Aggregate Bond Index...................... 8.69% 8.67%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from May 3, 1994 for
the Portfolio and April 30, 1994 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 22.7 18.7 9.6 4.1

Best quarter was up 9.35%, 2nd quarter, 1995; and

Worst quarter was down 13.66%, 4th quarter, 1994.

15
<PAGE>

Global Dollar Government Portfolio

Objective: The Portfolio's investment objectives are to seek a high level
of current income and, secondarily, capital appreciation.

Principal Investment Strategies and Risks: The Portfolio primarily invests
in sovereign debt obligations. The Portfolio invests substantially all of
its assets in lower-rated securities or unrated securities of equivalent
quality. The Portfolio limits its investments in sovereign debt obligations
of any one country to no more than 25% of its total assets.

The Portfolio may invest up to 35% of its total assets in U.S. and non-U.S.
corporate fixed-income securities. All of the Portfolio's investments in
sovereign debt obligations and fixed-income securities will be U.S. Dollar-
denominated. The Portfolio also may invest up to 30% of its assets in
emerging markets or developing countries, including Argentina, Brazil,
Mexico, Morocco, the Philippines, Russia, and Venezuela. The average
weighted maturity of the Portfolio's investments varies between nine and 30
years.

The Portfolio may use significant borrowings and reverse repurchase
agreements and dollar rolls for leverage. The Portfolio also may:

. use derivatives strategies;

. invest in structured securities;

. invest in fixed and floating rate loans to sovereign debt issuers;

. enter into repurchase agreements; and

. invest in variable, floating, and inverse floating rate securities.

Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, market risk, and leveraging risk. Because the Portfolio
invests in lower-rated securities, it has significantly more risk than
other types of bond funds and its returns will be more volatile. The
Portfolio's investments have foreign risk and currency risk. Because the
Portfolio invests in emerging markets and in developing countries, the
Portfolio's returns will be significantly more volatile and may differ
substantially from returns in the U.S. bond markets generally. Your
investment also has the risk that market changes or other factors affecting
emerging markets and developing countries, including political instability
and unpredictable economic conditions, may have a significant effect on the
Portfolio's net asset value. In addition, the Portfolio is "non-
diversified" meaning that it invests more of its assets in a smaller number
of issuers than may other funds. Changes in the value of a single security
may have a more significant effect, either negative or positive, on the
Portfolio's net asset value.

16
<PAGE>

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio............................................... (21.71)% 6.47%
J.P. Morgan Emerging Markets Bond Index................. (11.04)% 12.95%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from May 2, 1994 for
the Portfolio and April 30, 1994 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- -----
N/A N/A N/A N/A N/A N/A 23.0 24.9 13.2 -21.7

Best quarter was up 12.81%, 2nd quarter, 1995; and

Worst quarter was down 27.11%, 3rd quarter, 1998.

17
<PAGE>

Utility Income Portfolio

Objective: The Portfolio's investment objective is to seek current income
and capital appreciation by investing primarily in equity and fixed-income
securities of companies in the utilities industry.

Principal Investment Strategies and Risks: The Portfolio invests primarily
in income-producing equity securities. The Portfolio invests in securities
of utility companies in the electric, telecommunications, gas, and water
utility industries. The Portfolio may invest in both U.S. and foreign
utility companies, although the Portfolio will limit its investments in
issuers in any one foreign country to no more than 15% of its total assets.
The Portfolio may invest up to 35% of its net assets in lower-rated
securities and up to 30% of its net assets in convertible securities.

Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. Because the Portfolio invests a
substantial portion of its assets in companies in a specific industry,
there is the risk that factors affecting utility companies will have a
significant effect on the value of the Portfolio's investments. To the
extent the Portfolio invests in lower-rated securities, your investment is
subject to more credit risk than a Portfolio that invests in higher-rated
securities.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio............................................... 23.91% 16.48%
Dow Jones Electric Utilities Index...................... 18.88% 16.22%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from May 10, 1994 for
the Portfolio and April 30, 1994 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 21.5 7.9 25.7 23.9

Best quarter was up 12.90%, 4th quarter, 1998; and

Worst quarter was down 3.39%, 1st quarter, 1997.

18
<PAGE>

Conservative Investors Portfolio

Objective: The Portfolio's investment objective is to achieve a high total
return without, in the view of Alliance, undue risk to principal.

Principal Investment Strategies and Risks: The Portfolio invests varying
portions of its assets in debt and equity securities. The Portfolio
normally invests between 50% and 90% (generally approximately 70%) of its
total assets in investment grade fixed-income securities and money market
instruments, with equity securities comprising the remainder of the
Portfolio's holdings. Most of the Portfolio's investments in fixed-income
securities generally will have a duration less than that of a 10-year
Treasury bond. The Portfolio may invest in foreign securities, mortgage-
related and asset-backed securities.

Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk and market risk. To the extent the Portfolio invests in
debt and foreign securities, your investment has credit risk, foreign risk,
and currency risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................ 14.20% 11.11%
70% Lehman Brothers Government Corporate Bond
Index
30% S&P 500 Index................................ 15.21% 15.45%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from October 28, 1994
for the Portfolio and October 31, 1994 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 17.0 3.8 11.2 14.2

Best quarter was up 7.10%, 4th quarter, 1998; and

Worst quarter was down 2.89%, 1st quarter, 1996.

19
<PAGE>

Growth Investors Portfolio

Objective: The Portfolio's investment objective is to achieve the highest
total return consistent with what Alliance considers to be reasonable risk.

Principal Investment Strategies and Risks: The Portfolio invests varying
portions of its assets in equity and debt securities. The Portfolio
normally invests between 40% and 90% (generally approximately 70%) of its
total assets in common stock and other equity securities with debt
securities comprising the remainder of the Portfolio's holdings. The
Portfolio's investments may include intermediate- and small-sized companies
with favorable growth rates, companies in cyclical industries, companies
with undervalued securities or in special situations, and less widely known
companies. The Portfolio's investments may include foreign securities and
lower-rated securities.

Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, credit risk, foreign risk and currency risk.
Investments in intermediate- and small-sized companies may have more risk
than investments in larger companies. The Portfolio's investments in small-
sized companies may have additional risks because these companies often
have limited product lines, markets, or financial resources. To the extent
the Portfolio invests in lower-rated securities, your investment is subject
to more credit risk than a fund that invests in higher-rated securities.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio....................................... 23.68% 15.84%
70% S&P 500 Index
30% Lehman Brothers Government Corporate Bond
Index.......................................... 22.86% 22.86%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 20.5 8.2 16.3 23.7

Best quarter was up 18.68%, 4th quarter, 1998; and

Worst quarter was down 8.75%, 3rd quarter, 1998.

20
<PAGE>

Growth Portfolio

Objective: The Portfolio's investment objective is to provide long-term
growth of capital. Current income is incidental to the Portfolio's
objective.

Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of companies with favorable earnings outlooks and
whose long-term growth rates are expected to exceed that of the U.S.
economy over time. The Portfolio emphasizes investments in large- and mid-
cap companies. The Portfolio also may invest up to 25% of its total assets
in lower-rated fixed-income securities and convertible bonds, and generally
up to 15% of its total assets in foreign securities.

Among the principal risks of investing in the Portfolio is market risk.
Investments in mid-cap companies may be more volatile than investments in
large-cap companies. To the extent the Portfolio invests in lower-rated
fixed-income securities and convertible bonds, your investment may have
interest rate or credit risk. The Portfolio's investments in foreign
securities have foreign risk and currency risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................... 28.73% 29.73%
S&P 500 Index....................................... 28.58% 28.46%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from September 15,
1994 for the Portfolio and September 30, 1994 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 35.2 28.5 30.0 28.7

Best quarter was up 32.47%, 4th quarter, 1998; and

Worst quarter was down 18.21%, 3rd quarter, 1998.

21
<PAGE>

Worldwide Privatization Portfolio

Objective: The Portfolio's investment objective is to seek long-term
capital appreciation.

Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of companies that are undergoing, or have undergone,
privatization. The Portfolio also invests in securities of companies that
will benefit from privatizations. The Portfolio takes advantage of
investment opportunities, historically inaccessible to U.S. individual
investors, that result from the privatization of state enterprises in both
established and developing economies. Because privatizations are integral
to a country's economic restructuring, securities sold in initial public
offerings often are attractively priced to secure the issuer's transition
to private sector ownership. In addition, these enterprises often dominate
their local markets and have the potential for significant managerial and
operational efficiency gains.

The Portfolio diversifies its investments among a number of countries and
normally invests in issuers based in four, and usually considerably more,
countries. The Portfolio may invest up to 30% of its total assets in any
one of France, Germany, Great Britain, Italy, and Japan and may invest all
of its assets in a single world region. The Portfolio also may invest up to
35% of its total assets in debt securities and convertible debt securities
of privatized companies.

Among the principal risks of investing in the Portfolio are market risk,
foreign risk, and currency risk. Investments in companies that are
undergoing, or have undergone, privatization could have more risk because
they have no operating history as private companies. In addition, the
Portfolio's investments in U.S. Dollar or foreign currency denominated
fixed-income securities have interest rate and credit risk. In addition,
the Portfolio is "non-diversified" meaning that it invests more of its
assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either
negative or positive, on the Fund's net asset value.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since inception
------ ---------------
<S> <C> <C>
Portfolio.......................................... 10.83% 12.10%
MSCI EAFE Index.................................... 20.00% 9.02%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from September 23,
1994 for the Portfolio and September 30, 1994 for the Index.
Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 10.9 18.5 10.8 10.8

Best quarter was up 16.25%, 4th quarter, 1998; and

Worst quarter was down 16.18%, 3rd quarter, 1998.

22
<PAGE>

Technology Portfolio

Objective: The Portfolio's objective is growth of capital. Current income
is incidental to the Portfolio's objective.

Principal Investment Strategies and Risks: The Portfolio invests primarily
in securities of companies that use technology extensively in the
development of new or improved products or processes. Within this
framework, the Portfolio may invest in any company and industry and in any
type of security with potential for capital appreciation. It invests in
well-known, established companies or in new or unseasoned companies. The
Portfolio also may invest in debt securities and up to 10% of its total
assets in foreign securities.

Among the principal risks of investing in the Portfolio is market risk. In
addition, technology stocks, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall stock market. To the
extent the Portfolio invests in debt and foreign securities, your
investment has interest rate risk, credit risk, foreign risk, and currency
risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio......................................... 63.79% 24.68%
S&P 500 Index..................................... 28.58% 28.23%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from January 11, 1996
for the Portfolio and December 31, 1995 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A 6.5 63.8

Best quarter was up 40.03%, 4th quarter, 1998; and

Worst quarter was down 15.20%, 4th quarter, 1997.

23
<PAGE>

Quasar Portfolio

Objective: The Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies. Current income is incidental to
the Portfolio's objective.

Principal Investment Strategies and Risks: The Portfolio generally invests
in a widely diversified portfolio of equity securities spread among many
industries that offer the possibility of above-average earnings growth. The
Portfolio currently emphasizes investment in small-cap companies. The
Portfolio invests in well-known and established companies and in new and
unseasoned companies. The Portfolio can invest in the equity securities of
any company and industry and in any type of security with potential for
capital appreciation. When selecting securities, Alliance considers the
economic and political outlook, the values of specific securities relative
to other investments, trends in the determinants of corporate profits, and
management capabilities and practices. The Portfolio also may invest in
non-convertible bonds, preferred stocks, and foreign securities.

Among the principal risks of investing in the Portfolio is market risk.
Investments in smaller companies tend to be more volatile than investments
in large-cap or mid-cap companies. To the extent the Portfolio invests in
non-convertible bonds, preferred stocks, and foreign stocks, your
investment has interest rate risk, credit risk, foreign risk, and currency
risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................ (4.49)% 8.05%
Russell 2000 Index............................... (2.55)% 14.23%
</TABLE>

The average annual returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from August 15, 1996
for the Portfolio and July 31, 1996 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A 18.6 -4.5

Best quarter was up 15.56%, 4th quarter, 1998; and

Worst quarter was down 27.63%, 3rd quarter, 1998.

24
<PAGE>

Real Estate Investment Portfolio

Objective: The Portfolio's investment objective is total return from long-
term growth of capital and income principally through investing in equity
securities of companies that are primarily engaged in or related to the
real estate industry.

Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of real estate investment trusts or "REITs" and other
real estate industry companies. The Portfolio invests in real estate
companies that Alliance believes have strong property fundamentals and
management teams. The Portfolio seeks to invest in real estate companies
whose underlying portfolios are diversified geographically and by property
type. The Portfolio may invest up to 35% of its total assets in mortgage-
backed securities, which are securities that directly or indirectly
represent participations in or are collateralized by and payable from,
mortgage loans secured by real property.

Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. Because the Portfolio invests a
substantial portion of its assets in the real estate market, it has many of
the same risks as direct ownership of real estate including the risk that
the value of real estate could decline due to a variety of factors
affecting the real estate market. In addition, REITs are dependent on the
capability of their managers, may have limited diversification, and could
be significantly affected by changes in tax laws. Because the Portfolio
invests in mortgage-backed securities, it is subject to the risk that
mortgage loans will be prepaid when interest rates decline, forcing the
Portfolio to reinvest in securities with lower interest rates. For this and
other reasons, mortgage-backed securities may have significantly greater
price and yield volatility than traditional fixed-income securities.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................ (19.07)% (0.06)%
S&P 500 Index.................................... 28.58% 30.95%
</TABLE>

The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from January 9, 1997
for the Portfolio and December 31, 1996 for the Index.

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- -----
N/A N/A N/A N/A N/A N/A N/A N/A N/A -19.1

Best quarter was up 14.84%, 3rd quarter, 1997; and

Worst quarter was down 11.50%, 3rd quarter, 1998.

25
<PAGE>

SUMMARY OF PRINCIPAL RISKS

The value of your investment in a Portfolio will change with changes in the
values of that Portfolio's investments. Many factors can affect those values.
In this Summary, we describe the principal risks that may affect a Portfolio's
investments as a whole. These risks and the Portfolios particularly subject to
the risks appear in a chart at the end of this section. All Portfolios could be
subject to additional principal risks because the types of investments made by
each Portfolio can change over time. This Prospectus has additional
descriptions of the types of investments that appear in bold type in the
discussions under "Description of Investment Practices" or "Additional Risk
Considerations." These sections also include more information about the
Portfolios, their investments, and related risks.

. Interest Rate Risk This is the risk that changes in interest rates will
affect the value of a Portfolio's investments in debt securities, such
as bonds, notes, and asset-backed securities, or other income-producing
securities. Debt securities are obligations of the issuer to make
payments of principal and/or interest in future dates. Interest rate
risk is particularly applicable to Portfolios that invest in fixed-
income securities. Increases in interest rates may cause the value of a
Portfolio's investments to decline.

Even Portfolios that invest a substantial portion of their assets in
the highest quality debt securities, including U.S. Government
securities, are subject to interest rate risk. Interest rate risk
generally is greater for those Portfolios that invest a significant
portion of their assets in lower-rated securities or comparable unrated
securities.

Interest rate risk is generally greater for Portfolios that invest in
debt securities with longer maturities. This risk may be greater for
the Portfolios that invest a substantial portion of their assets in
mortgage-related or other asset-backed securities. The value of these
securities is affected more by changes in interest rates because when
interest rates rise, the maturities of these type of securities tend to
lengthen and the value of the securities decreases more significantly.
In addition, these types of securities are subject to prepayment when
interest rates fall, which generally results in lower returns because
the Portfolios must reinvest their assets in debt securities with lower
interest rates. Increased interest rate risk also is likely for a
Portfolio that invests in debt securities paying no current interest,
such as zero coupon, principal-only, and interest-only securities, or
paying non-cash interest in the form of other debt securities (payment-
in-kind securities).

. Credit Risk This is the risk that the issuer or the guarantor of a debt
security, or the counterparty to a derivatives contract, will be unable
or unwilling to make timely payments of interest or principal, or to
otherwise honor its obligations. The degree of risk for a particular
security may be reflected in its credit rating. Credit risk is greater
for Portfolios that invest in lower-rated securities. These debt
securities and similar unrated securities (commonly known as "junk
bonds") have speculative elements or are predominantly speculative
credit risks.

Credit risk is greater for Portfolios that invest in debt securities
issued in connection with corporate restructurings by highly leveraged
issuers and in debt securities not current in the payment of interest
or principal or are in default. Portfolios that invest in foreign
securities also are subject to increased credit risk because of the
difficulties of requiring foreign entities, including issuers of
sovereign debt obligations, to honor their contractual commitments, and
because a number of foreign governments and other issuers are already
in default.

. Market Risk This is the risk that the value of a Portfolio's
investments will fluctuate as the stock or bond markets fluctuate and
that prices overall will decline over shorter or longer-term periods.
All of the Portfolios are subject to this risk.

. Sector Risk This is the risk of investments in a particular industry
sector. Market or economic factors affecting that industry sector could
have a major effect on the value of a Portfolio's investments.

26
<PAGE>

. Capitalization Risk This is the risk of investments in small- to mid-
capitalization companies. Investments in mid-cap companies may be more
volatile than investments in large-cap companies. In addition, a
Portfolio's investments in smaller capitalization stocks may have
additional risks because these companies often have limited product
lines, markets, or financial resources.

. Foreign Risk This is the risk of investments in issuers located in
foreign countries. All Alliance Portfolios that invest in foreign
securities are subject to this risk. These Portfolios' investments in
foreign securities may experience more rapid and extreme changes in
value than if they invested solely in securities of U.S. companies. The
securities markets of many foreign countries are relatively small, with
a limited number of companies representing a small number of
securities. In addition, foreign companies usually are not subject to
the same degree of regulation as U.S. companies. Reporting, accounting,
and auditing standards of foreign countries differ, in some cases
significantly, from U.S. standards. Nationalization, expropriation or
confiscatory taxation, currency blockage, political changes, or
diplomatic developments could adversely affect a Portfolio's
investments in a foreign country. In the event of nationalization,
expropriation, or other confiscation, a Portfolio could lose its entire
investment.

. Country or Geographic Risk This is the risk of investments in issuers
located in a particular country or geographic region. Market changes or
other factors affecting that country or region, including political
instability and unpredictable economic conditions, may have a
particularly significant effect on a Portfolio's net asset value.

Political, social, and economic changes in a particular country could
result in increased risks for a Portfolio that invests a substantial
portion of its assets in sovereign debt obligations, including Brady
Bonds. The investments in emerging market countries are likely to
involve significant risks. These countries, such as Mexico, Argentina,
Brazil, Morocco, the Philippines, Russia, and Venezuela, have a history
of political and economic instability.

. Currency Risk This is the risk that fluctuations in the exchange rates
between the U.S. Dollar and foreign currencies may negatively affect
the value of a Portfolio's investments. Portfolios with foreign
investments are subject to this risk.

. Leveraging Risk When a Portfolio borrows money or otherwise leverages
its Portfolio, the value of an investment in that Portfolio will be
more volatile and all other risks will tend to be compounded. The
Portfolios may create leverage by using reverse repurchase agreements,
inverse floating rate instruments or derivatives, or by borrowing
money.

. Derivatives Risk The Portfolios may use derivatives, which are
financial contracts whose value depends on, or is derived from, the
value of an underlying asset, reference rate, or index. Alliance will
sometimes use derivatives as part of a strategy designed to reduce
other risks. Generally, however, the Portfolios use derivatives as
direct investments to earn income, enhance yield, and broaden Portfolio
diversification, which entail greater risk than if used solely for
hedging purposes. In addition to other risks such as the credit risk of
the counterparty, derivatives involve the risk of difficulties in
pricing and valuation and the risk that changes in the value of the
derivative may not correlate perfectly with relevant assets, rates, or
indices.

. Liquidity Risk Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing a Portfolio from
selling out of these illiquid securities at an advantageous price. The
Portfolios may be subject to greater liquidity risk if they use
derivatives or invest in securities having substantial interest rate
and credit risk. In addition, liquidity risk tends to increase to the
extent a Portfolio invests in securities whose sale may be restricted
by law or by contract.

. Management Risk Each Portfolio is subject to management risk because it
is an actively managed investment Portfolio. Alliance will apply its
investment techniques and risk analyses in making

27
<PAGE>

investment decisions for the Portfolios, but there can be no guarantee
that its decisions will produce the desired results. In some cases,
derivative and other investment techniques may be unavailable or
Alliance may determine not to use them, possibly even under market
conditions where their use could benefit a Portfolio.

. Focused Portfolio Risk Portfolios that invest in a limited number of
companies, may have more risk because changes in the value of a single
security may have a more significant effect, either negative or
positive, on the Portfolio's net asset value. Similarly, a Portfolio
may have more risk if it is "non-diversified" meaning that it can
invest more of its assets in a smaller number of companies than many
other funds.

. Allocation Risk Those Portfolios that allocate their investments
between equity and debt securities may have a more significant risk
that poor performance of one asset class will have a greater effect on
the Portfolio's net asset value.

28
<PAGE>

PRINCIPAL RISKS BY PORTFOLIO

The following chart summarizes the principal risks of each Portfolio. Risks not
marked for a particular Portfolio may, however, still apply to some extent to
that Portfolio at various times.

<TABLE>
<CAPTION>
Interest Country or Focused
Rate Credit Market Foreign Geographic Currency Derivatives Liquidity Management Portfolio Allocation
PORTFOLIO Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk
--------- -------- ------ ------ ------- ---------- -------- ----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market
Portfolio...... X X X
Premier Growth
Portfolio...... X X X
Growth and
Income
Portfolio...... X X X X X X
U.S.
Government/High
Grade
Securities
Portfolio...... X X X X X
High Yield
Portfolio...... X X X X X X X X
Total Return
Portfolio...... X X X X X
International
Portfolio...... X X X X X
Short-Term
Multi-Market
Portfolio...... X X X X X X X X X
Global Bond
Portfolio...... X X X X X X X X X
North American
Government
Income
Portfolio...... X X X X X X X X X X
Global Dollar
Government
Portfolio...... X X X X X X X X X X
Utility Income
Portfolio...... X X X X
Conservative
Investors
Portfolio...... X X X X X X X
Growth Investors
Portfolio...... X X X X X X X
Growth
Portfolio...... X X X X X X
Worldwide
Privatization
Portfolio...... X X X X X X X X
Technology
Portfolio...... X X X X X X
Quasar
Portfolio...... X X X X X X
Real Estate
Investment
Portfolio...... X X X X
<CAPTION>
Capitalization Sector Leveraging
PORTFOLIO Risk Risk Risk
--------- -------------- ------ ----------
<S> <C> <C> <C>
Money Market
Portfolio......
Premier Growth
Portfolio......
Growth and
Income
Portfolio......
U.S.
Government/High
Grade
Securities
Portfolio......
High Yield
Portfolio...... X
Total Return
Portfolio......
International
Portfolio......
Short-Term
Multi-Market
Portfolio...... X
Global Bond
Portfolio...... X
North American
Government
Income
Portfolio...... X
Global Dollar
Government
Portfolio...... X
Utility Income
Portfolio...... X
Conservative
Investors
Portfolio......
Growth Investors
Portfolio...... X
Growth
Portfolio...... X
Worldwide
Privatization
Portfolio......
Technology
Portfolio...... X
Quasar
Portfolio...... X
Real Estate
Investment
Portfolio...... X
</TABLE>

29
<PAGE>

GLOSSARY

This Prospectus uses the following terms.

Types of Securities

Bonds are fixed, floating, and variable rate debt obligations.

Convertible securities are fixed-income securities that are convertible into
common and preferred stock.

Debt securities are bonds, debentures, notes, and bills.

Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.

Equity securities include (i) common stocks, partnership interests, business
trust shares and other equity or ownership interests in business enterprises,
and (ii) securities convertible into, and rights and warrants to subscribe for
the purchase of, such stocks, shares and interests.

Fixed-income securities are debt securities and preferred stocks, including
floating rate and variable rate instruments.

Foreign government securities are securities issued or guaranteed, as to
payment of principal and interest, by foreign governments, quasi-governmental
entities, or governmental agencies or other entities.

Interest-only or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the principal-
only or PO class, that receives only the principal payments on the underlying
debt obligation. POs are similar to, and are sometimes referred to as, zero
coupon securities, which are debt securities issued without interest coupons.

Mortgage-related securities are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental, government-
related, and private organizations. These securities include:

. ARMS, which are adjustable-rate mortgage securities;

. SMRS, which are stripped mortgage-related securities;

. CMOs, which are collateralized mortgage obligations;

. GNMA certificates, which are securities issued by the Government
National Mortgage Association or GNMA;

. FNMA certificates, which are securities issued by the Federal National
Mortgage Association or FNMA; and

. FHLMC certificates, which are securities issued by the Federal Home Loan
Mortgage Corporation or FHLMC.

Qualifying bank deposits are certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks that have total assets of more than
$1 billion and are members of the Federal Deposit Insurance Corporation.

Rule 144A securities are securities that may be resold under Rule 144A of the
Securities Act.

Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions, and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.

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U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.

Rating Agencies, Rated Securities and Indexes

Duff & Phelps is Duff & Phelps Credit Rating Company.

EAFE Index is Morgan Stanley Capital International Europe, Australasia and Far
East ("EAFE") Index.

Fitch is Fitch IBCA, Inc.

High-quality commercial paper is commercial paper rated at least Prime-2 by
Moody's, A-2 by S&P, Fitch-2 by Fitch, or Duff 2 by Duff & Phelps.

Investment grade securities are fixed-income securities rated Baa and above by
Moody's or B and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.

Lower-rated securities are fixed-income securities rated Ba or below by Moody's
or BB or below by S&P, Duff & Phelps or Fitch, or determined by Alliance to be
of equivalent quality, and are commonly referred to as "junk bonds."

Moody's is Moody's Investors Service, Inc.

Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.

S&P is Standard & Poor's Ratings Services.

S&P 500 Index is S&P's 500 Composite Stock Price Index, a widely recognized
unmanaged index of market activity.

Other

1940 Act is the Investment Company Act of 1940, as amended.

Code is the Internal Revenue Code of 1986, as amended.

Commission is the Securities and Exchange Commission.

Duration is a measure that relates the price volatility of a security to
changes in interest rates. The duration of a debt security is the weighted
average term to maturity, expressed in years, of the present value of all
future cash flows, including coupon payments and principal repayments. Thus, by
definition, duration is always less than or equal to full maturity.

Exchange is the New York Stock Exchange.

Non-U.S. Company is an entity that (i) is organized under the laws of a foreign
country and conducts business in a foreign country, (ii) derives 50% or more of
its total revenues from business in foreign countries, or (iii) issues equity
or debt securities that are traded principally on a stock exchange in a foreign
country.

Securities Act is the Securities Act of 1933, as amended.

World Bank is the commonly used name for the International Bank for
Reconstruction and Development.

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DESCRIPTION OF THE PORTFOLIOS

This section of the Prospectus provides a more complete description of each
Portfolio's investment objectives, principal strategies and risks. Of course,
there can be no assurance that any Portfolio will achieve its investment
objective.

Please note that:

. Additional discussion of the Portfolios' investments, including the
risks of the investments, can be found in the discussion under
Description of Investment Practices following this section.

. The description of the principal risks for a Portfolio may include
risks described in the Summary of Principal Risks above. Additional
information about the risks of investing in the Portfolios can be found
in the discussion under Additional Risk Considerations.

. Additional descriptions of each Portfolio's strategies, investments and
risks can be found in the Portfolio's Statement of Additional
Information or SAI.

. Except as noted, (i) the Portfolio's investment objectives are
"fundamental" and cannot be changed without a shareholder vote, and
(ii) the Portfolio's investment policies are not fundamental and thus
can be changed without a shareholder vote.

Investment Objectives and Policies

Money Market Portfolio

The Portfolio's investment objectives are safety of principal, excellent
liquidity, and maximum current income to the extent consistent with the first
two objectives. As a money market fund, the Portfolio must meet the
requirements of Commission Rule 2a-7. The Rule imposes strict requirements on
the investment quality, maturity, and diversification of the Portfolio's
investments. Under Rule 2a-7, the Portfolio's investments must have a remaining
maturity of no more than 397 days and its investments must maintain an average
weighted maturity that does not exceed 90 days.

The Portfolio pursues its objectives by investing in high-quality U.S. Dollar-
denominated money market securities. The Portfolio may invest in:

. marketable obligations issued or guaranteed by the U. S. Government or
one of its agencies or instrumentalities;

. certificates of deposit and bankers' acceptances and interest-bearing
savings deposits issued or guaranteed by banks or savings and loan
associations (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks) having total assets of more than $1
billion;

. high-quality commercial paper issued by U.S. or foreign companies
(rated or determined by Alliance to be of comparable quality) and
participation interests in loans extended to such companies; and

. repurchase agreements collateralized by the types of liquid securities
listed above.

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The Portfolio buys and sells securities based on its objective of maximizing
current income to the extent consistent with safety of principal and liquidity.
Alliance evaluates investments based on credit analysis and the interest rate
outlook.

The Portfolio may invest in money market instruments issued by foreign branches
of foreign banks. To the extent the Portfolio makes such investments,
consideration will be given to their domestic marketability, the lower reserve
requirements generally mandated for overseas banking operations, the possible
impact of interruptions in the flow of international currency transactions,
potential political and social instability or expropriation, imposition of
foreign taxes, the lower level of government supervision of issuers, the
difficulty in enforcing contractual obligations, and the lack of uniform
accounting and financial reporting standards.

The Portfolio limits its investment in illiquid securities to 10% of its total
assets. Illiquid securities include restricted securities, except restricted
securities determined by the Adviser to be liquid in accordance with procedures
adopted by the Trustees of the Portfolio.

The Portfolio does not invest more than 25% of its assets in securities of
issuers in any one industry except for U.S. Government securities or
certificates of deposit and bankers' acceptances issued or guaranteed by, or
interest-bearing savings deposits maintained at, banks and savings institutions
and loan associations (including foreign branches of U.S. banks and U.S.
branches of foreign banks).

The Portfolio's primary risks are interest rate risk and credit risk. Because
the Portfolio invests in short-term securities, a decline in interest rates
will affect the Portfolio's yield as these securities mature or are sold and
the Portfolio purchases new short-term securities with a lower yield.
Generally, an increase in interest rates causes the value of a debt instrument
to decrease. The change in value for shorter-term securities is usually smaller
than for securities with longer maturities. Because the Portfolio invests in
securities with short maturities and seeks to maintain a stable net asset value
of $1.00 per share, it is possible, though unlikely, that an increase in
interest rates would change the value of your investment.

Credit risk is the possibility that a security's credit rating will be
downgraded or that the issuer of the security will default (fail to make
scheduled interest and principal payments). The Portfolio invests in highly-
rated securities to minimize credit risk.

The Portfolio's investments in illiquid securities also may be subject to
liquidity risk, which is the risk that, under certain circumstances, particular
investments may be difficult to sell at an advantageous price. Illiquid
restricted securities also are subject to the risk that the Portfolio may be
unable to sell the security due to legal or contractual restrictions on resale.

The Portfolio's investments in U.S. Dollar-denominated obligations of foreign
banks, foreign branches of U.S. banks, U.S. branches of foreign banks, and
commercial paper of foreign companies may be subject to foreign risk. Foreign
securities issuers are usually not subject to the same degree of regulation as
U.S. issuers. Reporting, accounting, and auditing standards of foreign
countries differ, in some cases, significantly from U.S. standards. Foreign
risk includes nationalization, expropriation or confiscatory taxation,
political changes or diplomatic developments that could adversely affect the
Portfolio's investments.

Premier Growth Portfolio

The Portfolio seeks long-term growth of capital by investing predominantly in
the equity securities of a limited number of large, carefully selected, high-
quality U.S. companies that are judged likely to achieve superior earnings
growth. As a matter of fundamental policy, the Portfolio normally invests at
least 85% of its total assets in the equity securities of U.S. companies. A
U.S. company is a company that is organized under United States law, has its
principal office in the United States and issues equity securities that are
traded principally in

33
<PAGE>

the United States. Normally, about 40-50 companies will be represented in the
Portfolio, with the 25 most highly regarded of these companies usually
constituting approximately 70% of the Portfolio's net assets. The Portfolio is
thus atypical from most equity mutual funds in its focus on a relatively small
number of intensively researched companies. The Portfolio is designed for those
seeking to accumulate capital over time with less volatility than that
associated with investment in smaller companies.

Alliance's investment strategy for the Portfolio emphasizes stock selection and
investment in the securities of a limited number of issuers. Alliance relies
heavily upon the fundamental analysis and research of its large internal
research staff, which generally follows a primary research universe of more
than 600 companies that have strong management, superior industry positions,
excellent balance sheets and superior earnings growth prospects. An emphasis is
placed on identifying companies whose substantially above average prospective
earnings growth is not fully reflected in current market valuations.

In managing the Portfolio, Alliance seeks to utilize market volatility
judiciously (assuming no change in company fundamentals), striving to
capitalize on apparently unwarranted price fluctuations, both to purchase or
increase positions on weakness and to sell or reduce overpriced holdings. The
Portfolio normally remains nearly fully invested and does not take significant
cash positions for market timing purposes. During market declines, while adding
to positions in favored stocks, the Portfolio becomes somewhat more aggressive,
gradually reducing the number of companies represented in its portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Portfolio becomes somewhat more conservative, gradually
increasing the number of companies represented in its portfolio. Alliance thus
seeks to gain positive returns in good markets while providing some measure of
protection in poor markets.

Alliance expects the average market capitalization of companies represented in
the Portfolio normally to be in the range, or in excess, of the average market
capitalization of companies included in the S&P 500 Index.

The Portfolio also may:

. invest up to 15% of its total assets in foreign securities;

. purchase and sell exchange-traded index options and stock index futures
contracts;

. write covered exchange-traded call options on its securities of up to
15% of its total assets, and purchase and sell exchange-traded call and
put options on common stocks written by others of up to, for all
options, 10% of its total assets;

. make short sales "against the box" of up to 15% of its net assets; and

. invest up to 10% of its total assets in illiquid securities.

Because the Portfolio invests in a smaller number of securities than many other
equity Portfolios, your investment also has the risk that changes in the value
of a single security may have a more significant effect, either negative or
positive, on the Portfolio's net asset value.

Growth and Income Portfolio

The Portfolio seeks reasonable current income and reasonable appreciation
through investments primarily in dividend-paying common stocks of good quality.
The Portfolio also may invest in fixed-income securities and convertible
securities.

The Portfolio also may try to realize income by writing covered call options
listed on domestic securities exchanges. The Portfolio also invests in foreign
securities. Since the purchase of foreign securities entails certain political
and economic risks, the Portfolio restricts its investments in these securities
to issues of high quality. The Portfolio also may purchase and sell financial
forward and futures contracts and options on these securities for hedging
purposes. The Portfolio may invest up to 10% of its total assets in illiquid
securities.

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<PAGE>

U.S. Government/High Grade Securities Portfolio

The Portfolio's investment objective is a high level of current income
consistent with preservation of capital. The Portfolio invests primarily (i) in
U.S. Government securities, including mortgage-related securities, repurchase
agreements and forward contracts relating to U.S. Government securities, and
(ii) in other high-grade debt securities rated AAA, AA, A by S&P, Duff & Phelps
or Fitch, Aaa, Aa or A by Moody's, or, if unrated, of equivalent quality. As a
matter of fundamental policy, the Portfolio invests at least 65% of its total
assets in these types of securities. The Portfolio may invest up to 35% of its
total assets in investment grade corporate debt securities (rated BBB or higher
by S&P, Duff & Phelps or Fitch or Baa or higher by Moody's, or, if unrated, of
equivalent quality) and CMOs. The average weighted maturity of the Fund's
investments varies between one year or less and 30 years.

The Portfolio may utilize certain other investment techniques, including
options and futures contracts, intended to enhance income and reduce market
risk.

The Portfolio also may:

. purchase and sell futures contracts for hedging purposes;

. enter into forward commitments for up to 30% of its total assets;

. invest in qualifying bank deposits;

. invest up to 10% of its total assets in illiquid securities;

. purchase call and put options on futures contracts or on securities for
hedging purposes; and

. enter into repurchase agreements.

High Yield Portfolio

The Portfolio's investment objective is to earn the highest level of current
income available without assuming undue risk by investing principally in high-
yielding debt securities. The Portfolio pursues this objective by investing
primarily in a diversified mix of high-yield, below investment grade fixed-
income securities, known as "junk bonds." As a secondary objective, the
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 lowered
credit standing or a general rise in interest rates, or a combination of both.

The Portfolio normally invests at least 65% of its total assets in high yield
fixed-income securities rated Baa or lower by Moody's, BBB or lower by S&P,
Duff & Phelps or Fitch, or, if unrated, of equivalent quality. The Portfolio
normally does not invest in securities rated below CCC by each of Moody's, S&P,
Duff & Phelps and Fitch or, if unrated, of comparable quality.

As of December 31, 1998, the Portfolio's investments were rated (or equivalent
quality):

. A-1+ 13.62%
. Ba or BB 5.78%
. B 70.63%
. CCC 0.01%
. Unrated 9.96%

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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.

The Portfolio also may:

. invest in foreign securities;

. invest in U.S. Government securities;

. invest in municipal securities of up to 20% of its assets;

. invest in mortgage-related and asset-backed securities;

. enter into forward commitments for up to 30% of its total assets;

. write covered call options listed on national securities exchanges and
on foreign currencies in an amount not exceeding 25% of its total
assets;

. write covered put options listed on national securities exchanges and
on foreign currencies provided that the amount of portfolio securities
subject to outstanding options does not exceed 15% of its total assets;

. purchase put or call options on fixed-income securities, securities
indices and foreign currencies;

. enter into futures contracts and options on futures contracts;

. invest up to 10% of its total assets in illiquid securities;

. make secured loans of portfolio securities of up to 30% of its net
assets; and

. enter into repurchase agreements.

Total Return Portfolio

The Portfolio's investment objective is to achieve a high return through a
combination of current income and capital appreciation. The Portfolio invests
in U.S. Government and agency obligations, bonds, fixed-income senior
securities (including short- and long-term debt securities and preferred stocks
to the extent their value is attributable to their fixed-income
characteristics), preferred and common stocks in such proportions and of such
type as are deemed best adapted to the current economic and market outlooks.
The percentage of the Portfolio's assets invested in each type of security at
any time shall be in accordance with the judgment of Alliance. The Portfolio
may enter into forward commitments for up to 30% of its total assets and invest
up to 10% of its total assets in illiquid securities.

International Portfolio

The Portfolio's investment objective is to seek to obtain a total return on its
assets from long-term growth of capital principally through a broad portfolio
of marketable securities of established non-U.S. companies (e.g., companies
incorporated outside the U.S.), companies participating in foreign economies
with prospects for growth, and foreign government securities. The Portfolio
also invests in U.S. companies that have their principal activities and
interests outside the U.S. Normally, the Portfolio will invest more than 80% of
its assets in these types of companies.

The Portfolio expects to invest primarily in common stocks of established non-
U.S. companies that Alliance believes have potential for capital appreciation
or income or both. The Portfolio also may invest in any other type of security,
including convertible securities, preferred stocks, debt securities of foreign
issuers, or U.S. Government securities.

The Portfolio intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest a
substantial portion of its assets in one or more of these countries.

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<PAGE>

The Portfolio may invest in companies, wherever organized, that Alliance judges
have their principal activities and interests outside the U.S. These companies
may be located in developing countries, which 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 Portfolio also may:

. purchase or sell forward foreign currency exchange contracts of up to
50% of its assets;

. invest in warrants;

. make loans of portfolio securities of up to 30% of its total assets;

. invest in illiquid securities of up to 10% of its total assets; and

. enter into repurchase agreements of up to seven days' duration for up
to 10% of the Portfolio's total assets.

Investments in non-U.S. countries may have more risk because they tend to be
more volatile than the U.S. stock market. To the extent that the Portfolio
invests a substantial amount of its assets in a particular foreign country, an
investment in the Portfolio has the risk that market changes or other events
affecting that country, including political instability and unpredictable
economic conditions, may have a more significant effect on the Portfolio's net
asset value.

Short-Term Multi-Market Portfolio

The Portfolio's investment objective is to seek the highest level of current
income, consistent with what the Adviser considers to be prudent investment
risk, that is available from a portfolio of high-quality debt securities having
remaining maturities of not more than three years. The Portfolio is designed
for the investor who seeks a higher yield than a money market fund or
certificate of deposit and less fluctuation in net asset value than a longer-
term bond fund.

The Portfolio invests in debt securities denominated in the U.S. Dollar (at
least 25% of its net assets) and selected foreign currencies. The Portfolio
seeks investment opportunities in foreign, as well as domestic, securities
markets. The Portfolio will normally maintain a substantial portion of its
assets in debt securities denominated in foreign currencies. The Portfolio
limits its investments in a single currency other than the U.S. Dollar to 25%
of its net assets except for the Euro in which the Portfolio may invest up to
50% of its net assets.

In pursuing its investment objective, the Portfolio seeks to minimize credit
risk and fluctuations in net asset value by investing only in shorter-term debt
securities. Normally, a high proportion of the Portfolio's investments consist
of money market instruments. Alliance actively manages the Portfolio in
accordance with a multi-market investment strategy, allocating the Portfolio's
investments among securities denominated in the U.S. Dollar and the currencies
of a number of foreign countries and, within each such country, among different
types of debt securities. Alliance adjusts the Portfolio's exposure to each
currency based on its perception of the most favorable markets and issuers. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency varies in accordance with the Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relationship of a country's currency. Fundamental economic strength,
credit quality and interest rate trends are the principal factors considered by
Alliance in determining whether to increase or decrease the emphasis placed
upon a particular type of security or industry sector within the Portfolio's
investment portfolio.

The returns available from short-term foreign currency denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including "cross-
hedges" can help protect against declines in the U.S. Dollar value of income
available for distribution

37
<PAGE>

to shareholders and declines in the net asset value of the Portfolio's shares
resulting from adverse changes in the currency exchange rates. The Portfolio
invests in debt securities denominated in the currencies of countries whose
governments are considered stable by the Adviser.

The Portfolio expects to invest in debt securities denominated in the Euro. An
issuer of debt securities purchased by the Portfolio may be domiciled in a
country other than the country in whose currency the instrument is denominated.
In addition, the Portfolio may purchase debt securities (sometimes referred to
as "linked" securities) that are denominated in one currency while the
principal amounts of, and value of interest payments on, such securities are
determined with reference to another currency.

The Portfolio seeks to minimize investment risk by limiting its investments to
debt securities of high-quality and invests in:

. U.S. Government securities;

. foreign government and supranational organization debt securities;

. corporate debt securities;

. certificates of deposit and bankers' acceptances issued or guaranteed
by, or time deposits maintained at, banks (including foreign branches
of U.S. banks or U.S. or foreign branches of foreign banks) having
total assets of more than $500 million and determined by the Adviser to
be of high quality; and

. prime commercial paper (or unrated commercial paper of equivalent
quality) issued by U.S. or foreign companies having outstanding high-
quality debt securities.

As a matter of fundamental policy, the Portfolio concentrates at least 25% of
its total assets in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies. These
investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks.

The Portfolio also may:

. invest in indexed commercial paper;

. enter into futures contracts and purchase and write options on futures
contracts and privately negotiated options on securities;

. purchase and write put and call options on foreign currencies;

. purchase or sell forward foreign currency exchange contracts;

. enter into interest rate swaps, caps and floors;

. invest in variable, floating, and inverse floating rate instruments;

. make secured loans of its portfolio securities of up to 20% of its net
assets;

. invest up to 10% of its total assets in illiquid securities; and

. enter into repurchase agreements.

Global Bond Portfolio

The Portfolio's investment objective is to seek 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. The Portfolio normally
invests approximately 25% of its

38
<PAGE>

total assets in U.S. Dollar-denominated debt securities. The average weighted
maturity of the Portfolio's investments in fixed-income securities is expected
to vary between one year or less and 10 years.

In the past, debt securities offered by certain foreign governments have
provided higher investment returns than U.S. government debt securities. The
relative performance of various countries' fixed-income markets historically
has reflected wide variations relating to the unique characteristics of each
country's economy. Year-to-year fluctuations in certain markets have been
significant, and negative returns have been experienced in various markets from
time to time. Alliance and the Portfolio's Sub-Adviser, AIGAM International
Limited, believe that investment in a composite of foreign fixed-income markets
and in the U.S. government and corporate bond market is less risky than a
portfolio invested exclusively in foreign debt securities, and provides
investors with more opportunities for attractive total return than a portfolio
invested exclusively in U.S. debt securities.

The Portfolio invests only in securities of issuers in countries whose
governments are deemed stable by Alliance and the Sub-Adviser. Their
determination 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. The Adviser does not believe that the credit risk inherent in
the obligations of 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, of these
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 varies depending on the relative yields of
the securities, the economies of the countries in which the investments are
made and the countries' financial markets, the interest rate climate of these
countries and the relationship of the 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.

The Portfolio seeks to minimize investment risk by limiting its portfolio
investments to high-quality debt securities and invests in:

. U.S. Government securities;

. foreign government or supranational organization debt securities;

. corporate debt obligations; and

. commercial paper of banks and bank holding companies.

The Portfolio expects to invest in debt securities denominated in the Euro. The
Portfolio also may engage in certain hedging strategies, including the purchase
and sale of forward foreign currency exchange contracts and other hedging
techniques. The Portfolio may invest up to 10% of its total assets in illiquid
securities.

North American Government Income Portfolio

The Portfolio's investment objective is the highest level of current income,
consistent with what Alliance 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 states of the United
States), agencies, instrumentalities or authorities ("Government securities").
The Portfolio invests in investment grade securities denominated in the U.S.
Dollar, the Canadian Dollar, and the Mexican Peso and expects to maintain at
least 25% of its assets in securities 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").

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<PAGE>

The Portfolio invests at least 65%, and normally substantially more, of its
assets in Government securities and income-producing securities. The average
weighted maturity of the Portfolio's fixed-income securities is expected to
vary between one year or less and 30 years. The Portfolio maintains borrowings
of approximately one-third of its net assets.

The Portfolio expects that it will not retain a debt security that is
downgraded below BBB or Baa, or, if unrated, determined by Alliance to have
undergone similar credit quality deterioration. The Portfolio may conclude,
under certain circumstances, 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, that it is in the best
interests of the shareholders to retain its holdings in securities of that
issuer.

Alliance 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 over
the long term benefit the economic performance of all three countries and
promote greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso.

Alliance will actively manage the Portfolio's assets in relation to market
conditions and general economic conditions and adjust the Portfolio's
investments in an effort to best enable the Portfolio to achieve its investment
objective. Thus, the percentage of the Portfolio's assets invested in a
particular country or denominated in a particular currency will vary in
accordance with Alliance's assessment of the relative yield and appreciation
potential of such securities and the relationship of the country's currency to
the U.S. Dollar. To the extent that its assets are not invested in Government
securities, however, the Portfolio may invest the balance of its total assets
in investment grade debt securities issued by, and denominated in the local
currencies of, governments of countries located in Central and South America or
any of their political subdivisions, agencies, instrumentalities or
authorities, provided that such securities are denominated in their local
currencies. The Portfolio limits its investments in debt securities issued by
the governmental entities of any one country, except for Argentine Government
securities, to 10% of its total assets.

The Portfolio also may:

. enter into futures contracts and purchase and write options on futures
contracts for hedging purposes of up to 50% of its total assets with
initial margins deposits of up to 5% of its total assets;

. purchase and write put and call options on foreign currencies;

. purchase or sell forward foreign currency exchange contracts;

. write covered put and call options and purchase put and call options on
U.S. Government and foreign government securities traded on U.S. and
foreign securities exchanges, and write put and call options for cross-
hedging purposes;

. enter into interest rate swaps (involving payments in the same currency
or in different currencies), caps, and floors;

. enter into forward commitments for up to 30% of its total assets;

. enter into standby commitments;

. invest in zero coupon securities;

. invest in variable, floating, and inverse floating rate instruments;

. make secured loans of its portfolio securities of up to 20% of net
assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements.

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Global Dollar Government Portfolio

The Portfolio's investment objective is a high level of current income. Its
secondary investment objective is capital appreciation. In seeking to achieve
these objectives, the Portfolio invests at least 65% of its total assets in
sovereign debt obligations. The Portfolio's investments in sovereign debt
obligations will emphasize obligations referred to as "Brady Bonds," which are
issued as part of debt restructurings and collateralized in full as to
principal due at maturity by zero coupon U.S. Government securities.

The Portfolio also may invest up to 35% of its total assets in U.S. and non-
U.S. corporate fixed-income securities. The Portfolio will limit its
investments in sovereign debt obligations and U.S. and non-U.S. corporate
fixed-income securities to U.S. Dollar-denominated securities. Alliance expects
the average weighted maturity of the Portfolio's investments will be
approximately:

. for U.S. fixed-income securities, nine to 15 years;

. for non-U.S. fixed-income securities, 15 to 25 years; and

. for sovereign debt obligations longer than 25 years.

Substantially all of the Portfolio's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for non-
subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by S&P,
Duff & Phelps and Fitch) and unrated securities of equivalent investment
quality. These securities may have extremely poor prospects of ever attaining
any real investment standing and a current identifiable vulnerability to
default, 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 be in default or not current in the payment of interest or principal.

The Portfolio also may invest in investment grade securities. Unrated
securities will be considered for investment by the Portfolio when Alliance
believes that the financial condition of the issuers of such obligations and
the protection afforded by the terms of the obligations themselves limit the
risk to the Portfolio to a degree comparable to that of rated securities which
are consistent with the Portfolio's investment objectives and policies.

As of December 31, 1998, securities ratings (or equivalent quality) of the
Portfolio's securities were:

. Baa or BBB 6.0%
. Ba or BB 50.6%
. B 40.9%
. CC 2.0%
. Unrated 0.5%

The Portfolio's investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities emphasize countries that are considered at
the time of purchase to be emerging markets or developing countries by the
World Bank. The Portfolio may invest up to 30% of its total assets in
securities or obligations of Argentina, Brazil, Mexico, Morocco, the
Philippines, Russia and Venezuela. Alliance expects that these countries are
now, or are expected at a future date to be, the principal participants in debt
restructuring programs (including, in the case of Argentina, Mexico, the
Philippines and Venezuela, issuers of currently outstanding Brady Bonds) that,
in Alliance's opinion, will provide the most attractive investment
opportunities for the Portfolio. The Portfolio will limit investments in the
sovereign debt obligations of each country (or of any other single foreign
country) to less than 25% of its total assets.

Alliance anticipates that other countries that will provide investment
opportunities for the Portfolio include, among others, Bolivia, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Nigeria, Panama, Peru, Poland,

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<PAGE>

Thailand, Turkey and Uruguay. The Portfolio will limit its investments in the
sovereign debt obligations and corporate fixed-income securities of issuers in
any other single foreign country to not more than 10% of its total assets.

The Portfolio also may:

. invest in structured securities of up to 25% of its total assets;

. invest in fixed and floating rate loans that are arranged through
private negotiations between an issuer of sovereign debt obligations and
one or more financial institutions and in participations in and
assignments of these types of loans;

. invest up to 10% of its total assets in other investment companies whose
investment objectives and policies are consistent with those of the
Portfolio;

. invest in warrants;

. enter into interest rate swaps, caps and floors;

. enter into forward commitments for up to 30% of its total assets;

. enter into standby commitment agreements;

. make short sales of securities "against the box" or maintain a short
position of up to 10% of its net assets;

. write put and call options on securities of the types in which it is
permitted to invest and write call options for cross-hedging purposes;

. write privately negotiated options on securities;

. purchase and sell exchange-traded options on any securities index of the
types of securities in which it may invest;

. invest in variable, floating, and inverse floating rate instruments;

. enter into reverse repurchase agreements and dollar rolls;

. invest in loan participations and assignments up to 25% of its total
assets;

. make secured loans of its portfolio securities of up to 30% of its net
assets;

. invest in illiquid securities of up to 15% of its total assets; and

. enter into repurchase agreements.

While it does not currently intend to do so, the Portfolio reserves the right
to borrow an amount not to exceed one-third of the Portfolio's net assets.

Utility Income Portfolio

The Portfolio's investment objective is to seek current income and capital
appreciation by investing primarily in equity and fixed-income securities of
companies in the utilities industry. As a fundamental policy, the Portfolio
normally invests at least 65% of its total assets in securities of companies in
the utilities industry.

The Portfolio seeks to take advantage of the characteristics and historical
performance of securities of utility companies, many of which pay regular
dividends and increase their common stock dividends over time. 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, were derived from its utilities activities.

The Portfolio may invest in securities of both U.S. and foreign issuers,
although the Portfolio will invest no more than 15% of its total assets in
issuers in any one foreign country. The Portfolio invests at least 65% of its

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<PAGE>

total assets in income-producing securities, but there is otherwise no limit on
the allocation of the Portfolio's investments between equity securities and
fixed-income securities. The Portfolio may invest up to 35% of its net assets
in lower-rated securities. The Portfolio will not retain a security that is
downgraded below B or determined by Alliance to have undergone similar credit
quality deterioration following purchase.

The Portfolio may invest up to 35% of its total assets in equity and fixed-
income securities of domestic and foreign corporate and governmental issuers
other than utility companies. These securities include U.S. Government
securities and repurchase agreements for those securities, foreign government
securities, corporate fixed-income securities of domestic issuers, corporate
fixed-income securities of foreign issuers denominated in foreign currencies or
in U.S. Dollars (in each case including fixed-income securities of an issuer in
one country denominated in the currency of another country), qualifying bank
deposits, and prime commercial paper.

The Portfolio also may:

. invest up to 30% of its net assets in convertible securities;

. invest up to 5% of its net assets in rights or warrants;

. invest in depositary receipts, securities of supranational entities
denominated in the currency of any country, securities denominated in
the Euro, and "semi-governmental securities";

. write covered call and put options, purchase call and put options on
securities of the types in which it is permitted to invest that are
exchange-traded and over-the-counter, and write uncovered call options
for cross-hedging purposes;

. purchase and sell exchange-traded options on any securities index
composed of the types of securities in which it may invest;

. enter into contracts for the purchase or sale for future delivery of
fixed-income securities or foreign currencies, or contracts based on
financial indices, including an index of U.S. Government securities,
foreign government securities, corporate fixed-income securities, or
common stock, and may purchase and write options on futures contracts;

. purchase and write call and put options on foreign currencies traded on
U.S. and foreign exchanges or over-the-counter for hedging purposes;

. purchase or sell forward foreign currency exchange contracts;

. enter into interest rate swaps (in the same or different currencies) and
purchase or sell interest rate caps and floors;

. enter into forward commitments for up to 30% of its total assets;

. enter into standby commitment agreements;

. make short sales "against the box" of securities or maintain a short
position of up to 10% of its net assets;

. make secured loans of portfolio securities of up to 20% of its total
assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements for U.S. Government securities.

The Portfolio's principal risks include its investing primarily in electric
utility companies. Factors affecting that industry sector can have a
significant effect on the Portfolio's net asset value. The U.S. utilities
industry has experienced significant changes in recent years. Electric utility
companies in general have been favorably affected by lower fuel costs, the full
or near completion of major construction programs and lower financing costs. In
addition, many utility companies have generated cash flows in excess of current
operating expenses and construction expenditures, permitting some degree of
diversification into unregulated businesses.

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<PAGE>

Regulatory changes, however, could increase costs or impair the ability of
nuclear and conventionally fueled generating facilities to operate their
facilities and reduce their ability to make dividend payments of their
securities. Rates of return of utility companies generally are subject to
review and limitation by state public utilities commissions and tend to
fluctuate with marginal financing costs. Rate changes ordinarily lag behind
changes in financing costs and can favorably or unfavorably affect the earnings
or dividend pay-outs of utilities stocks depending upon whether the rates and
costs are declining or rising.

Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs, costs associated with
compliance with environmental and nuclear safety regulations, service
interruptions, economic slowdowns, surplus capacity, competition and regulatory
changes. There can also be no assurance that regulatory policies or accounting
standards changes will not negatively affect utility companies' earnings or
dividends. Utility companies are subject to regulation by various authorities
and may be affected by the imposition of special tariffs and changes in tax
laws. To the extent that rates are established or reviewed by governmental
authorities, utility companies are subject to the risk that such authorities
will not authorize increased rates. Because of the Portfolio's policy of
concentrating its investments in utility companies, the Portfolio is more
susceptible than most other mutual funds to economic, political or regulatory
occurrences affecting the utilities industry.

Foreign utility companies, like those in the U.S., are generally subject to
regulation, although the regulation may or may not be comparable to domestic
regulations. Foreign utility companies in certain countries may be more heavily
regulated by their respective governments than utility companies located in the
U.S. As in the U.S., utility companies generally are required to seek
government approval for rate increases. In addition, many foreign utility
companies use fuels that cause more pollution than those used in the U.S. and
may yet be required to invest in pollution control equipment. Foreign utility
regulatory systems vary from country to country and may evolve in ways
different from regulation in the U.S. The percentage of the Portfolio's assets
invested in issuers of particular countries will vary.

Increases in interest rates may cause the value of the Portfolio's investments
to decline and the decrease in value may not be offset by higher interest rate
income. The Portfolio's investments in lower-rated securities may be subject to
more credit risk than a Portfolio that invests in higher-rated securities.

Conservative Investors Portfolio

The Portfolio's investment objective is a high total return without, in the
view of the Adviser, undue risk of principal. The Portfolio allocates varying
portions of its assets in debt and equity securities to reduce volatility while
providing modest upside potential. The Portfolio normally invests between 50%
and 90% (generally approximately 70%) of its total assets in investment grade
fixed-income securities and money market instruments, with equity securities
comprising the remainder of the Portfolio's holdings. The Portfolio adjusts its
asset mixes in response to economic and credit market cycles.

Most of the Portfolio's investments in fixed-income securities generally will
have a duration less than that of a 10-year Treasury bond. The Portfolio
expects that its fixed-income securities will have an average weighted maturity
that varies between less than one year and 30 years. While the Portfolio's
investments in fixed-income securities are investment grade at the time of
purchase, the Portfolio may continue to hold any security that falls below
investment grade if the Adviser believes that it is appropriate under the
circumstances.

The Portfolio's investments in equity securities consist of common stocks and
convertible securities, such as convertible bonds, convertible preferred stocks
and warrants. The Portfolio seeks to invest in companies with a favorable
outlook for earnings with a rate of growth that Alliance expects will exceed
the U.S. economy over time.

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<PAGE>

The Portfolio also may:

. invest up to 15% of its total assets in foreign securities;

. invest in unrated securities;

. invest in mortgage-related securities, asset-backed securities, and
adjustable rate securities;

. invest in convertible securities;

. invest in zero coupon and pay-in-kind bonds;

. buy and sell stock index futures contracts and buy options on index
futures and on stock indices for hedging purposes;

. write covered call and put options on securities it owns or in which it
may invest;

. enter into forward commitments;

. make loans of portfolio securities of up to 25% of its total assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements of up to 25% of its total assets.

Growth Investors Portfolio

The Portfolio's investment objective is to achieve the highest total return
consistent with the Adviser's determination of reasonable risk. The Portfolio
invests varying portions of its assets in equity and debt securities. The
Portfolio normally invests between 40% and 90% (generally approximately 70%) of
its total assets in common stocks and other equity securities, with fixed-
income securities comprising the remainder of the Portfolio's holdings. The
Portfolio will adjust its asset mixes in response to economic and credit market
cycles. The Portfolio may invest in equity securities of intermediate- and
small-sized companies with favorable growth prospects, companies in cyclical
industries, companies whose securities are temporarily undervalued, companies
in special situations and less widely known companies.

The Portfolio invests in investment grade fixed-income securities, including
cash and money market instruments and also may invest up to 25% of its total
assets in fixed-income securities that are rated below investment grade. Lower-
rated securities generally provide greater current income than higher rated
fixed-income securities, but are subject to greater credit and market risk. The
Portfolio expects that its investments in fixed-income securities will have an
average weighted maturity that varies between less than one year and 30 years.

The Portfolio also may:

. invest up to 30% of its total assets in foreign securities;

. invest in unrated securities;

. invest in mortgage-related securities, asset-backed securities, and
adjustable rate securities;

. invest in convertible securities;

. invest in zero coupon and pay-in-kind bonds;

. buy and sell stock index futures contracts and buy options on index
futures and on stock indices for hedging purposes;

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<PAGE>

. write covered call and put options on securities it owns or in which it
may invest;

. enter into forward commitments;

. make loans of portfolio securities of up to 25% of its total assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements of up to 25% of its total assets.

Growth Portfolio

The Portfolio's investment objective is to provide long-term growth of capital.
Current income is only an incidental consideration. The Portfolio seeks to
achieve its objective by investing primarily in equity securities of companies
with favorable earnings outlooks, which have long-term growth rates that are
expected to exceed that of the U.S. economy over time.

The Portfolio may also invest in convertible securities and other fixed-income
securities. The Portfolio may invest up to 25% of its total assets in lower-
rated fixed-income securities rated at the time of purchase as below investment
grade, that is, securities rated Ba or lower by Moody's or BB or lower by S&P,
Duff & Phelps or Fitch or, if unrated, of comparable quality. From time to
time, however, the Portfolio may invest in securities rated in the lowest
grades (i.e., C by Moody's or D or equivalent by S&P, Duff & Phelps or Fitch),
or securities of comparable quality if there are prospects for an upgrade or a
favorable conversion into equity securities. If the credit rating of a security
held by the Portfolio falls below its rating at the time of purchase (or
Alliance determines that the credit quality of the security has deteriorated),
the Portfolio may continue to hold the security if such investment is
considered appropriate under the circumstances.

The Portfolio also may:

. invest in zero coupon and payment-in-kind bonds;

. invest in foreign securities although not generally in excess of 15% of
its total assets;

. invest in depository receipts, both ADRs and GDRs, where investments in
ADRs are deemed to be investments in securities issued by U.S. issuers
and those in GDRs and other types of depositary receipts are deemed to
be investments in the underlying securities;

. buy or sell foreign currencies, options on foreign currencies, foreign
currency futures contracts (and related options) and deal in forward
foreign currency exchange contracts;

. enter into forward commitments;

. buy and sell stock index futures contracts and options on those
contracts and on stock indices;

. purchase and sell futures contracts and options on futures and U.S.
Treasury securities;

. write covered call and put options;

. purchase and sell put and call options;

. make loans of portfolio securities of up to 25% of its total assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements of up to 25% of its total assets.

Worldwide Privatization Portfolio

The Portfolio's investment objective is to seek long-term capital appreciation.
As a fundamental policy, the Portfolio invests at least 65% of its total assets
in equity securities issued by enterprises that are undergoing, or have
undergone, privatization (as described below), although normally significantly
more of its assets will be

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<PAGE>

invested in such securities. The balance of its investments will include
securities of companies believed by Alliance to be beneficiaries of
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 enterprises
in both established and developing economies. These companies include 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 enterprises undergoing privatization may
comprise three distinct situations. First, the Portfolio may invest in the
initial offering of publicly traded equity securities (an "initial equity
offering") of a government- or state-owned or controlled company or enterprise
(a "state enterprise"). Secondly, the Portfolio may purchase securities of a
current or former state enterprise following its initial equity offering.
Finally, the Portfolio may make privately negotiated purchases of stock or
other equity interests in a state enterprise that has not yet conducted an
initial equity offering. Alliance believes that substantial potential for
capital appreciation exists as privatizing enterprises rationalize their
management structures, operations and business strategies in order to compete
efficiently in a market economy, and the Portfolio will thus emphasize
investments in such enterprises.

Privatization is a process through which the ownership and control of companies
or assets changes in whole or in part from the public sector to the private
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. Governments and states with established economies, including France,
Great Britain, Germany and Italy, and those with developing economies,
including Argentina, Mexico, Chile, Indonesia, Malaysia, Poland and Hungary,
are engaged in privatizations. The Portfolio will invest in any country
believed to present attractive investment opportunities.

A major premise of the Portfolio's approach is that the equity securities of
privatized companies offer opportunities for significant capital appreciation.
In particular, because privatizations are integral to a country's economic
restructuring, securities sold in initial equity offerings often are priced
attractively to secure the issuer's successful transition to private sector
ownership. Additionally, these enterprises often dominate their local markets
and typically have the potential for significant managerial and operational
efficiency gains.

The Portfolio diversifies its investments among a number of countries and
normally invests in issuers based in at least four, and usually considerably
more, countries. The Portfolio invests up to 15% of its total assets in issuers
in any one foreign country, except that the Portfolio may invest up to 30% of
its total assets in issuers in any one of France, Germany, Great Britain, Italy
and Japan. The Portfolio may invest all of its assets within a single region of
the world.

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. The Portfolio invests up to 5% of its net assets in
lower-rated securities. The Portfolio will not retain a non-convertible
security that is downgraded below C or determined by Alliance to have undergone
similar credit quality deterioration following purchase.

The Portfolio also may:

. invest up to 20% of its total assets in rights or warrants;

. write covered call and put options, purchase put and call options on
securities of the types in which it is permitted to invest and on
exchange-traded index options, and write uncovered options for cross-
hedging purposes;

. enter into contracts for the purchase or sale for future delivery of
fixed-income securities or foreign currencies, or contracts based on
financial indices, including any index of U.S. Government securities,
foreign government securities, or common stock and may purchase and
write options on future contracts;

. purchase and write put and call options on foreign currencies for
hedging purposes;

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<PAGE>

. purchase or sell forward foreign currency contracts;

. enter into forward commitments;

. enter into standby commitment agreements;

. enter into currency swaps for hedging purposes;

. make short sales "against the box" of securities or maintain a short
position of up to 10% of its net assets;

. make secured loans of portfolio securities of up to 30% of its total
assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements for U.S. Government securities.

Investments in non-U.S. companies and smaller companies may have more risk
because they tend to be more volatile than the overall stock market. The
Portfolio's investments in debt securities and convertible securities have
interest risk and credit risk.

Technology Portfolio

The Portfolio emphasizes growth of capital and invests for capital
appreciation. Current income is only an incidental consideration. The Portfolio
may seek income by writing listed call options. The Portfolio invests primarily
in securities of companies expected to benefit from technological advances and
improvements (i.e., companies that use technology extensively in the
development of new or improved products or processes). The Portfolio will
normally have at least 80% of its assets invested in the securities of these
companies. The Portfolio normally will have substantially all its assets
invested in equity securities, but it also invests in debt securities offering
an opportunity for price appreciation. The Portfolio will invest in listed and
unlisted securities, in U.S. securities, and up to 10% of its total assets in
foreign securities.

The 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 also may:

. write covered call options on its securities of up to 15% of its total
assets and purchase exchange-listed call and put options, including
exchange-traded index put options of up to, for all options, 10% of its
total assets;

. invest up to 10% of its total assets in warrants;

. invest up to 15% of its net assets in illiquid securities; and

. make loans of portfolio securities of up to 30% of its total assets.

Because the Portfolio invests primarily in technology companies, factors
affecting those types of companies could have a significant effect on the
Portfolio's net asset value. In addition, the Portfolio's investments in
technology stocks, especially those of smaller, less-seasoned companies, tend
to be more volatile than the overall market. The Portfolio's investments in
debt and foreign securities have credit risk and foreign risk.

Quasar Portfolio

The Portfolio's investment objective is to seek growth of capital by pursuing
aggressive investment policies. The Portfolio invests for capital appreciation
and only incidentally for current income. The Portfolio's practice

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<PAGE>

of selecting securities based on the possibility of appreciation cannot, of
course, ensure against a loss in value. Moreover, because the Portfolio's
investment policies are aggressive, an investment in the Portfolio is risky and
investors who want assured income or preservation of capital should not invest
in the Portfolio.

The Portfolio invests in any company and industry and in any type of security
with potential for capital appreciation. It invests in well-known and
established companies and in new and unseasoned companies. When selecting
securities for the Portfolio, Alliance considers the economic and political
outlook, the values of specific securities relative to other investments,
trends in the determinants of corporate profits and management capability and
practices.

The Portfolio invests principally in equity securities, but it also invests to
a limited degree in non-convertible bonds and preferred stocks. The Portfolio
invests in listed and unlisted U.S. and foreign securities. The Portfolio
periodically 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 regardless of general business conditions
or movements of the market as a whole.

The Portfolio also may:

. make short sales of securities "against the box" but not more than 15%
of its net assets may be deposited on short sales;

. write covered call options of up to 15% of its total assets and
purchase and sell put and call options written by others of up to, for
all options, 10% of its total assets; and

. invest up to 15% of its assets in illiquid securities.

Investments in smaller companies may have more risk because they tend to be
more volatile than the overall stock market. The Portfolio's investments in
non-convertible bonds, preferred stocks, and foreign stocks may have credit
risk and foreign risk.

Real Estate Investment Portfolio

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

The Portfolio normally invests at least 65% of its total assets in equity
securities of real estate investment trusts, or REITs, and other real estate
industry companies. A "real estate industry company" is a company that derives
at least 50% of its gross revenues or net profits from the ownership,
development, construction, financing, management or sale of commercial,
industrial or residential real estate or interests in these properties. The
Portfolio invests in equity securities that include common stock, shares of
beneficial interest of REITs, and securities with common stock characteristics,
such as preferred stock or convertible securities ("Real Estate Equity
Securities").

In selecting Real Estate Equity Securities, Alliance's analysis will focus on
determining the degree to which the company involved can achieve sustainable
growth in cash flow and dividend paying capability. Alliance believes that the
primary determinant of this capability is the economic viability of property
markets in which the company operates and that the secondary determinant of
this capability is the ability of management to add

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<PAGE>

value through strategic focus and operating expertise. The Portfolio will
purchase Real Estate Equity Securities when, in the judgment of Alliance, their
market price does not adequately reflect this potential. In making this
determination, Alliance 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 Alliance may determine from time
to time to be relevant. Alliance will attempt to purchase for the Portfolio
Real Estate Equity Securities of companies whose underlying portfolios are
diversified geographically and by property type.

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

The Portfolio's investment 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 performance of Real Estate Equity
Securities. Value and management further distinguishes the most attractive Real
Estate Equity Securities. The Portfolio's research and investment process is
designed to identify 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. Alliance
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.

To implement the Portfolio's research and investment process, Alliance has
retained the consulting services of CB Richard Ellis, Inc. ("CBRE"), a publicly
held company and the largest real estate services company in the United States.
CBRE business includes real estate brokerage, property and facilities
management, and real estate finance and investment advisory activities. The
universe of property-owning real estate industry firms consists of
approximately 142 companies of sufficient size and quality to merit
consideration for investment by the Portfolio. As consultant to Alliance, CBRE
provides access to its proprietary model, REIT-Score, which analyzes the
approximately 18,000 properties owned by these 142 companies. Using proprietary
databases and algorithms, CBRE 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 1,000 asset-type specific geographic markets are analyzed and ranked on a
relative scale by CBRE 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.

Once the universe of real estate industry companies has been distilled through
the market research process, CBRE's local market presence provides the
capability to perform site specific inspections of key properties. This
analysis examines specific location, condition, and sub-market trends. CBRE's
use of locally based real estate professionals provides Alliance with a window
on the operations of the portfolio companies as information can immediately 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.

Alliance further screens the universe of real estate industry companies by
using rigorous financial models and by engaging in regular contact with
management of targeted companies. Each management's strategic plan and ability
to execute the plan are determined and analyzed. Alliance makes extensive use
of CBRE's network of

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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 combined with property
market trends and used to project future earnings potential.

The Portfolio may invest in short-term investments including: corporate
commercial paper and other short-term commercial obligations, in each case
rated or issued by companies with similar securities outstanding that are rated
Prime-1, Aa or better by Moody's or A-1, AA or better by 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 instrumentalities with
remaining maturities not exceeding 18 months.

The Portfolio may invest in debt securities rated BBB or higher by S&P or Baa
or higher by Moody's or, if not rated, of equivalent credit quality as
determined by Alliance. The Portfolio expects that it will not retain a debt
security that is downgraded below BBB or Baa or, if unrated, determined by
Alliance to have undergone similar credit quality deterioration, subsequent to
purchase by the Portfolio.

The Portfolio also may:

. invest up to 10% of its net assets in rights or warrants;

. invest up to 15% of its net assets in convertible securities of
companies whose common stocks are eligible for purchase by the
Portfolio;

. enter into forward commitments for up to 30% of its total assets;

. enter into standby commitment agreements;

. make short sales of securities or maintain a short position provided
that not more than 25% of the Portfolio's net assets are held as
collateral for such sales;

. invest up to 15% of its net assets in illiquid securities;

. make loans of portfolio securities of up to 25% of its total assets;
and

. enter into repurchase agreements of up to seven days' duration.

Because the Portfolio invests a substantial portion of its assets in the real
estate market, it has many of the same risks as direct ownership of real
estate. For example, the value of real estate could decline due to a variety of
factors affecting the real estate market generally, such as overbuilding,
increases in interest rates, or declines in rental rates. In addition, REITs
are dependent on the capability of their managers, may have limited
diversification, and could be significantly affected by changes in tax laws.

The Portfolio's investments in mortgage-backed securities have prepayment risk,
which is the risk that mortgage loans will be repaid when interest rates
decline and the Portfolio will have to reinvest in securities with lower
interest rates. This risk causes mortgage-backed securities to have
significantly greater price and yield volatility than traditional fixed-income
securities. The Portfolio's investments in REMICs, CMOs and other types of
mortgage-backed securities may be subject to special risks that are described
under "Description of Investment Practices."

DESCRIPTION OF INVESTMENT PRACTICES

This section describes the Portfolios' investment practices and associated
risks. Unless otherwise noted, a Portfolio's use of any of these practices was
specified in the previous section.

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Derivatives. The Portfolios may use derivatives to achieve their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices, and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.

Derivatives can be used by investors such as the Portfolios to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Portfolios is permitted to use
derivatives for one or more of these purposes, although most of the Portfolios
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool, which, when used properly, can provide
significant benefits to Portfolio shareholders. A Portfolio may take a
significant position in those derivatives that are within its investment
policies if, in Alliance's judgment, this represents the most effective
response to current or anticipated market conditions. Certain Portfolios will
generally make extensive use of carefully selected forwards and other
derivatives to achieve the currency hedging that is an integral part of their
investment strategy. Alliance's use of derivatives is subject to continuous
risk assessment and control from the standpoint of each Portfolio's investment
objectives and policies.

Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately-negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.

There are four principal types of derivative instruments--options, futures,
forwards, and swaps--from which virtually any type of derivative transaction
can be created.

. Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a
premium payment or fee, gives the option holder (the buyer) the right
but not the obligation to buy or sell the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index) at a
specified price (the exercise price) during a period of time or on a
specified date. A call option entitles the holder to purchase, and a
put option entitles the holder to sell, the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index).
Likewise, when an option is exercised the writer of the option is
obligated to sell (in the case of a call option) or to purchase (in the
case of a put option) the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index).

. Futures--A futures contract is an agreement that obligates the buyer to
buy and the seller to sell a specified quantity of an underlying asset
(or settle for cash the value of a contract based on an underlying
asset, rate or index) at a specific price on the contract maturity
date. Futures contracts are standardized, exchange-traded instruments
and are fungible (i.e., considered to be perfect substitutes for each
other). This fungibility allows futures contracts to be readily offset
or cancelled through the acquisition of equal but opposite positions,
which is the primary method in which futures contracts are liquidated.
A cash-settled futures contract does not require physical delivery of
the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered
into and its maturity date.

. Forwards--A forward contract is an obligation by one party to buy, and
the other party to sell, a specific quantity of an underlying commodity
or other tangible asset for an agreed upon price at a future date.
Forward contracts are customized, privately negotiated agreements
designed to satisfy the objectives of each party. A forward contract
usually results in the delivery of the underlying asset upon maturity
of the contract in return for the agreed upon payment.

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. Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to
changes in specified prices or rates (interest rates in the case of
interest rate swaps, currency exchange rates in the case of currency
swaps) for a specified amount of an underlying asset (the "notional"
principal amount). The payment flows are netted against each other,
with the difference being paid by one party to the other. Except for
currency swaps, the notional principal amount is used solely to
calculate the payment streams but is not exchanged. With respect to
currency swaps, actual principal amounts of currencies may be exchanged
by the counterparties at the initiation, and again upon the
termination, of the transaction.

Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the cash
flows from an underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the securities.
These securities are described below under Mortgage-Related Securities and
Other Asset-Backed Securities.

While the judicious use of derivatives by highly-experienced investment
managers such as Alliance can be quite beneficial, derivatives involve risks
different from, and, in certain cases, greater than, the risks presented by
more traditional investments. The following is a general discussion of
important risk factors and issues relating to the use of derivatives that
investors should understand before investing in a Portfolio.

. Market Risk--This is the general risk of all investments that the value
of a particular investment will change in a way detrimental to the
Portfolio's interest based on changes in the bond market generally.

. Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from
those associated with stocks and bonds. The use of a derivative
requires an understanding not only of the underlying instrument but
also of the derivative itself, without the benefit of observing the
performance of the derivative under all possible market conditions. In
particular, the use and complexity of derivatives require the
maintenance of adequate controls to monitor the transactions entered
into, the ability to assess the risk that a derivative adds to a
Portfolio, and the ability to forecast price, interest rate, or
currency exchange rate movements correctly.

. Credit Risk--This is the risk that a loss may be sustained by a
Portfolio as a result of the failure of a derivative counterparty to
comply with the terms of the derivative contract. The credit risk for
exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily
payment system (i.e., margin requirements) operated by the clearing
house in order to reduce overall credit risk. For privately negotiated
derivatives, there is no similar clearing agency guarantee. Therefore,
the Portfolios consider the creditworthiness of each counterparty to a
privately negotiated derivative in evaluating potential credit risk.

. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.

. Leverage Risk--Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a

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notional principal amount, even if the parties have not made any
initial investment. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial investment.

. Other Risks--Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately negotiated
derivatives, are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Portfolio. Derivatives do not
always perfectly or even highly correlate or track the value of the
assets, rates or indices they are designed to closely track.
Consequently, a Portfolio's use of derivatives may not always be an
effective means of, and sometimes could be counterproductive to,
furthering the Portfolio's investment objective.

Derivatives Used by the Portfolios. The following describes specific
derivatives that one or more of the Portfolios may use.

Forward Foreign Currency Exchange Contracts. A Portfolio purchases or sells
forward foreign currency exchange contracts ("forward contracts") to minimize
the risk from adverse changes in the relationship between the U.S. Dollar and
other currencies. A Portfolio may enter into a forward contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price
of the security (a "transaction hedge"). When a Portfolio believes that a
foreign currency may suffer a substantial decline against the U.S. Dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency, or when the Portfolio believes that the
U.S. Dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign currency for a fixed
dollar amount (a "position hedge"). Instead of entering into a position hedge,
a Portfolio may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. Dollar amount where the Portfolio
believes that the U.S. Dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. Dollar value
of the currency in which portfolio securities of the Portfolio are denominated
(a "cross-hedge").

Futures Contracts and Options on Futures Contracts. A Portfolio may buy and
sell futures contracts on fixed-income or other securities or foreign
currencies, and contracts based on interest rates or financial indices,
including any index of U.S. Government securities, foreign government
securities or corporate debt securities.

Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Portfolio will be traded on U.S. or foreign exchanges and will be used only for
hedging purposes.

Interest Rate Transactions (Swaps, Caps, and Floors). Each Portfolio that may
enter into interest rate swap, cap, or floor transactions expects to do so
primarily for hedging purposes, which may include preserving a return or spread
on a particular investment or portion of its portfolio or protecting against an
increase in the price of securities the 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 exchange of
floating rate payments for fixed rate payments). Interest rate swaps are
entered 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).

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Interest rate caps and floors are similar to options in that the purchase of an
interest rate cap or floor entitles the purchaser, to the extent that a
specified index exceeds (in the case of a cap) or falls below (in the case of a
floor) a predetermined interest rate, to receive payments of interest on a
notional amount from the party selling the interest rate cap or floor. A
Portfolio may enter into interest rate swaps, caps, and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.

The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Portfolio from interest rate
transactions is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make.

Options on Foreign Currencies. A Portfolio invests in options on foreign
currencies that are privately negotiated or traded on U.S. or foreign exchanges
for the purpose of protecting against declines in the U.S. Dollar value of
foreign currency denominated securities held by a Portfolio and against
increases in the U.S. Dollar cost of securities to be acquired. The purchase of
an option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although if rates move adversely, a Portfolio
may forfeit the entire amount of the premium plus related transaction costs.

Options on Securities. In purchasing an option on securities, a Portfolio would
be in a position to realize a gain if, during the option period, the price of
the underlying securities increased (in the case of a call) or decreased (in
the case of a put) by an amount in excess of the premium paid; otherwise the
Portfolio would experience a loss not greater than the premium paid for the
option. Thus, a Portfolio would realize a loss if the price of the underlying
security declined or remained the same (in the case of a call) or increased or
remained the same (in the case of a put) or otherwise did not increase (in the
case of a put) or decrease (in the case of a call) 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 represent a loss to
the Portfolio.

A Portfolio may write a put or call option in return for a premium, which is
retained by the Portfolio whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Portfolios will write uncovered call or put options on securities. A call
option written by a Portfolio is "covered" if the Portfolio owns the underlying
security, has an absolute and immediate right to acquire that security upon
conversion or exchange of another security it holds, or holds a call option on
the underlying security with an exercise price equal to or less than that of
the call option it has written. A put option written by a Portfolio is covered
if the Portfolio holds a put option on the underlying securities with an
exercise price equal to or greater than that of the put option it has written.

The risk involved in writing an uncovered call option is that there could be an
increase in the market value of the underlying security, and a Portfolio could
be obligated to acquire the underlying security at its current price and sell
it at a lower price. The risk of loss from writing an uncovered put option is
limited to the exercise price of the option.

A Portfolio may write a call option on a security that it does not own in order
to hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Portfolio would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in cross-
hedging may be greater than the correlation risk involved with other hedging
strategies.

Some of the Portfolios generally purchase or write privately negotiated options
on securities. A Portfolio that does so will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance. Privately
negotiated

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options purchased or written by a Portfolio may be illiquid and it may not be
possible for the Portfolio to effect a closing transaction at an advantageous
time.

Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than taking or making 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.

Brady Bonds. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.

U.S. 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 that
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 interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final maturity, (ii) collateralized
interest payments, (iii) uncollateralized interest payments, and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In light of the residual risk
of Brady Bonds and, among other factors, the history of defaults with respect
to commercial bank loans by public and private entities of countries issuing
Brady Bonds, investments in Brady Bonds are to be viewed as speculative.

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 equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise 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. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings.

Currency Swaps. Currency swaps involve the individually negotiated exchange by
a Portfolio with another party of a series of payments in specified currencies.
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
designated currency. Therefore, the entire principal value of a currency swap
is subject to the risk that the other party to the swap will default on its
contractual delivery obligations. A Portfolio will not enter into any currency
swap unless the credit quality of the unsecured senior debt or the claims-
paying ability of the counterparty is rated in

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the highest rating category of at least one nationally recognized rating
organization at the time of entering into the transaction. If there is a
default by the counterparty to the transaction, the Portfolio will have
contractual remedies under the transaction agreements.

Depositary Receipts and Securities of Supranational Entities. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored depositary receipts 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 typically issued by a U.S.
bank or trust company that evidence ownership of underlying securities issued
by a foreign corporation. GDRs and other types of depositary receipts are
typically issued by foreign banks or trust companies and evidence ownership of
underlying securities issued by either a foreign or U.S. company. Generally,
depositary receipts in registered form are designed 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 determining the country of
issuance, investments in depositary receipts of either type are deemed to be
investments in the underlying securities.

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 supranational entities include, among others, the
World Bank (International Bank for Reconstruction and Development) and the
European Investment Bank. "Semi-governmental securities" are securities issued
by entities owned by either a national, state or equivalent government or are
obligations of one of such government jurisdictions that are not backed by its
full faith and credit and general taxing powers.

Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a "when-issued basis" or purchases or sales on a
"delayed delivery basis." In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt restructuring or
approval of a proposed financing by appropriate authorities (i.e., a "when, as
and if issued" trade).

When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation and no interest or dividends accrues to the purchaser
prior to the settlement date.

The use of forward commitments helps a Portfolio to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Portfolio might sell securities in
its portfolio on a forward commitment basis to limit its exposure to falling
bond prices. In periods of falling interest rates and rising bond prices, a
Portfolio might sell a security in its portfolio and purchase the same or a
similar security on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher cash yields.

A Portfolio's right to receive or deliver a security under a forward commitment
may be sold prior to the settlement date. The Portfolios enter into forward
commitments, however, only with the intention of actually receiving securities
or delivering them, as the case may be. If a Portfolio, however, chooses to
dispose of the right to acquire a when-issued security prior to its acquisition
or dispose of its right to deliver or receive against a forward commitment, it
may realize a gain or incur a loss.

Illiquid Securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps,

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(ii) over the counter options and assets used to cover over the counter
options, and (iii) repurchase agreements not terminable within seven days.

A Portfolio that invests in illiquid securities may not be able to sell such
securities and may not be able to realize their full value upon sale. Alliance
will monitor each Portfolio's investments in illiquid securities. Rule 144A
securities will not be treated as "illiquid" for the purposes of the limit on
investments so long as the securities meet liquidity guidelines established by
the Board of Directors.

Indexed Commercial Paper. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. Each Portfolio that invests in
indexed commercial paper may do so without limitation. A Portfolio will receive
interest and principal payments on such commercial paper in the currency in
which such commercial paper is denominated, 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 commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result 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 denominated in foreign currencies while providing an attractive
money market rate of return. A Portfolio will purchase such commercial paper
for hedging purposes only, not for speculation.

Investment in Other Investment Companies. Certain of the Portfolios may invest
in other investment companies whose investment objectives and policies are
consistent with those of that Portfolio. If the Portfolio acquires shares in
investment companies, shareholders would bear both their proportionate share of
expenses in the Portfolio (including management and advisory fees) and,
indirectly, the expenses of such investment companies (including management and
advisory fees).

Loans of Portfolio Securities. A Portfolio may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high grade 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 secured 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 borrower, Alliance will consider all
relevant facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay the Portfolio any
income earned from the securities. The Portfolio may invest any cash collateral
in portfolio securities and earn additional income or receive an agreed-upon
amount of income from a borrower who has delivered equivalent collateral.

Loan Participations and Assignments. A Portfolio's investments in loans are
expected in most instances to be in the form of participations in loans and
assignments of all or a portion of loans from third parties. A Portfolio's
investment in loan participations typically will result in the Portfolio having
a contractual relationship only with the lender and not with the borrower. A
Portfolio will acquire participations only if the lender interpositioned
between the Portfolio and the borrower is a lender having total assets of more
than $25 billion and whose senior unsecured debt is rated investment grade or
higher. When a Portfolio purchases a loan assignment from a lender it will
acquire direct rights against the borrower on the loan. Because loan
assignments are arranged through private negotiations between potential
assignees and potential assignors, however, the rights and obligations acquired
by a Portfolio as the purchaser of an assignment may differ from, and be more
limited than, those held by the assigning lender.

The assignability of certain sovereign foreign debt obligations, with respect
to certain Portfolios, is restricted by the governing documentation as to the
nature of the assignee such that the only way in which the Portfolio may
acquire an interest in a loan is through a participation and not an assignment.
A 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 may not be a liquid market for such investments, they can
probably be sold only to a

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limited number of institutional investors. The lack of a liquid secondary
market may have an adverse effect on the value of such investments and a
Portfolio's ability to dispose of particular participations and assignments
when necessary to meet its liquidity needs in response to a specific economic
event such as a deterioration in the creditworthiness of the borrower. The lack
of a liquid secondary market for participations and assignments also may make
it more difficult for the Portfolio to assign a value to these investments for
purposes of valuing its portfolio of securities and calculating its net asset
value.

Mortgage-Related Securities. The Portfolio's investments in mortgage-related
securities typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Portfolio) by governmental or private organizations.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both
interest and principal, unlike more traditional debt securities, which normally
do not provide for periodic repayments of principal.

Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. Private issuers
sometimes obtain committed loan facilities, lines of credit, letters of credit,
surety bonds or other forms of liquidity and credit enhancement to support the
timely payment of interest and principal with respect to their securities if
the borrowers on the underlying mortgages fail to make their mortgage payments.
The ratings of such non-governmental securities are generally dependent upon
the ratings of the providers of such liquidity and credit support and would be
adversely affected if the rating of such an enhancer were downgraded. A
Portfolio may buy mortgage-related securities without credit enhancement if the
securities meet the Portfolio's investment standards.

One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing, or foreclosure of the
underlying properties are also paid to the holders of these securities, which,
as discussed below, frequently causes these securities to experience
significantly greater price and yield volatility than experienced by
traditional fixed-income securities. Some mortgage-related securities, such as
securities issued by GNMA, are referred to as "modified pass-through"
securities. The holders of these securities are entitled to the full and timely
payment of principal and interest, net of certain fees, regardless of whether
payments are actually made on the underlying mortgages.

Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. CMOs may be
issued by a U.S. Government instrumentality or agency or by a private issuer.
Although payment of the principal of, and interest on, the underlying
collateral securing privately issued CMOs may be guaranteed by GNMA, FNMA or
FHLMC, these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental agency
or any other person or entity.

Another type of mortgage-related security, known as ARMS, bears interest at a
rate determined by reference to a predetermined interest rate or index. There
are two main categories of rates or indices: (i) rates based on the yield on
U.S. Treasury securities; and (ii) indices derived from a calculated measure
such as a cost of funds

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index or a moving average of mortgage rates. Some rates and indices closely
mirror changes in market interest rate levels, while others tend to lag changes
in market rate levels and tend to be somewhat less volatile.

ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.

SMRS are mortgage-related securities that are usually structured with two
classes of securities collateralized by a pool of mortgages or a pool of
mortgaged-backed bonds or pass-through securities, with each class receiving
different proportions of the principal and interest payments from the
underlying assets. A common type of SMRS has one class of interest-only
securities or IOs receiving all of the interest payments from the underlying
assets; while the other class of securities, principal-only securities or POs,
receives all of the principal payments from the underlying assets. IOs and POs
are extremely sensitive to interest rate changes and are more volatile than
mortgage-related securities that are not stripped. IOs tend to decrease in
value as interest rates decrease, while POs generally increase in value as
interest rates decrease. If prepayments of the underlying mortgages are greater
than anticipated, the amount of interest earned on the overall pool will
decrease due to the decreasing principal balance of the assets. Changes in the
values of IOs and POs can be substantial and occur quickly, such as occurred in
the first half of 1994 when the value of many POs dropped precipitously due to
increases in interest rates. For this reason, none of the Portfolios relies on
IOs and POs as the principal means of furthering its investment objective.

The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates, mortgage-
related securities may be paid earlier than expected as a result of prepayments
of underlying mortgages. Such prepayments generally occur during periods of
falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, a
Portfolio may be unable to invest the proceeds from the early payment of the
mortgage-related securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price and
yield volatility than is experienced by traditional fixed-income securities.
The occurrence of mortgage prepayments is affected by the level of general
interest rates, general economic conditions, and other social and demographic
factors. During periods of falling interest rates, the rate of mortgage
prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective life of mortgage-
related securities, subjecting them to greater risk of decline in market value
in response to rising interest rates. If the life of a mortgage-related
security is inaccurately predicted, a Portfolio may not be able to realize the
rate of return it expected.

Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs, and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby potentially limiting a Portfolio's ability to buy or sell those
securities at any particular time.

As with fixed-income securities generally, the value of mortgage-related
securities also can be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such an adverse effect
is especially possible with fixed-rate mortgage securities. If the yield
available on other investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate levels, the value
of the mortgage-related securities will decline. Although the negative effect
could be lessened if the

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mortgage-related securities were to be paid earlier (thus permitting a
Portfolio to reinvest the prepayment proceeds in investments yielding the
higher current interest rate), as described above the rates of mortgage
prepayments and early payments of mortgage-related securities generally tend to
decline during a period of rising interest rates.

Although the values of ARMS may not be affected as much as the values of fixed-
rate mortgage securities by rising interest rates, ARMS may still decline in
value as a result of rising interest rates. Although, as described above, the
yields on ARMS vary with changes in the applicable interest rate or index,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.

Other Asset-Backed Securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.

Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due. In
some transactions, the value of the asset-backed security is dependent on the
performance of a third party acting as credit enhancer or servicer. In some
transactions (such as those involving the securitization of vehicle loans or
leases) it may be administratively burdensome to perfect the interest of the
security issuer in the underlying collateral and the underlying collateral may
become damaged or stolen.

Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a
Portfolio to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. A Portfolio
requires continual maintenance of collateral in an amount equal to, or in
excess of, the resale price. If a vendor defaults on its repurchase obligation,
a Portfolio would suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. If a vendor goes
bankrupt, a Portfolio might be delayed in, or prevented from, selling the
collateral for its benefit.

Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by a Portfolio of its assets concurrently with an agreement by
the Portfolio to repurchase the same assets at a later date at a fixed price.
During the reverse repurchase agreement period, the Portfolio continues to
receive principal and interest payments on these securities. Generally, the
effect of such a transaction is that a 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 advantageous
only if the interest cost to a Portfolio of the reverse repurchase transaction
is less than the cost of otherwise obtaining the cash. Reverse repurchase
agreements and dollar rolls are speculative techniques and are considered
borrowings by the Portfolios.

Dollar rolls involve sales by a Portfolio of securities for delivery in the
current month and the Portfolio's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, a Portfolio forgoes principal and interest paid
on the securities. A Portfolio

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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.

Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a 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, a 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
repurchase the securities. Reverse repurchase agreements and dollar rolls are
speculative techniques and are considered borrowings by the Portfolios.

Rights and Warrants. Warrants are option securities permitting their holders to
subscribe for other securities. Rights are similar to warrants except that they
have a substantially shorter duration. Rights and warrants do not carry with
them dividend or voting rights with respect to the underlying securities, or
any rights in the assets of the issuer. As a result, an investment in rights
and warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date.

Short Sales. A short sale is effected by selling a security that a Portfolio
does not own, or if the Portfolio owns the security, is not to be delivered
upon consummation of the sale. A short sale is "against the box" if a Portfolio
owns or has the right to obtain without payment securities identical to those
sold short.

If the price of the security sold short increases between the time of the short
sale and the time a Portfolio replaces the borrowed security, the Portfolio
will incur a loss; conversely, if the price declines, the Portfolio will
realize a short-term capital gain. Any gain will be decreased, and any loss
increased, by the transaction costs described above. Although a Portfolio's
gain is limited to the price at which it sold the security short, its potential
loss is theoretically unlimited.

Standby Commitment Agreements. Standby commitment agreements are similar to put
options that commit a Portfolio, for a stated period of time, to purchase a
stated amount of a security that 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 the security
ultimately is issued. The Portfolios will enter into such agreements only for
the purpose of investing in the security underlying the commitment at a yield
and price considered advantageous and unavailable on a firm commitment basis.
No Portfolio will enter into a standby commitment with a remaining term in
excess of 45 days. The Portfolios will limit their investments in standby
commitments so that the aggregate purchase price of the securities subject to
the commitments does not exceed 20% of their assets.

There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Portfolio will bear the risk of capital loss
in the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Portfolio.

Structured Securities. Structured securities in which some Portfolios may
invest represent interests in entities organized and operated solely for the
purpose of restructuring the investment characteristics of sovereign or foreign
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 structured securities backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued structured securities to
create securities with different investment characteristics such

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as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured securities is dependent
on the extent of the cash flow on the underlying instruments. Because
structured securities typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments.
Structured securities of a given class may be 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.

Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.

A Portfolio may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of
time if short-term interest rates rise above a predetermined level or "cap."
The amount of such an additional interest payment typically is calculated under
a formula based on a short-term interest rate index multiplied by a designated
factor.

Leveraged inverse floating rate debt instruments are sometimes known as
"inverse floaters." The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse
floater is indexed. An inverse floater may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds the magnitude
of the change in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater volatility in market
value, such that, during periods of rising interest rates, the market values of
inverse floaters will tend to decrease more rapidly than those of fixed rate
securities.

Zero Coupon and Principal-Only Securities. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.

Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal portions from the
coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which are generally held by a bank in a custodial or trust
account).

Future Developments. A Portfolio may, following written notice to its
shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Portfolio, or are not available but may
yet be developed, to the extent such investment practices are consistent with
the Portfolio's investment

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objective and legally permissible for the Portfolio. Such investment practices,
if they arise, may involve risks that are different from or exceed those
involved in the practices described above.

Portfolio Turnover. The portfolio turnover rate for each Portfolio is included
in the Financial Highlights section. The Portfolios are actively managed and,
in some cases in response to market conditions, a Portfolio's turnover may
exceed 100%. Several of the Portfolios, including U.S. Government/High Grade
Securities Portfolio, High Yield Portfolio, Short-Term Multi-Market Portfolio,
Global Bond Portfolio, North American Government Income Portfolio, Global
Dollar Government Portfolio, Conservative Investors Portfolio, Growth Investors
Portfolio, and Growth Portfolio, engage in more active trading and have
significantly higher portfolio turnover. A higher rate of portfolio turnover
increases brokerage and other expenses, which must be borne by the Portfolio
and its shareholders.

Temporary Defensive Position. For temporary defensive purposes, each Portfolio
may invest in certain types of short-term, liquid, high-grade or high-quality
(depending on the Portfolio) debt securities. These securities may include U.S.
Government securities, qualifying bank deposits, money market instruments,
prime commercial paper and other types of short-term debt securities, including
notes and bonds. For Portfolios that may invest in foreign countries, such
securities may also include short-term, foreign-currency denominated securities
of the type mentioned above issued by foreign governmental entities, companies
and supranational organizations. While the Portfolios are investing for
temporary defensive purposes, they may not meet their investment objective.

ADDITIONAL RISK CONSIDERATIONS

Investment in certain of the Portfolios involves the special risk
considerations described below. Certain of these risks may be heightened when
investing in emerging markets.

Currency Considerations. Those Portfolios that invest some portion of their
assets in securities denominated in, and receive revenues in, foreign
currencies will be adversely affected by reductions in the value of those
currencies relative to the U.S. Dollar. These changes will affect a Portfolio's
net assets, distributions and income. If the value of the foreign currencies in
which a Portfolio receives income falls relative to the U.S. Dollar between
receipt of the income and the making of Portfolio distributions, a Portfolio
may be required to liquidate securities in order to make distributions if the
Portfolio has insufficient cash in U.S. Dollars to meet the distribution
requirements that the Portfolio must satisfy to qualify as a regulated
investment company for federal income tax purposes. Similarly, if an exchange
rate declines between the time a 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, a Portfolio may engage in certain
currency hedging transactions, as described above, which involve certain
special risks.

Effects of Borrowing. A Portfolio's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each
Portfolio that may borrow expects to effect borrowings and repayments at such
times and in such amounts as will maintain investment leverage in an amount
approximately equal to its borrowing target. The loan agreements provide for a
selection of interest rates that are based on the bank's short-term funding
costs in the U.S. and London markets.

Borrowings by a Portfolio result in leveraging of the Portfolio's shares.
Utilization of leverage, which is usually considered speculative, involves
certain risks to a Portfolio's shareholders. These include a higher volatility
of the net asset value of a Portfolio's shares and the relatively greater
effect on the net asset value of the shares. So long as a Portfolio is able to
realize a net return on its investment portfolio that is higher than the
interest expense paid on borrowings, the effect of leverage will be to cause
the Portfolio's shareholders to realize a higher current net investment income
than if the Portfolio were not leveraged. On the other hand, interest rates on
U.S. Dollar-denominated and foreign currency-denominated obligations change
from time to time as does their relationship to each other, depending upon such
factors as supply and demand forces, monetary and tax

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policies within each country and investor expectations. Changes in such factors
could cause the relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency-denominated obligations of a Portfolio's investments. If the
interest expense on borrowings approaches the net return on a Portfolio's
investment portfolio, the benefit of leverage to the Portfolio's shareholders
will be reduced. If the interest expense on borrowings were to exceed the net
return to shareholders, a Portfolio's use of leverage would result in a lower
rate of return. Similarly, the effect of leverage in a declining market could
be a greater decrease in net asset value per share. In an extreme case, if a
Portfolio's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Portfolio to liquidate
certain of its investments and reduce the net asset value of a Portfolio's
shares.

In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by some Portfolios could
adversely affect the Portfolios' shareholders, as noted above, or in
anticipation of such changes, a Portfolio may increase the percentage of its
investment portfolio invested in U.S. Government securities, which would tend
to offset the negative impact of leverage on Portfolio shareholders. Each
Portfolio may also reduce the degree to which it is leveraged by repaying
amounts borrowed.

Fixed-Income Securities. The value of each Portfolio's shares will fluctuate
with the value of its investments. The value of each Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of a Portfolio's securities will
generally rise, although if falling interest rates are viewed as a precursor to
a recession, the values of a Portfolio's securities may fall along with
interest rates. Conversely, during periods of rising interest rates, the values
of a Portfolio's securities will generally decline. Changes in interest rates
have a greater effect on fixed-income securities with longer maturities and
durations than those with shorter maturities and durations.

In seeking to achieve a Portfolio's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Portfolio.

Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Portfolio whose investment portfolio includes
foreign securities may experience greater price volatility and significantly
lower liquidity than a portfolio invested solely in securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States.

Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase
the cost and expenses of a Portfolio. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.

A Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require a Portfolio to adopt special procedures or seek local
governmental approvals or other

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actions, any of which may involve additional costs to a Portfolio. These
factors may affect the liquidity of a Portfolio's investments in any country
and Alliance will monitor the effect of any such factor or factors on a
Portfolio's investments. Furthermore, transaction costs including brokerage
commissions for transactions both on and off the securities exchanges in many
foreign countries are generally higher than in the U.S.

Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.

The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, or diplomatic
developments could affect adversely the economy of a foreign country. In the
event of nationalization, expropriation or other confiscation, a Portfolio
could lose its entire investment in securities in the country involved. In
addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Portfolio than that provided by U.S. laws.

Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on any Portfolio's investments in the securities
of Canadian issuers or investments denominated in Canadian Dollars. The factors
described above 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 Canadian Government securities as expressed in U.S. Dollars.

Some of the Portfolios may invest substantial amounts of their assets in
issuers located in the United Kingdom, Japan, Canada, Mexico and Argentina.
Please refer to Appendix B for a discussion of risks associated with
investments in these countries.

Investment in Privatized Enterprises by Worldwide Privatization Portfolio. In
certain jurisdictions, the ability of foreign entities, such as the Portfolio,
to participate in privatizations may be limited by local law, or the price or
terms on which the Portfolio may be able to participate may be less
advantageous than for local investors. Moreover, there can be no assurance that
governments that have embarked on privatization programs will continue to
divest their ownership of state enterprises, that proposed privatizations will
be successful or that governments will not re-nationalize enterprises that have
been privatized. Furthermore, in the case of certain of the enterprises in
which the Portfolio may invest, large blocks of the stock of those enterprises
may be held by a small group of stockholders, even after the initial equity
offerings by those enterprises. The sale of some portion or all of those blocks
could have an adverse effect on the price of the stock of any such enterprise.

Most state enterprises or former state enterprises go through an internal
reorganization of management prior to conducting an initial equity offering in
an attempt to better enable these enterprises to compete in the private sector.
However, certain reorganizations could result in a management team that does
not function as well as the enterprise's prior management and may have a
negative effect on such enterprise. After making an initial equity offering,
enterprises that 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

66
<PAGE>

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 controlling position in the enterprise even
after the initial equity offering for the enterprise.

Investment in Smaller, Emerging Companies. The foreign securities in which
certain Portfolios may invest may include securities of smaller, emerging
companies. Investment in such companies involves greater risks than is
customarily associated with securities of more established companies. Companies
in the earlier stages of their development often have products and management
personnel which have not been thoroughly tested by time or the marketplace;
their financial resources may not be as substantial as those of more
established companies. The securities of smaller companies may have relatively
limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger companies or broad market indices. The
revenue flow of such companies may be erratic and their results of operations
may fluctuate widely and may also contribute to stock price volatility.

Extreme Governmental Action; Less Protective Laws. In contrast with investing
in the United States, foreign investment may involve in certain situations
greater risk of nationalization, expropriation, confiscatory taxation, currency
blockage or other extreme governmental action which could adversely impact a
Portfolio's investments. In the event of certain such actions, a Portfolio
could lose its entire investment in the country involved. In addition, laws in
various foreign countries governing, among other subjects, business
organization and practices, securities and securities trading, bankruptcy and
insolvency may provide less protection to investors such as a Portfolio than
provided under U.S. laws.

Investment in the Banking Industry. Sustained increases in interest rates can
adversely affect the availability and cost of funds for a bank's lending
activities, and a deterioration in general economic conditions could increase
the exposure to credit losses. The banking industry is also subject to the
effects of the concentration of loan portfolios in particular businesses such
as real estate, energy, agriculture or high technology-related companies;
competition within those industries as well as with other types of financial
institutions; and national and local governmental regulation. In addition, a
Portfolio's investments in commercial banks located in several foreign
countries are subject to additional risks due to the combination in such banks
of commercial banking and diversified securities activities. As discussed
above, however, a Portfolio will seek to minimize their exposure to such risks
by investing only in debt securities which are determined to be of high
quality.

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 described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.

Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.

The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established

67
<PAGE>

secondary market for lower-rated securities, a Portfolio may experience
difficulty in valuing such securities and, in turn, the Portfolio's assets.

Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification, and attention to current
developments and trends in interest rates and economic and political
conditions. There can be no assurance, however, that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance'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 Portfolio, Alliance 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. Alliance's analysis
focuses on relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience and managerial
strength of the issuer.

Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which a Portfolio may invest. Reduced
secondary market liquidity may have an adverse effect on the market price and a
Portfolio's ability to dispose of particular instruments when necessary to meet
its liquidity requirements or in response to specific economic events such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain sovereign debt obligations may also make it more
difficult for a Portfolio to obtain accurate market quotations for the 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 Portfolios will be exposed to
the direct or indirect consequences of political, social, and economic changes
in various countries. Political changes in a country may affect the willingness
of a foreign government to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among other things,
in its inflation rate, the amount of its external debt and its gross domestic
product, will also affect the government's ability to honor its obligations.

The sovereign debt obligations in which the Portfolios will invest in many
cases pertain to countries that are among the world's largest debtors to
commercial banks, foreign governments, international financial organizations,
and other financial institutions. In recent years, the governments of some of
these countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers.

The Portfolios are 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 Alliance believes it to be consistent with the Portfolios' investment
objectives. The Portfolios may have limited legal recourse in the event of a
default with respect to certain sovereign debt obligations it holds. For
example, remedies from defaults on certain sovereign debt obligations, unlike
those on private debt, must, in some cases, be pursued in the courts of the
defaulting party itself. Legal recourse therefore may be significantly
diminished. Bankruptcy, moratorium and other similar laws applicable to issuers
of sovereign debt obligations may be substantially different from those
applicable to issuers of private debt obligations. The political context,
expressed as the willingness of an issuer of sovereign debt obligations to meet
the terms of the debt obligation, for example, is of considerable importance.
In addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of securities issued by foreign
governments in the event of default under commercial bank loan agreements.

68
<PAGE>

U.S. and Foreign Taxes. A Portfolio's investment in foreign securities may be
subject to taxes withheld at the source on dividend or interest payments.
Foreign taxes paid by a Portfolio may be creditable or deductible by U.S.
shareholders for U.S. income tax purposes. No assurance can be given that
applicable tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct such foreign
taxes.

Unrated Securities. Unrated securities will also be considered for investment
by certain Portfolios when Alliance believes that the financial condition of
the issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the Portfolio's objective
and policies.

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

Year 2000. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction,
rather than the full four digits. If these systems are not modified or
replaced, transactions occurring after 1999 could be processed as year "1900",
which could result in processing inaccuracies and computer system failures.
This is commonly known as the Year 2000 problem. The failure of any of the
computer systems employed by the Portfolios' major service providers to process
Year 2000 related information properly could have a significant negative impact
on the Portfolios' operations and the services that are provided to the
Portfolios' shareholders. In addition, to the extent that the operations of
issuers of securities held by the Portfolios are impaired by the Year 2000
problem, or prices of securities held by the Portfolios decline as a result of
real or perceived problems relating to the Year 2000, the value of the
Portfolios' shares may be materially affected.

With respect to the Year 2000, the Portfolios have been advised that Alliance,
each Portfolio's investment adviser, Alliance Fund Distributors, Inc. ("AFD"),
each Portfolio's principal underwriter, and Alliance Fund Services, Inc.
("AFS"), each Portfolio's registrar, transfer agent and dividend disbursing
agent (collectively, "Alliance"), began to address the Year 2000 issue several
years ago in connection with the replacement or upgrading of certain computer
systems and applications. During 1997, Alliance began a formal Year 2000
initiative, which established a structured and coordinated process to deal with
the Year 2000 issue. Alliance reports that it has completed its assessment of
the Year 2000 issues on its domestic and international computer systems and
applications. Currently, management of Alliance expects that the required
modifications for the majority of its significant systems and applications that
will be in use on January 1, 2000, will be completed and tested by early 1999.
Full integration testing of these systems and testing of interfaces with third-
party suppliers will continue through 1999. At this time, management of
Alliance believes that the costs associated with resolving this issue will not
have a material adverse effect on its operations or on its ability to provide
the level of services it currently provides to the Portfolio.

The Portfolios and Alliance have been advised by the Portfolios' Custodian and
Administrator that they are each in the process of reviewing their systems with
the same goals. As of the date of this Prospectus, the Portfolio and Alliance
have no reason to believe that the Custodian or Administrator will be unable to
achieve these goals.

69
<PAGE>

MANAGEMENT OF THE PORTFOLIOS

Investment Adviser
Each Portfolio's Adviser is Alliance Capital Management, L.P., 1345 Avenue of
the Americas, New York, New York 10105. Alliance is a leading international
investment manager supervising client accounts with assets as of December 31,
1998, totaling more than $286 billion (of which approximately $118 billion
represented the assets of investment companies). Alliance's clients are
primarily major corporate employee benefit funds, public employee retirement
systems, investment companies, foundations, and endowment funds. The 54
registered investment companies, with more than 118 separate portfolios,
managed by Alliance currently have over 3.6 million shareholder accounts. As of
December 31, 1998, Alliance was retained as an investment manager for employee
benefit plan assets of 35 of the FORTUNE 100 companies.
Alliance provides investment advisory services and order placement facilities
for the Portfolios. For these advisory services, for the fiscal year ended
December 31, 1998 the Portfolios paid Alliance as a percentage of average net
assets:

<TABLE>
<CAPTION>
Fee as a
percentage of
average
Portfolio net assets *
--------- -------------
<S> <C>
Money Market Portfolio............................................ .50%
Premier Growth Portfolio.......................................... .97%
Growth and Income Portfolio....................................... .63%
U.S. Government/High Grade Securities Portfolio................... .60%
High Yield Portfolio.............................................. .44%
Total Return Portfolio............................................ .62%
International Portfolio........................................... .67%
Short-Term Multi-Market Portfolio................................. 0.0%
Global Bond Portfolio............................................. .64%
North American Government Income Portfolio........................ .53%
Global Dollar Government Portfolio................................ .39%
Utility Income Portfolio.......................................... .58%
Conservative Investors Portfolio.................................. .63%
Growth Investors Portfolio........................................ .34%
Growth Portfolio.................................................. .75%
Worldwide Privatization Portfolio................................. .38%
Technology Portfolio.............................................. .81%
Quasar Portfolio.................................................. .73%
Real Estate Investment Portfolio.................................. .45%
</TABLE>
- --------
* Fees are stated net of waivers and/or reimbursements. Absent fee waivers
and/or reimbursements, the fee paid to Alliance by the following Portfolios
as a percentage of average net assets, would have been: Money Market
Portfolio (.50%); Premier Growth Portfolio (1.00%); Growth and Income
Portfolio (.63%); U.S. Government/High Grade Securities Portfolio (.60%);
High Yield Portfolio (.75%); Total Return Portfolio (.63%); International
Portfolio (1.00%); Short-Term Multi-Market Portfolio (.55%); Global Bond
Portfolio (.65%); North American Government Income Portfolio (.65%); Global
Dollar Government Portfolio (.75%); Utility Income Portfolio (.75%);
Conservative Investors Portfolio (.75%); Growth Investors Portfolio (.75%);
Growth Portfolio (.75%); Worldwide Privatization Portfolio (1.00%);
Technology Portfolio (1.00%); Quasar Portfolio (1.00%); and Real Estate
Investment Portfolio (.90%).
AIGAM International Limited, Unit 1/11, Harbor Yard, Chelsea, London, England,
is the Sub-Adviser for the Global Bond Portfolio. The Sub-Adviser is an asset
management firm specializing in global fixed-income money management. It
manages a range of institutional specialty funds, investment companies, and
dedicated institutional portfolios.
In connection with investments in real estate securities, Alliance has, at its
expense, retained as a consultant CB Richard Ellis, Inc. ("CBRE"). CBRE is a
publicly held company and the largest real services company in the United
States, comprised of real estate brokerage, property, and facilities
management, and real estate finance, and investment advisory services.

70
<PAGE>

Portfolio Managers

The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Portfolio, the length of time that each
person has been primarily responsible for the Portfolio, and each person's
principal occupation during the past five years.

<TABLE>
<CAPTION>
Principal Occupation
Employee; Time Period; During
Portfolio Title With ACMC The Past Five Years*
--------- -------------------------- ------------------------
<C> <S> <C>
Money Market Portfolio Raymond J. Papera; since Associated with Alliance
1997; Senior Vice since prior to 1994
President of Alliance
Capital Management
Corporation (ACMC)**
Premier Growth Alfred Harrison; since Associated with Alliance
Portfolio inception; Director and since prior to 1994
Vice Chairman of ACMC
Growth and Income Paul C. Rissman; since Associated with Alliance
Portfolio inception; Senior Vice since prior to 1994
President of ACMC
U.S. Government/High Matthew Bloom; since 1999; Associated with Alliance
Grade Securities Portfolio Senior Vice President of since prior to 1994
ACMC
High Yield Portfolio Nelson R. Jantzen; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
Wayne C. Tappe; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
Total Return Portfolio Paul C. Rissman; since (see above)
inception; (see above)
International Portfolio Steven Beinhacker; since Associated with Alliance
1996; Senior Vice since prior to 1994
President of ACMC
Short-Term Multi-Market Douglas J. Peebles; since Associated with Alliance
Portfolio inception; Senior Vice since prior to 1994
President of ACMC
Global Bond Portfolio Ian Coulman; since Associated with the Sub-
inception; Investment Adviser since prior to
Manager of the Sub-Adviser 1994
North American Government Wayne D. Lyski; since Associated with Alliance
Income Portfolio inception; Executive Vice since prior to 1994
President of ACMC
Global Dollar Government Wayne D. Lyski; since (see above)
Portfolio inception; (see above)
Utility Income Portfolio Paul C. Rissman; since (see above)
inception; (see above)
Conservative Investors Nicholas D.P. Carn; since Associated with Alliance
Portfolio 1997; Senior Vice since 1997; prior
President of ACMC thereto, Chief
Investment Officer and
Portfolio Manager of
Draycott Partners since
prior to 1994
</TABLE>

71
<PAGE>

<TABLE>
<CAPTION>
Principal Occupation
Employee; Time Period; During
Portfolio Title With ACMC The Past Five Years*
--------- -------------------------- ------------------------
<C> <S> <C>
Growth Investors Portfolio Nicholas D.P. Carn; since (see above)
1997; (see above)
Growth Portfolio Tyler J. Smith; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
Worldwide Privatization Portfolio Mark H. Breedon; since Associated with Alliance
inception; Vice President since prior to 1994
of ACMC and Director and
Senior Vice President of
Alliance Capital
Limited***
Technology Portfolio Peter Anastos; since 1992; Associated with Alliance
Senior Vice President of since prior to 1994
ACMC
Gerald T. Malone; since Associated with Alliance
1992; Senior Vice since prior to 1994
President of ACMC
Quasar Portfolio Alden M. Stewart; since Associated with Alliance
inception; Executive Vice since prior to 1994
President of ACMC
Randall E. Hasse; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
Real Estate Investment Portfolio Daniel G. Pine; since Associated with Alliance
inception; Senior Vice since 1996; prior
President of ACMC thereto associated with
Desai Capital Management
since prior to 1994
David Kruth; since 1997; Associated with Alliance
Vice President of ACMC since 1997; prior
thereto, Senior Vice
President of Yarmouth
Group
</TABLE>
- --------
* Unless indicated otherwise, persons associated with Alliance have been
employed in a portfolio management, research or investment capacity.
** The sole general partner of Alliance.
*** An indirect wholly-owned subsidiary of Alliance.

72
<PAGE>

PURCHASE AND SALE OF SHARES

How The Portfolios Value Their Shares

The Portfolios' net asset value or NAV (except for the Money Market Portfolio)
is calculated at 4:00 p.m., Eastern time, each day the Exchange is open for
business. To calculate NAV, a Portfolio's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. The Portfolios' value their securities 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
Portfolios' Directors or Trustees believe accurately reflect fair market value.
Some of the Portfolios invest in securities that are primarily listed on
foreign exchanges and trade on weekends or other days when the fund does not
price its shares. These Portfolios' NAVs may change on days when shareholders
will not be able to purchase or redeem the Portfolios' shares.

The Money Market Portfolio's NAV is expected to be constant at $1.00 share,
although this value is not guaranteed. The NAV is calculated at 4:00 pm,
Eastern time, each day the Exchange is open for business. The Portfolio values
its securities at their amortized cost. This method involves valuing an
instrument at its cost and thereafter applying a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the investment.

Your order for purchase or sale of shares is priced at the next NAV calculated
after your order is received by the Portfolio.

How To Purchase and Sell Shares

The Portfolios offer their shares through the separate accounts of life
insurance companies. You may only purchase and sell shares through these
separate accounts. See the Prospectus of the separate account of the
participating insurance company for information on the purchase and sale of the
Portfolios' shares.

DIVIDENDS, DISTRIBUTIONS AND TAXES

The Money Market Portfolio declares income dividends each business day at 4:00
p.m., Eastern time. The dividends are paid monthly via automatic investment in
additional full and fractional shares. As these additional shares are entitled
to income, a compounding of income occurs.

The other Portfolios declare dividends on their shares at least annually. The
income and capital gains distribution will be made in shares of each Portfolio.

See the Prospectus of the separate account of the participating insurance
company for federal income tax information.

Investment income received by a Portfolio from sources within foreign countries
may be subject to foreign income taxes withheld at the source. Provided that
certain code requirements are met, a Portfolio may "pass-through" to its
shareholders credits or deductions to foreign income taxes paid.

73
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the
Portfolio's financial performance for the period of the Portfolio's operations.
Certain information reflects financial results for a single share of each
Portfolio. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Portfolio (assuming
reinvestment of all dividends and distributions). The information has been
audited by Ernst & Young LLP, the Fund's independent auditor, whose report,
along with each Portfolio's financial statements, is included in the SAI, which
is available upon request.

<TABLE>
<CAPTION>
Money Market Portfolio
----------------------------------------------------
Year Ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------
Income From Investment
Operations
Net investment income... .05 .05(b) .05(b) .05(b) .03(b)
-------- ------- ------- ------- ------
Less: Dividends
Dividends from net
investment income...... (.05) (.05) (.05) (.05) (.03)
-------- ------- ------- ------- ------
Net asset value, end of
year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======
Total Return
Total investment return
based on net asset
value(d)............... 4.98% 5.11% 4.71% 4.97% 3.27%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)........ $119,574 $67,584 $64,769 $28,092 $6,899
Ratios to average net
assets of:
Expenses, net of
waivers and
reimbursements....... .68% .64% .69% .95% .95%
Expenses, before
waivers and
reimbursements....... .68% .64% .69% 1.07% 4.46%
Net investment
income............... 4.84% 5.00%(b) 4.64%(b) 4.85%(b) 3.98%(b)
</TABLE>

<TABLE>
<CAPTION>
Premier Growth Portfolio
------------------------------------------------
Year Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year................... $ 20.99 $ 15.70 $ 17.80 $ 12.37 $ 12.79
---------- -------- ------- ------- -------
Income From Investment
Operations
Net investment income
(loss)(b)(c).............. (.01) .04 .08 .09 .03
Net realized and unrealized
gain (loss) on investment
transactions.............. 10.08 5.27 3.29 5.44 (.41)
---------- -------- ------- ------- -------
Net increase (decrease) in
net asset value from
operations................ 10.07 5.31 3.37 5.53 (.38)
---------- -------- ------- ------- -------
Less: Dividends and
Distributions
Dividends from net
investment income......... (.03) (.02) (.10) (.03) (.01)
Distributions from net
realized gains............ -0- -0- (5.37) (.07) (.03)
---------- -------- ------- ------- -------
Total dividends and
distributions............. (.03) (.02) (5.47) (.10) (.04)
---------- -------- ------- ------- -------
Net asset value, end of
year...................... $ 31.03 $ 20.99 $ 15.70 $ 17.80 $ 12.37
========== ======== ======= ======= =======
Total Return
Total investment return
based on net asset
value(d).................. 47.97% 33.86% 22.70% 44.85% (2.96)%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)........... $1,247,254 $472,326 $96,434 $29,278 $37,669
Ratios to average net
assets of:
Expenses, net of waivers
and reimbursements...... 1.06% .95% .95% .95% .95%
Expenses, before waivers
and reimbursements...... 1.09% 1.10% 1.23% 1.19% 1.40%
Net investment income
(loss)(b)............... (.04)% .21% .52% .55% .42%
Portfolio turnover rate.... 31% 27% 32% 97% 38%
</TABLE>
- --------
See footnotes on page 83.

74
<PAGE>

<TABLE>
<CAPTION>
Growth and Income Portfolio
----------------------------------------------
Year Ended December 31,
----------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $ 19.93 $ 16.40 $ 15.79 $ 11.85 $ 12.18
-------- -------- -------- ------- -------
Income From Investment
Operations
Net investment income(b)(c).. .22 .21 .24 .27 .10
Net realized and unrealized
gain (loss) on investment
transactions................ 3.81 4.39 3.18 3.94 (.16)
-------- -------- -------- ------- -------
Net increase (decrease) in
net asset value from
operations.................. 4.03 4.60 3.42 4.21 (.06)
-------- -------- -------- ------- -------
Less: Dividends and
Distributions
Dividends from net investment
income...................... (.16) (.13) (.25) (.13) (.10)
Distributions from net
realized gains.............. (1.96) (.94) (2.56) (.14) (.17)
-------- -------- -------- ------- -------
Total dividends and
distributions............... (2.12) (1.07) (2.81) (.27) (.27)
-------- -------- -------- ------- -------
Net asset value, end of
year........................ $ 21.84 $ 19.93 $ 16.40 $ 15.79 $ 11.85
======== ======== ======== ======= =======
Total Return
Total investment return based
on net asset value(d)....... 20.89% 28.80% 24.09% 35.76% (.35)%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)............. $381,614 $250,202 $126,729 $41,993 $41,702
Ratios to average net assets
of:
Expenses, net of waivers
and reimbursements........ .73% .72% .82% .79% .90%
Expenses, before waivers
and reimbursements........ .73% .72% .82% .79% .91%
Net investment income(b)... 1.07% 1.16% 1.58% 1.95% 1.71%
Portfolio turnover rate...... 79% 86% 87% 150% 95%
</TABLE>

<TABLE>
<CAPTION>
U.S. Government/High Grade Securities
Portfolio
------------------------------------------
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $ 11.93 $ 11.52 $ 11.66 $ 9.94 $10.72
------- ------- ------- ------- ------
Income From Investment Operations
Net investment income(b)(c)...... .63 .68 .66 .65 .28
Net realized and unrealized gain
(loss) on investment
transactions.................... .32 .29 (.39) 1.25 (.71)
------- ------- ------- ------- ------
Net increase (decrease) in net
asset value from operations..... .95 .97 .27 1.90 (.43)
------- ------- ------- ------- ------
Less: Dividends and Distributions
Dividends from net investment
income.......................... (.55) (.54) (.28) (.18) (.21)
Distributions from net realized
gains........................... (.06) (.02) (.13) -0- (.14)
------- ------- ------- ------- ------
Total dividends and
distributions................... (.61) (.56) (.41) (.18) (.35)
------- ------- ------- ------- ------
Net asset value, end of year..... $ 12.27 $ 11.93 $ 11.52 $ 11.66 $ 9.94
======= ======= ======= ======= ======
Total Return
Total investment return based on
net asset value(d).............. 8.22% 8.68% 2.55% 19.26% (4.03)%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)........................ $58,418 $36,198 $29,150 $16,947 $5,101
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................ .78% .84% .92% .95% .95%
Expenses, before waivers and
reimbursements................ .91% .84% .98% 1.58% 3.73%
Net investment income(b)....... 5.24% 5.89% 5.87% 5.96% 5.64%
Portfolio turnover rate.......... 235% 114% 137% 68% 32%
</TABLE>
- --------
See footnotes on page 83.

75
<PAGE>

<TABLE>
<CAPTION>
High Yield Portfolio
-------------------------
October 27,
Year Ended 1997(a) to
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net asset value, beginning of period............... $ 10.33 $10.00
------- ------
Income From Investment Operations
Net investment income(b)(c)........................ 1.03 .13
Net realized and unrealized gain (loss) on
investment transactions........................... (1.41) .20
------- ------
Net increase (decrease) in net asset value from
operations........................................ (.38) .33
------- ------
Less: Dividends
Dividends from net investment income............... (.01) -0-
------- ------
Net asset value, end of period..................... $ 9.94 $10.33
======= ======
Total Return
Total investment return based on net asset
value(d).......................................... (3.69)% 3.30%
Ratios/Supplemental Data
Net assets, end of period (000's omitted).......... $16,910 $1,141
Ratios to average net assets of:
Expenses, net of waivers and reimbursements...... .95% .95%(e)
Expenses, before waivers and reimbursements...... 1.80% 8.26%(e)
Net investment income(b)......................... 9.77% 7.28%(e)
Portfolio turnover rate............................ 295% 8%
</TABLE>

<TABLE>
<CAPTION>
Total Return Portfolio
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 16.92 $ 14.63 $ 12.80 $10.41 $10.97
------- ------- ------- ------ ------
Income From Investment Operations
Net investment income(b)(c)....... .41 .39 .27 .36 .15
Net realized and unrealized gain
(loss) on investment
transactions..................... 2.36 2.62 1.66 2.10 (.56)
------- ------- ------- ------ ------
Net increase (decrease) in net
asset value from operations...... 2.77 3.01 1.93 2.46 (.41)
------- ------- ------- ------ ------
Less: Dividends and Distributions
Dividends from net investment
income........................... (.29) (.23) (.07) (.07) (.09)
Distributions from net realized
gains............................ (1.34) (.49) (.03) -0- (.06)
------- ------- ------- ------ ------
Total dividends and
distributions.................... (1.63) (.72) (.10) (.07) (.15)
------- ------- ------- ------ ------
Net asset value, end of year...... $ 18.06 $ 16.92 $ 14.63 $12.80 $10.41
======= ======= ======= ====== ======
Total Return
Total investment return based on
net asset value(d)............... 16.99% 21.11% 15.17% 23.67% (3.77)%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)......................... $59,464 $42,920 $25,875 $8,242 $ 750
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................. .88% .88% .95% .95% .95%
Expenses, before waivers and
reimbursements................. .95% .88% 1.12% 4.49% 19.49%
Net investment income(b)........ 2.41% 2.46% 2.76% 3.16% 2.29%
Portfolio turnover rate........... 57% 65% 57% 30% 83%
</TABLE>
- --------
See footnotes on page 83.

76
<PAGE>

<TABLE>
<CAPTION>
International Portfolio
------------------------------------------
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 15.02 $ 14.89 $ 14.07 $ 12.88 $12.16
------- ------- ------- ------- ------
Income From Investment Operations
Net investment income(b)(c)....... .17 .13 .19 .18 .10
Net realized and unrealized gain
on investments and foreign
currency transactions............ 1.80 .39 .83 1.08 .72
------- ------- ------- ------- ------
Net increase in net asset value
from operations.................. 1.97 .52 1.02 1.26 .82
------- ------- ------- ------- ------
Less: Dividends and Distributions
Dividends from net investment
income........................... (.33) (.15) (.08) (.03) (.02)
Distributions from net realized
gains............................ (.49) (.24) (.12) (.04) (.08)
------- ------- ------- ------- ------
Total dividends and
distributions.................... (.82) (.39) (.20) (.07) (.10)
------- ------- ------- ------- ------
Net asset value, end of year...... $ 16.17 $ 15.02 $ 14.89 $ 14.07 $12.88
======= ======= ======= ======= ======
Total Return
Total investment return based on
net asset value(d)............... 13.02% 3.33% 7.25% 9.86% 6.70%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)......................... $65,052 $60,710 $44,324 $16,542 $7,276
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................. .95% .95% .95% .95% .95%
Expenses, before waivers and
reimbursements................. 1.37% 1.42% 1.91% 2.99% 7.26%
Net investment income(b)........ 1.08% .87% 1.29% 1.41% .90%
Portfolio turnover rate........... 117% 134% 60% 87% 95%
</TABLE>

<TABLE>
<CAPTION>
Short-Term Multi-Market Portfolio
---------------------------------------
Year Ended December 31,
---------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year... $10.57 $10.73 $10.58 $ 9.91 $ 11.07
------ ------ ------ ------ -------
Income From Investment Operations
Net investment income(b)(c).......... .61 .59 .64 .82 .47
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions............... .03 (.11) .33 (.15) (1.16)
------ ------ ------ ------ -------
Net increase (decrease) in net asset
value from operations............... .64 .48 .97 .67 (.69)
------ ------ ------ ------ -------
Less: Dividends and Distributions
Dividends from net investment
income.............................. (1.11) (.64) (.82) -0- (.46)
Return of capital.................... -0- -0- -0- -0- (.01)
------ ------ ------ ------ -------
Total dividends and distributions.... (1.11) (.64) (.82) -0- (.47)
------ ------ ------ ------ -------
Net asset value, end of year......... $10.10 $10.57 $10.73 $10.58 $ 9.91
====== ====== ====== ====== =======
Total Return
Total investment return based on net
asset value(d)...................... 6.32% 4.59% 9.57% 6.76% (6.51)%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)............................ $6,469 $6,489 $7,112 $3,152 $20,921
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements.................... .94% .94% .95% .95% .94%
Expenses, before waivers and
reimbursements.................... 2.69% 1.42% 2.09% 1.30% .99%
Net investment income(b)........... 5.94% 5.50% 6.03% 8.22% 6.52%
Portfolio turnover rate.............. 18% 222% 159% 379% 134%
</TABLE>
- --------
See footnotes on page 83.

77
<PAGE>

<TABLE>
<CAPTION>
Global Bond Portfolio
------------------------------------------
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 11.10 $ 11.74 $ 12.15 $ 9.82 $11.33
------- ------- ------- ------- ------
Income From Investment Operations
Net investment income(b)(c)....... .49 .54 .67 .69 .57
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions............ 1.06 (.48) .01 1.73 (1.16)
------- ------- ------- ------- ------
Net increase (decrease) in net
asset value from operations...... 1.55 .06 .68 2.42 (.59)
------- ------- ------- ------- ------
Less: Dividends and Distributions
Dividends from net investment
income........................... (.17) (.57) (.84) (.09) (.62)
Distributions from net realized
gains............................ (.06) (.13) (.25) -0- (.30)
------- ------- ------- ------- ------
Total dividends and
distributions.................... (.23) (.70) (1.09) (.09) (.92)
------- ------- ------- ------- ------
Net asset value, end of year...... $ 12.42 $ 11.10 $ 11.74 $ 12.15 $ 9.82
======= ======= ======= ======= ======
Total Return
Total investment return based on
net asset value(d)............... 14.12% .67% 6.21% 24.73% (5.16)%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)......................... $34,652 $22,194 $18,117 $11,553 $7,298
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................. .93% .94% .94% .95% .95%
Expenses, before waivers and
reimbursements................. 1.17% 1.03% 1.15% 1.77% 2.05%
Net investment income(b)........ 4.23% 4.81% 5.76% 6.22% 6.01%
Portfolio turnover rate........... 42% 257% 191% 262% 102%
</TABLE>

<TABLE>
<CAPTION>
North American Government Income Portfolio
-------------------------------------------------
May 3, 1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 12.97 $ 12.38 $ 10.48 $ 8.79 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net investment income(b)(c).. 1.16 1.07 1.26 1.13 .50
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions................ (.65) .10 .69 .83 (1.71)
------- ------- ------- ------ ------
Net increase (decrease) in
net asset value from
operations.................. .51 1.17 1.95 1.96 (1.21)
------- ------- ------- ------ ------
Less: Dividends and
Distributions
Dividends from net investment
income...................... (.82) (.58) (.05) (.27) -0-
Distributions from net
realized gains.............. (.11) -0- -0- -0- -0-
------- ------- ------- ------ ------
Total dividends and
distributions............... (.93) (.58) (.05) (.27) -0-
------- ------- ------- ------ ------
Net asset value, end of
period...................... $ 12.55 $ 12.97 $ 12.38 $10.48 $ 8.79
======= ======= ======= ====== ======
Total Return
Total investment return based
on net asset value(d)....... 4.07% 9.62% 18.70% 22.71% (12.10)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted)............. $32,059 $30,507 $16,696 $7,278 $3,848
Ratios to average net assets
of:
Expenses, net of waivers
and reimbursements........ .86% .95% .95% .95% .95%(e)
Expenses, before waivers
and reimbursements........ 1.17% 1.04% 1.41% 2.57% 4.43%(e)
Net investment income(b)... 9.16% 8.34% 11.04% 12.24% 8.49%(e)
Portfolio turnover rate...... 8% 20% 4% 35% 15%
</TABLE>
- --------
See footnotes on page 83.

78
<PAGE>

<TABLE>
<CAPTION>
Global Dollar Government Portfolio
-------------------------------------------------
May 2, 1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------ ------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 14.65 $ 14.32 $11.95 $ 9.84 $10.00
------- ------- ------ ------ ------
Income From Investment
Operations
Net investment income(b)(c).. 1.20 1.17 1.10 .92 .36
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions................ (4.03) .70 1.78 1.32 (.52)
------- ------- ------ ------ ------
Net increase (decrease) in
net asset value from
operations.................. (2.83) 1.87 2.88 2.24 (.16)
------- ------- ------ ------ ------
Less: Dividends and
Distributions
Dividends from net investment
income...................... (.95) (.61) (.48) (.13) -0-
Distributions from net
realized gains.............. (.69) (.93) (.03) -0- -0-
------- ------- ------ ------ ------
Total dividends and
distributions............... (1.64) (1.54) (.51) (.13) -0-
------- ------- ------ ------ ------
Net asset value, end of
period...................... $ 10.18 $ 14.65 $14.32 $11.95 $ 9.84
======= ======= ====== ====== ======
Total Return
Total investment return based
on net asset value(d)....... (21.71)% 13.23% 24.90% 22.98% (1.60)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted)............. $10,380 $15,378 $8,847 $3,778 $1,146
Ratios to average net assets
of:
Expenses, net of waivers
and reimbursements........ .95% .95% .95% .95% .95%(e)
Expenses, before waivers
and reimbursements........ 1.75% 1.29% 1.97% 4.82% 15.00%(e)
Net investment income(b)... 9.49% 7.87% 8.53% 8.65% 6.02%(e)
Portfolio turnover rate...... 166% 214% 155% 13% 9%
</TABLE>

<TABLE>
<CAPTION>
Utility Income Portfolio
--------------------------------------------------
May 10, 1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 15.67 $ 12.69 $ 12.01 $ 9.96 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net investment
income(b)(c).............. .37 .38 .31 .30 .28
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions.............. 3.31 2.84 .62 1.83 (.32)
------- ------- ------- ------ ------
Net increase (decrease) in
net asset value from
operations................ 3.68 3.22 .93 2.13 (.04)
------- ------- ------- ------ ------
Less: Dividends and
Distributions
Dividends from net
investment income......... (.31) (.24) (.09) (.08) -0-
Distributions from net
realized gains............ (.14) -0- (.16) -0- -0-
------- ------- ------- ------ ------
Total dividends and
distributions............. (.45) (.24) (.25) (.08) -0-
------- ------- ------- ------ ------
Net asset value, end of
period.................... $ 18.90 $ 15.67 $ 12.69 $12.01 $ 9.96
======= ======= ======= ====== ======
Total Return
Total investment return
based on net asset
value(d).................. 23.91% 25.71% 7.88% 21.45% (.40)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted)........... $34,436 $20,347 $14,857 $6,251 $1,254
Ratios to average net
assets of:
Expenses, net of waivers
and reimbursements...... .95% .95% .95% .95% .95%(e)
Expenses, before waivers
and reimbursements...... 1.35% 1.08% 1.51% 3.79% 15.98%(e)
Net investment
income(b)............... 2.20% 2.83% 2.61% 2.73% 4.62%(e)
Portfolio turnover rate.... 20% 30% 75% 138% 31%
</TABLE>
- --------
See footnotes on page 83.

79
<PAGE>

<TABLE>
<CAPTION>
Conservative Investors Portfolio
-----------------------------------------------
October 28,
1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 13.10 $ 12.07 $ 11.76 $10.07 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net investment income(b)(c)... .50 .48 .45 .51 .06
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions................. 1.31 .86 (.01) 1.20 .01
------- ------- ------- ------ ------
Net increase in net asset
value from operations........ 1.81 1.34 .44 1.71 .07
------- ------- ------- ------ ------
Less: Dividends and
Distributions
Dividends from net investment
income....................... (.38) (.31) (.09) (.02) -0-
Distributions from net
realized gains............... (.50) -0- (.04) -0- -0-
------- ------- ------- ------ ------
Total dividends and
distributions................ (.88) (.31) (.13) (.02) -0-
------- ------- ------- ------ ------
Net asset value, end of
period....................... $ 14.03 $ 13.10 $ 12.07 $11.76 $10.07
======= ======= ======= ====== ======
Total Return
Total investment return based
on net asset value(d)........ 14.20% 11.22% 3.79% 16.99% .70%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted).............. $37,341 $30,196 $21,729 $7,420 $ 701
Ratios to average net assets
of:
Expenses, net of waivers and
reimbursements............. .90% .95% .95% .95% .95%(e)
Expenses, before waivers and
reimbursements............. 1.19% 1.33% 1.40% 4.25% 20.35%(e)
Net investment income(b).... 3.69% 3.85% 3.93% 4.65% 3.55%(e)
Portfolio turnover rate....... 123% 209% 211% 61% 2%
</TABLE>

<TABLE>
<CAPTION>
Growth Investors Portfolio
-----------------------------------------------
October 28,
1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 14.38 $ 12.74 $ 11.87 $ 9.86 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net investment income(b)(c)... .26 .23 .24 .35 .04
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions................. 3.03 1.83 .72 1.67 (.18)
------- ------- ------- ------ ------
Net increase (decrease) in net
asset value from operations.. 3.29 2.06 .96 2.02 (.14)
------- ------- ------- ------ ------
Less: Dividends and
Distributions
Dividends from net investment
income....................... (.18) (.20) (.07) (.01) -0-
Distributions from net
realized gains............... (1.16) (.22) (.02) -0- -0-
------- ------- ------- ------ ------
Total dividends and
distributions................ (1.34) (.42) (.09) (.01) -0-
------- ------- ------- ------ ------
Net asset value, end of
period....................... $ 16.33 $ 14.38 $ 12.74 $11.87 $ 9.86
======= ======= ======= ====== ======
Total Return
Total investment return based
on net asset value(d)........ 23.68% 16.34% 8.18% 20.48% (1.40)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted).............. $21,028 $16,600 $10,709 $4,978 $ 321
Ratios to average net assets
of:
Expenses, net of waivers and
reimbursements............. .94% .95% .95% .95% .95%(e)
Expenses, before waivers and
reimbursements............. 1.68% 1.70% 1.85% 6.17% 41.62%(e)
Net investment income(b).... 1.71% 1.72% 2.01% 3.21% 2.29%(e)
Portfolio turnover rate....... 100% 164% 160% 50% 3%
</TABLE>
- --------
See footnotes on page 83.

80
<PAGE>

<TABLE>
<CAPTION>
Growth Portfolio
----------------------------------------------------
September 15,
1994(a)
Year Ended December 31, to
------------------------------------- December 31,
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 22.42 $ 17.92 $ 14.23 $ 10.53 $10.00
-------- -------- -------- ------- ------
Income From Investment
Operations
Net investment
income(b)(c)............ .10 .07 .06 .17 .03
Net realized and
unrealized gain on
investment
transactions............ 6.19 5.18 3.95 3.54 .50
-------- -------- -------- ------- ------
Net increase in net asset
value from operations... 6.29 5.25 4.01 3.71 .53
-------- -------- -------- ------- ------
Less: Dividends and
Distributions
Dividends from net
investment income....... (.06) (.03) (.04) (.01) -0-
Distributions from net
realized gains.......... (1.40) (.72) (.28) -0- -0-
-------- -------- -------- ------- ------
Total dividends and
distributions........... (1.46) (.75) (.32) (.01) -0-
-------- -------- -------- ------- ------
Net asset value, end of
period.................. $ 27.25 $ 22.42 $ 17.92 $ 14.23 $10.53
======== ======== ======== ======= ======
Total Return
Total investment return
based on net asset
value(d)................ 28.73% 30.02% 28.49% 35.23% 5.30%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted)......... $328,681 $235,875 $138,688 $45,220 $5,492
Ratios to average net
assets of:
Expenses, net of
waivers and
reimbursements........ .87% .84% .93% .95% .95%(e)
Expenses, before
waivers and
reimbursements........ .87% .84% .93% 1.27% 4.19%(e)
Net investment
income(b)............. .43% .37% .35% 1.31% 1.17%(e)
Portfolio turnover rate.. 62% 62% 98% 86% 25%
</TABLE>

<TABLE>
<CAPTION>
Worldwide Privatization Portfolio
------------------------------------------------
September 23,
1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 14.20 $ 13.13 $ 11.17 $10.10 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net investment income(b)(c)... .26 .25 .28 .32 .10
Net realized and unrealized
gain on investments and
foreign currency
transactions................. 1.29 1.17 1.78 .78 -0-
------- ------- ------- ------ ------
Net increase in net asset
value from operations........ 1.55 1.42 2.06 1.10 .10
------- ------- ------- ------ ------
Less: Dividends and
Distributions
Dividends from net investment
income....................... (.20) (.16) (.10) (.03) -0-
Distributions from net
realized gains............... (.74) (.19) -0- -0- -0-
------- ------- ------- ------ ------
Total dividends and
distributions................ (.94) (.35) (.10) (.03) -0-
------- ------- ------- ------ ------
Net asset value, end of
period....................... $ 14.81 $ 14.20 $ 13.13 $11.17 $10.10
======= ======= ======= ====== ======
Total Return
Total investment return based
on net asset value(d)........ 10.83% 10.75% 18.51% 10.87% 1.00%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted).............. $46,268 $41,818 $18,807 $5,947 $1,127
Ratios to average net assets
of:
Expenses, net of waivers and
reimbursements............. .95% .95% .95% .95% .95%(e)
Expenses, before waivers and
reimbursements............. 1.70% 1.55% 1.85% 4.17% 18.47%(e)
Net investment income(b).... 1.74% 1.76% 2.26% 2.96% 4.27%(e)
Portfolio turnover rate....... 92% 58% 47% 23% 0%
</TABLE>
- --------
See footnotes on page 83.

81
<PAGE>

<TABLE>
<CAPTION>
Technology Portfolio
----------------------------------------
January 11,
1996(a)
Year Ended December 31, to
-------------------------- December 31,
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Net asset value, beginning of
period............................. $ 11.72 $ 11.04 $ 10.00
------------ ----------- -------
Income From Investment Operations
Net investment income (loss)(b)(c).. (.04) .02 .11
Net realized and unrealized gain on
investment transactions............ 7.51 .69 .93
------------ ----------- -------
Net increase in net asset value from
operations......................... 7.47 .71 1.04
------------ ----------- -------
Less: Dividends
Dividends from net investment
income............................. (.02) (.03) -0-
------------ ----------- -------
Net asset value, end of period...... $ 19.17 $ 11.72 $ 11.04
============ =========== =======
Total Return
Total investment return based on net
asset value(d)..................... 63.79% 6.47% 10.40%
Ratios/Supplemental Data
Net assets, end of period (000's
omitted)........................... $ 130,602 $ 69,240 $28,083
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................... .95% .95% .95%(e)
Expenses, before waivers and
reimbursements................... 1.20% 1.19% 1.62%(e)
Net investment income (loss)(b)... (.30)% .16% 1.17%(e)
Portfolio turnover rate............. 63% 46% 22%
</TABLE>

<TABLE>
<CAPTION>
Quasar Portfolio
---------------------------------------
August 5,
Year Ended December 31, 1996(a) to
------------------------- December 31,
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 12.61 $ 10.64 $10.00
----------- ----------- ------
Income From Investment Operations
Net investment income(b)(c).......... .07 .02 .04
Net realized and unrealized gain
(loss) on investment transactions... (.49) 1.96 .60
----------- ----------- ------
Net increase (decrease) in net asset
value from operations............... (.42) 1.98 .64
----------- ----------- ------
Less: Dividends and Distributions
Dividends from net investment
income.............................. (.01) (.01) -0-
Distributions from net realized
gains............................... (1.04) -0- -0-
----------- ----------- ------
Total dividends and distributions.... (1.05) (.01) -0-
----------- ----------- ------
Net asset value, end of period....... $ 11.14 $ 12.61 $10.64
=========== =========== ======
Total Return
Total investment return based on net
asset value(d)...................... (4.49)% 18.60% 6.40%
Ratios/Supplemental Data
Net assets, end of period (000's
omitted)............................ $ 90,870 $ 59,277 $8,842
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements.................... .95% .95% .95%(e)
Expenses, before waivers and
reimbursements.................... 1.30% 1.37% 4.44%(e)
Net investment income(b)........... .55% .17% .93%(e)
Portfolio turnover rate.............. 107% 210% 40%
</TABLE>
- --------
See footnotes on page 83.

82
<PAGE>

<TABLE>
<CAPTION>
Real Estate Investment
Portfolio
-------------------------
January 9,
Year Ended 1997(a) to
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net asset value, beginning of period............... $ 12.34 $ 10.00
------- -------
Income From Investment Operations
Net investment income(b)(c)........................ .54 .56
Net realized and unrealized gain (loss) on
investment transactions........................... (2.87) 1.78
------- -------
Net increase (decrease) in net asset value from
operations........................................ (2.33) 2.34
------- -------
Less: Dividends and Distributions
Dividends from net investment income............... (.16) -0-
Distributions from net realized gains.............. (.07) -0-
------- -------
Total dividends and distributions.................. (.23) -0-
------- -------
Net asset value, end of period..................... $ 9.78 $ 12.34
======= =======
Total Return
Total investment return based on net asset
value(d).......................................... (19.07)% 23.40%
Ratios/Supplemental Data
Net assets, end of period (000's omitted).......... $17,080 $13,694
Ratios to average net assets of:
Expenses, net of waivers and reimbursements...... .95% .95%(e)
Expenses, before waivers and reimbursements...... 1.77% 2.31%(e)
Net investment income(b)......................... 4.98% 5.47%(e)
Portfolio turnover rate............................ 27% 26%
</TABLE>
- --------
Footnotes:

(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return
calculated for a period of less than one year is not annualized.
(e) Annualized.

83
<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 standards.
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
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.

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 payments
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
characterizes 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
shortcomings.

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.

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 unrated 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.

84
<PAGE>

Suspension or withdrawal may occur if: new and material circumstances arise,
the effects of which preclude satisfactory analysis; there is no longer
available reasonable up-to-date data to permit a judgment to be formed; or 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
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Standard & Poor's Ratings Services

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
principal 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
although 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 normally exhibits adequate protection parameters. However,
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 or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.

BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.

B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.

CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.

CC--Debt rated CC is currently highly vulnerable to nonpayment.

C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.

D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.

Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NR--Not rated.

85
<PAGE>

Duff & Phelps Credit Rating Co.

AAA--Highest credit quality. The 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 conditions.

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

BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

BB+, BB, BB- --Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according 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
according to economic cycles, industry conditions and/or company fortunes.
Potential 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, interest or preferred dividends. 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.

DP--Preferred stock with dividend arrearages.

Fitch Ibca, Inc.

AAA--Bonds considered to be investment grade and of the highest credit quality.
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,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, 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
considered 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 assist the
obligor in satisfying its debt service requirements.

86
<PAGE>

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 throughout
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 economic 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
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential 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
indicate 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.

87
<PAGE>

APPENDIX B

GENERAL INFORMATION
ABOUT THE UNITED KINGDOM, JAPAN, CANADA,
MEXICO AND ARGENTINA

General Information About the United Kingdom

Investment in securities of United Kingdom 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 a Portfolio's investment denominated in the British pound sterling will
fluctuate with pound sterling-dollar exchange rate movements. Between 1972,
when the pound sterling was allowed to float against other currencies, and the
end of 1992, the pound sterling generally depreciated against most major
currencies, including the U.S. Dollar. Between September and December 1992,
after the United Kingdom's exit from the Exchange Rate Mechanism of the
European Monetary System, the value of the pound sterling fell by almost 20%
against the U.S. Dollar. The pound sterling has since recovered due to interest
rate cuts throughout Europe and an upturn in the economy of the United Kingdom.
The average exchange rate of the U.S. Dollar to the pound sterling was 1.50 in
1993 and 1.66 in 1998. On April 15, 1999 the U.S. Dollar-pound sterling
exchange rate was 1.61.

The United Kingdom's largest stock exchange is the London Stock Exchange, which
is the third largest exchange in the world. As measured by the FT-SE 100 index,
the performance of the 100 largest companies in the United Kingdom reached
5,882.6 at the end of 1998, up approximately 15% from the end of 1997. The FT-
SE 100 index closed at 6466.1 on April 15, 1999.

The Economic and Monetary Union ("EMU") became effective on January 1, 1999.
When fully implemented in 2002, the EMU will establish a common currency for
European countries that meet the eligibility criteria and choose to
participate. Although the United Kingdom meets the eligibility criteria, the
government has not taken any action to join the EMU.

From 1979 until 1997 the Conservative Party controlled Parliament. In the May
1, 1997 general elections, however, the Labour Party, led by Tony Blair, won a
majority in Parliament, holding 418 of 658 seats in the House of Commons. Mr.
Blair, who was appointed Prime Minister, has launched a number of reform
initiatives, including an overhaul of the monetary policy framework intended to
protect monetary policy from political forces by vesting responsibility for
setting interest rates in a new Monetary Policy Committee headed by the
Governor of the Bank of England, as opposed to the Treasury. Prime Minister
Blair has also undertaken a comprehensive restructuring of the regulation of
the financial services industry.

General Information About Japan

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, but has since fallen from its
post-World War II high (in 1995) against the U.S. Dollar.

Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section
of which is reserved for larger, established companies. As measured by the
TOPIX, a capitalization-weighted composite index of all common stocks listed in
the First Section, the performance of the First Section reached a peak in 1989.
Thereafter, the TOPIX declined approximately 50% through the end of 1997. On
December 31, 1998 the TOPIX closed at 1086.99, down approximately 7% from the
end of 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.

88
<PAGE>

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.
Nevertheless it is expected that the continuing friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.

Each Portfolio's investments in Japanese issuers will be subject to uncertainty
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 the result of a general election on October 20, 1996, however,
Japan returned to a single-party government led by Ryutaro Hashimoto, a member
of the Liberal Democratic Party ("LDP"). While the LDP does not control a
majority of the seats in the parliament, subsequent to the 1996 elections it
established a majority in the House of Representatives as individual members
joined the ruling party. The popularity of the LDP declined, however, due to
the dissatisfaction with Mr. Hashimoto's leadership. In the July 1998 House of
Councillors election, the LDP's representation fell to 103 seats from 120
seats. As a result of the LDP's defeat, Mr. Hashimoto resigned as prime
minister and leader of the LDP. Mr. Hashimoto was replaced by Keizo Obuchi. On
January 14, 1999, the LDP formed a coalition government with a major opposition
party. As a result, Mr. Obuchi's administration strengthened its position in
the parliament, where it increased its majority in the House of Representatives
and reduced its shortfall in the House of Councillors. For the past several
years, Japan's banking industry has been weakened by a significant amount of
problem loans. Japan's banks also have significant exposure to the current
financial turmoil in other Asian markets. Following the insolvency of one of
Japan's largest banks in November 1997, the government proposed several plans
designed to strengthen the weakened banking sector. In October 1998, the
Japanese parliament approved several new laws that have made $508 billion in
public funds available to increase the capital of Japanese banks, to guarantee
depositors' accounts and to nationalize the weakest banks. It is unclear
whether these new laws will achieve their intended effect.

General Information About Canada

Canada consists of a federation of ten Provinces and three federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial 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
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors 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 economy to a predominantly service-based one. Agriculture and other
primary production 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 resources.

Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange 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 generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Since 1991, Canada generally has experienced a weakening of
its currency. The Canadian Dollar reached an all-time low of 1.5770 Canadian
Dollars per U.S. Dollar on August 27, 1998. On April 15, 1999 the Canadian
Dollar-U.S. Dollar exchange rate was 1.4882:1. The range of fluctuation that
has occurred 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.

89
<PAGE>

General Information About The United Mexican States

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

Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including growth in gross domestic product
and a substantial reduction in the rate of inflation and in the public sector
financial deficit. Much of the past improvement in the Mexican economy was due
to a series of economic policy initiatives intended to modernize and reform the
Mexican economy, control inflation, reduce the financial deficit, increase
public revenues 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 launched 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.

In 1994, Mexico faced internal and external conditions that resulted in an
economic 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
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a large
decline in foreign reserves followed by a sharp and rapid devaluation of the
Mexican Peso. The ensuing economic and financial crisis resulted in higher
inflation and 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 the
government and the business and labor sectors of the economy entered into a new
accord in an effort to stabilize the economy and the financial markets. To help
relieve Mexico's liquidity crisis and restore financial stability to Mexico's
economy, the Mexican government also obtained financial assistance from the
United States, other countries and certain international agencies conditioned
upon the implementation and continuation of the economic reform program.

In October 1995, and again in October 1996, the Mexican government announced
new accords designed to encourage economic growth and reduce inflation. While
it cannot be accurately predicted whether these accords will continue to
achieve their objectives, the Mexican economy has stabilized since the economic
crisis of 1994, and the high inflation and high interest rates that continued
to be a factor after 1994 have subsided as well. After declining for five
consecutive quarters beginning with the first quarter of 1995, Mexico's gross
domestic product began to grow in the second quarter of 1996. That growth was
sustained in 1996 and 1997, resulting in increases of 5.2% and 7.0%,
respectively. The growth rate for 1998 was 4.6%. In addition, inflation dropped
from a 52% annual rate in 1995 to a 27.7% annual rate in 1996 and a 15.7%
annual rate in 1997. In 1998, the inflation rate was 18.6%. Mexico's economy is
influenced by international economic conditions, particularly those in the
United States, and by world prices for oil and other commodities. The recovery
of the economy will require continued economic and fiscal discipline as well as
stable political and social conditions. In addition, there is no assurance that
Mexico's economic policy initiatives will be successful or that succeeding
administrations will continue these initiatives.

Under economic policy initiatives implemented on and after 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
devaluations continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float freely against
other currencies, resulting in a precipitous decline against the U.S. Dollar.
By December 31, 1996, the Peso-Dollar exchange rate had decreased approximately
40% from that on December 22, 1994. After dropping approximately 55% from 1994

90
<PAGE>

through 1996, in 1997, the average annual Peso-Dollar exchange rate decreased
approximately 4% from that in 1996. In 1998, the average annual Peso-Dollar
exchange rate was approximately 16% less than that in 1997.

Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the
Portfolio'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 President, 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
1930 and has ruled the country for 22 of the past 69 years. The most recent
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 an aggressive privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.

In the decade prior to the announcement of a new economic plan in 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 literacy 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 has increased each year since
1991, with the exception of 1995. During 1998, gross domestic product increased
an estimated 4.2% from 1997. The rate of inflation is generally viewed to be
under control. Significant progress was also made between 1991 and 1994 in
rescheduling Argentina's debt with both external and domestic creditors, which
improved fiscal cash flows in the medium term and allowed a return to voluntary
credit markets. 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 Argentine bank
deposits, which was brought under control by a series of measures designed to
strengthen the financial system. The measures included the "dollarization" of
banking reserves, the establishment of two trust funds and strengthening bank
reserve requirements.

In 1991, the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by international 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
instrumental in stabilizing the economy, but has not reduced pressures from
high rates of 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 exchange rate over
time and future rates of exchange cannot be accurately predicted. The Argentine
foreign exchange market was highly controlled until December 1989, when a free
exchange rate was established for all foreign currency transactions. Argentina
has eliminated restrictions on foreign direct investment and capital
repatriation. In 1993, legislation was adopted abolishing previous requirements
of a three-year waiting period for capital repatriation. Under the legislation,
foreign investors are permitted to remit profits at any time.

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<PAGE>

For more information about the Portfolios, the following documents are
available upon request:

Annual/Semi-annual Reports to Shareholders

The Portfolios' annual and semi-annual reports to shareholders contain
additional information on the Portfolios' investments. In the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected a Portfolio's performance during its last fiscal
year.

Statement of Additional Information (SAI)

Each Portfolio has an SAI, which contains more detailed information about the
Portfolio, including its operations and investment policies. The Portfolios'
SAIs are incorporated by reference into (and are legally part of) this
Prospectus.

You may request a free copy of the current annual/semi-annual report or the
SAI, by contacting your broker or other financial intermediary, or by
contacting Alliance:

By mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520

By phone: For Information:
(800) 221-5672
For Literature:(800) 227-4618

Or you may view or obtain these documents from the Commission:

In person: at the Commission's Public Reference Room in
Washington, D.C.

By phone: 1-800-SEC-0330

By mail: Public Reference Section Securities and Exchange
Commission Washington, DC 20549-6009 (duplicating fee
required)

On the Internet: www.sec.gov

You also may find more information about Alliance and the Portfolios on the
internet at: www.Alliancecapital.com.

<PAGE>

Class B Prospectus

ALLIANCE VARIABLE PRODUCTS

SERIES FUND

May 3, 1999

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK/RETURN SUMMARY........................................................ 3
Summary of Principal Risks............................................... 26
Principal Risks by Portfolio............................................. 29
GLOSSARY................................................................... 30
DESCRIPTION OF THE PORTFOLIOS.............................................. 32
Investment Objectives and Policies....................................... 32
Description of Investment Practices...................................... 51
Additional Risk Considerations........................................... 64
MANAGEMENT OF THE PORTFOLIOS............................................... 70
PURCHASE AND SALE OF SHARES................................................ 73
How The Portfolios Value Their Shares.................................... 73
How To Purchase and Sell Shares.......................................... 73
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 73
DISTRIBUTION ARRANGEMENTS.................................................. 73
FINANCIAL HIGHLIGHTS....................................................... 74
APPENDIX A................................................................. 84
APPENDIX B................................................................. 88
</TABLE>

2
<PAGE>

RISK/RETURN SUMMARY

. changes in the Portfolio's performance from year to year over 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old).

If the Portfolio's returns reflected fees charged by your variable contract,
the returns shown in the table and bar charts for each Portfolio would be
lower.

A Portfolio's past performance, of course, does not necessarily indicate how it
will perform in the future.

Other important things for you to note:

. You may lose money by investing in the Portfolios.

. An investment in the Portfolios is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.

3
<PAGE>

Money Market Portfolio

Among the principal risks of investing in the Portfolio are interest rate
risk and credit risk.

The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio. The performance information in the table and bar
chart is the performance of the Portfolio's Class A shares adjusted to reflect
the higher expense ratio of the Class B Shares.

Performance Information and Bar Chart

Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 4.73% 4.75% 4.37%
3-Month Treasury Bill............................. 5.05% 5.11% 4.69%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A 2.0 3.0 4.7 4.5 4.9 4.7

Best quarter was up 1.23%, 4th quarter, 1997; and

Worst quarter was up 0.44%, 2nd quarter, 1993.

4
<PAGE>

Premier Growth Portfolio

Objective: The Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies.

Performance Information and Bar Chart

Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 47.72% 27.62% 25.18%
S&P 500 Index..................................... 28.58% 24.06% 21.27%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A 12.4 -3.2 44.6 22.6 33.6 47.7

Best quarter was up 29.66%, 4th quarter, 1998; and

Worst quarter was down 11.20%, 3rd quarter, 1998.

5
<PAGE>

Growth and Income Portfolio

Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. The Portfolio's investments in foreign
securities have foreign risk and currency risk.

Performance Information and Bar Chart

Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio....................................... 20.64% 20.93% 15.76%
S&P 500 Index................................... 28.58% 24.06% 20.81%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A 7.7 11.4 -0.6 35.5 23.8 28.6 20.6

Best quarter was up 23.61%, 4th quarter, 1998; and

Worst quarter was down 14.12%, 3rd quarter, 1998.

6
<PAGE>

U.S. Government/High Grade Securities Portfolio

Objective: The Portfolio's investment objective is high current income
consistent with preservation of capital.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 7.97% 6.41% 6.27%
67% Lehman Brothers Government Bond Index
33% Lehman Brothers Corporate Bond Index.......... 9.34 7.17 7.43
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A 9.0 -4.3 19.0 2.3 8.4 8.0

Best quarter was up 7.09%, 2nd quarter, 1995; and

Worst quarter was down 3.14%, 1st quarter, 1994.

7
<PAGE>

High Yield Portfolio

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio................................................. (3.94)% (0.70)%
First Boston High Yield Index............................. 0.58 % 1.89 %
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A N/A -3.9

Best quarter was up 6.43%, 1st quarter, 1998; and

Worst quarter was down 11.35%, 3rd quarter, 1998.

8
<PAGE>

Total Return Portfolio

Objective: The Portfolio's investment objective is to achieve a high
return through a combination of current income and capital appreciation.

Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, and market risk.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio...................................... 16.74% 13.94% 13.18%
60% S&P 500 Index
40% Lehman Brothers Government Corporate Bond
Index......................................... 20.95% 17.35% 16.13%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A 9.7 -3.8 23.7 15.2 21.1 17.0

Best quarter was up 14.32%, 4th quarter, 1998; and

Worst quarter was down 7.07%, 3rd quarter, 1998.

9
<PAGE>

International Portfolio

Among the principal risks of investing in the Portfolio are market risk,
foreign risk, and currency risk.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 12.77% 7.73% 9.89%
MSCI World Index ................................. 24.34% 15.68% 17.32%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A 21.4 6.5 9.6 7.0 3.1 12.8

Best quarter was up 17.97%, 4th quarter, 1998; and

Worst quarter was down 17.43%, 3rd quarter, 1998.

10
<PAGE>

Short-Term Multi-Market Portfolio

The Portfolio also may:

.use derivatives strategies;
.invest in prime commercial paper or unrated paper of equivalent
quality;
.enter into repurchase agreements; and
.invest in variable, floating, and inverse floating rate instruments.

11
<PAGE>

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 6.07% 3.74% 4.00%
Merrill Lynch 1-3 Year Treasury Index............. 7.00% 5.99% 6.74%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- --- ---- ---- ----
N/A N/A 6.9 0.8 6.6 -6.5 6.8 9.6 4.6 6.3

Best quarter was up 5.49%, 2nd quarter, 1995; and

Worst quarter was down 7.36%, 4th quarter, 1994.

12
<PAGE>

Global Bond Portfolio

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio........................................ 13.87% 7.37% 8.47%
Solomon World Government Bond Index (unhedged in
U.S. dollars)................................... 15.30% 7.85% 9.75%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A 4.6 10.9 -5.4 24.5 6.0 0.4 13.9

Best quarter was up 10.63%, 1st quarter, 1995; and

Worst quarter was down 4.33%, 1st quarter, 1999.

13
<PAGE>

North American Government Income Portfolio

The Portfolio may use significant borrowings for leverage. The Portfolio also
may:

.use derivative strategies; and

.invest in variable, floating, and inverse floating rate instruments.

14
<PAGE>

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio................................................. 3.82% 8.19%
Lehman Brothers Aggregate Bond Index...................... 8.69% 8.67%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 22.5 18.5 9.4 3.8

Best quarter was up 9.29%, 2nd quarter, 1995; and

Worst quarter was down 13.73%, 4th quarter, 1994.

15
<PAGE>

Global Dollar Government Portfolio

Objective: The Portfolio's investment objectives are to seek a high level
of current income and, secondarily, capital appreciation.

The Portfolio may use significant borrowings and reverse repurchase
agreements and dollar rolls for leverage. The Portfolio also may:

. use derivatives strategies;

. invest in structured securities;

. invest in fixed and floating rate loans to sovereign debt issuers;

. enter into repurchase agreements; and

. invest in variable, floating, and inverse floating rate securities.

16
<PAGE>

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio............................................... (21.95)% 6.20%
J.P. Morgan Emerging Markets Bond Index................. (11.04)% 12.95%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- -----
N/A N/A N/A N/A N/A N/A 22.7 24.7 13.0 -22.0

Best quarter was up 12.75%, 2nd quarter, 1995; and

Worst quarter was down 27.17%, 3rd quarter, 1998.

17
<PAGE>

Utility Income Portfolio

Objective: The Portfolio's investment objective is to seek current income
and capital appreciation by investing primarily in equity and fixed-income
securities of companies in the utilities industry.

Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. Because the Portfolio invests a
substantial portion of its assets in companies in a specific industry,
there is the risk that factors affecting utility companies will have a
significant effect on the value of the Portfolio's investments. To the
extent the Portfolio invests in lower-rated securities, your investment is
subject to more credit risk than a Portfolio that invests in higher-rated
securities.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio............................................... 23.66% 16.23%
Dow Jones Electric Utilities Index...................... 18.88% 16.22%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 21.2 7.6 25.5 23.7

Best quarter was up 12.84%, 4th quarter, 1998; and

Worst quarter was down 3.45%, 1st quarter, 1997.

18
<PAGE>

Conservative Investors Portfolio

Objective: The Portfolio's investment objective is to achieve a high total
return without, in the view of Alliance, undue risk to principal.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................ 13.95% 10.84%
70% Lehman Brothers Government Corporate Bond
Index
30% S&P 500 Index................................ 15.21% 15.45%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 16.7 3.6 11.0 14.0

Best quarter was up 7.04%, 4th quarter, 1998; and

Worst quarter was down 2.95%, 1st quarter, 1996.

19
<PAGE>

Growth Investors Portfolio

Objective: The Portfolio's investment objective is to achieve the highest
total return consistent with what Alliance considers to be reasonable risk.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio....................................... 23.43% 15.59%
70% S&P 500 Index
30% Lehman Brothers Government Corporate Bond
Index.......................................... 22.86% 22.86%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 20.2 7.9 16.1 23.4

Best quarter was up 18.62%, 4th quarter, 1998; and

Worst quarter was down 8.81%, 3rd quarter, 1998.

20
<PAGE>

Growth Portfolio

Objective: The Portfolio's investment objective is to provide long-term
growth of capital. Current income is incidental to the Portfolio's
objective.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................... 28.48% 29.49%
S&P 500 Index....................................... 28.58% 28.46%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 35.0 28.2 29.8 28.5

Best quarter was up 32.41%, 4th quarter, 1998; and

Worst quarter was down 18.27%, 3rd quarter, 1998.

21
<PAGE>

Worldwide Privatization Portfolio

Objective: The Portfolio's investment objective is to seek long-term
capital appreciation.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since inception
------ ---------------
<S> <C> <C>
Portfolio.......................................... 10.58% 11.81%
MSCI EAFE Index.................................... 20.00% 9.02%
</TABLE>

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 10.6 18.3 10.5 10.6

Best quarter was up 16.19%, 4th quarter, 1998; and
Worst quarter was down 16.24%, 3rd quarter, 1998.

22
<PAGE>

Technology Portfolio

Objective: The Portfolio's objective is growth of capital. Current income
is incidental to the Portfolio's objective.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio......................................... 63.54% 24.43%
S&P 500 Index..................................... 28.58% 28.23%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A 6.2 63.5

Best quarter was up 39.97%, 4th quarter, 1998; and

Worst quarter was down 15.26%, 4th quarter, 1997.

23
<PAGE>

Quasar Portfolio

Objective: The Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies. Current income is incidental to
the Portfolio's objective.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................ (4.74)% 7.77%
Russell 2000 Index............................... (2.55)% 14.23%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A 18.4 -4.7

Best quarter was up 15.50%, 4th quarter, 1998; and

Worst quarter was down 27.69%, 3rd quarter, 1998.

24
<PAGE>

Real Estate Investment Portfolio

Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. Because the Portfolio invests a
substantial portion of its assets in the real estate market, it has many of
the same risks as direct ownership of real estate including the risk that
the value of real estate could decline due to a variety of factors
affecting the real estate market. In addition, REITs are dependent on the
capability of their managers, may have limited diversification, and could
be significantly affected by changes in tax laws. Because the Portfolio
invests in mortgage-backed securities, it is subject to the risk that
mortgage loans will be prepaid when interest rates decline, forcing the
Portfolio to reinvest in securities with lower interest rates. For this and
other reasons, mortgage-backed securities may have significantly greater
price and yield volatility than traditional fixed-income securities.

Performance Information and Bar Chart

Performance Table

<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................ (19.32)% (0.33)%
S&P 500 Index.................................... 28.58% 30.95%
</TABLE>

Bar Chart

[GRAPHIC]

89 90 91 92 93 94 95 96 97 98
---- ---- --- ---- ---- ---- ---- ---- ---- -----
N/A N/A N/A N/A N/A N/A N/A N/A N/A -19.3

Best quarter was up 14.78%, 3rd quarter, 1997; and

Worst quarter was down 11.56%, 3rd quarter, 1998.

25
<PAGE>

SUMMARY OF PRINCIPAL RISKS

26
<PAGE>

. Management Risk Each Portfolio is subject to management risk because it
is an actively managed investment Portfolio. Alliance will apply its
investment techniques and risk analyses in making

27
<PAGE>

28
<PAGE>

PRINCIPAL RISKS BY PORTFOLIO

The following chart summarizes the principal risks of each Portfolio. Risks not
marked for a particular Portfolio may, however, still apply to some extent to
that Portfolio at various times.

29
<PAGE>

GLOSSARY

This Prospectus uses the following terms.

Types of Securities

Bonds are fixed, floating, and variable rate debt obligations.

Convertible securities are fixed-income securities that are convertible into
common and preferred stock.

Debt securities are bonds, debentures, notes, and bills.

Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.

Fixed-income securities are debt securities and preferred stocks, including
floating rate and variable rate instruments.

. ARMS, which are adjustable-rate mortgage securities;

. SMRS, which are stripped mortgage-related securities;

. CMOs, which are collateralized mortgage obligations;

. GNMA certificates, which are securities issued by the Government
National Mortgage Association or GNMA;

. FNMA certificates, which are securities issued by the Federal National
Mortgage Association or FNMA; and

. FHLMC certificates, which are securities issued by the Federal Home Loan
Mortgage Corporation or FHLMC.

Rule 144A securities are securities that may be resold under Rule 144A of the
Securities Act.

30
<PAGE>

U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.

Rating Agencies, Rated Securities and Indexes

Duff & Phelps is Duff & Phelps Credit Rating Company.

EAFE Index is Morgan Stanley Capital International Europe, Australasia and Far
East ("EAFE") Index.

Fitch is Fitch IBCA, Inc.

High-quality commercial paper is commercial paper rated at least Prime-2 by
Moody's, A-2 by S&P, Fitch-2 by Fitch, or Duff 2 by Duff & Phelps.

Investment grade securities are fixed-income securities rated Baa and above by
Moody's or B and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.

Moody's is Moody's Investors Service, Inc.

S&P is Standard & Poor's Ratings Services.

S&P 500 Index is S&P's 500 Composite Stock Price Index, a widely recognized
unmanaged index of market activity.

Other

1940 Act is the Investment Company Act of 1940, as amended.

Code is the Internal Revenue Code of 1986, as amended.

Commission is the Securities and Exchange Commission.

Exchange is the New York Stock Exchange.

Securities Act is the Securities Act of 1933, as amended.

World Bank is the commonly used name for the International Bank for
Reconstruction and Development.

31
<PAGE>

DESCRIPTION OF THE PORTFOLIOS

Please note that:

. Additional discussion of the Portfolios' investments, including the
risks of the investments, can be found in the discussion under
Description of Investment Practices following this section.

. Additional descriptions of each Portfolio's strategies, investments and
risks can be found in the Portfolio's Statement of Additional
Information or SAI.

Investment Objectives and Policies

Money Market Portfolio

The Portfolio pursues its objectives by investing in high-quality U.S. Dollar-
denominated money market securities. The Portfolio may invest in:

. marketable obligations issued or guaranteed by the U. S. Government or
one of its agencies or instrumentalities;

. high-quality commercial paper issued by U.S. or foreign companies
(rated or determined by Alliance to be of comparable quality) and
participation interests in loans extended to such companies; and

. repurchase agreements collateralized by the types of liquid securities
listed above.

32
<PAGE>

Premier Growth Portfolio

33
<PAGE>

The Portfolio also may:

. invest up to 15% of its total assets in foreign securities;

. purchase and sell exchange-traded index options and stock index futures
contracts;

. make short sales "against the box" of up to 15% of its net assets; and

. invest up to 10% of its total assets in illiquid securities.

Growth and Income Portfolio

34
<PAGE>

U.S. Government/High Grade Securities Portfolio

The Portfolio may utilize certain other investment techniques, including
options and futures contracts, intended to enhance income and reduce market
risk.

The Portfolio also may:

. purchase and sell futures contracts for hedging purposes;

. enter into forward commitments for up to 30% of its total assets;

. invest in qualifying bank deposits;

. invest up to 10% of its total assets in illiquid securities;

. purchase call and put options on futures contracts or on securities for
hedging purposes; and

. enter into repurchase agreements.

High Yield Portfolio

As of December 31, 1998, the Portfolio's investments were rated (or equivalent
quality):

. A-1+ 13.62%
. Ba or BB 5.78%
. B 70.63%
. CCC 0.01%
. Unrated 9.96%

35
<PAGE>

The Portfolio also may:

. invest in foreign securities;

. invest in U.S. Government securities;

. invest in municipal securities of up to 20% of its assets;

. invest in mortgage-related and asset-backed securities;

. enter into forward commitments for up to 30% of its total assets;

. write covered call options listed on national securities exchanges and
on foreign currencies in an amount not exceeding 25% of its total
assets;

. purchase put or call options on fixed-income securities, securities
indices and foreign currencies;

. enter into futures contracts and options on futures contracts;

. invest up to 10% of its total assets in illiquid securities;

. make secured loans of portfolio securities of up to 30% of its net
assets; and

. enter into repurchase agreements.

Total Return Portfolio

International Portfolio

36
<PAGE>

The Portfolio also may:

. purchase or sell forward foreign currency exchange contracts of up to
50% of its assets;

. invest in warrants;

. make loans of portfolio securities of up to 30% of its total assets;

. invest in illiquid securities of up to 10% of its total assets; and

. enter into repurchase agreements of up to seven days' duration for up
to 10% of the Portfolio's total assets.

Short-Term Multi-Market Portfolio

37
<PAGE>

The Portfolio seeks to minimize investment risk by limiting its investments to
debt securities of high-quality and invests in:

. U.S. Government securities;

. foreign government and supranational organization debt securities;

. corporate debt securities;

. prime commercial paper (or unrated commercial paper of equivalent
quality) issued by U.S. or foreign companies having outstanding high-
quality debt securities.

The Portfolio also may:

. invest in indexed commercial paper;

. enter into futures contracts and purchase and write options on futures
contracts and privately negotiated options on securities;

. purchase and write put and call options on foreign currencies;

. purchase or sell forward foreign currency exchange contracts;

. enter into interest rate swaps, caps and floors;

. invest in variable, floating, and inverse floating rate instruments;

. make secured loans of its portfolio securities of up to 20% of its net
assets;

. invest up to 10% of its total assets in illiquid securities; and

. enter into repurchase agreements.

Global Bond Portfolio

38
<PAGE>

The Portfolio seeks to minimize investment risk by limiting its portfolio
investments to high-quality debt securities and invests in:

. U.S. Government securities;

. foreign government or supranational organization debt securities;

. corporate debt obligations; and

. commercial paper of banks and bank holding companies.

North American Government Income Portfolio

39
<PAGE>

The Portfolio also may:

. enter into futures contracts and purchase and write options on futures
contracts for hedging purposes of up to 50% of its total assets with
initial margins deposits of up to 5% of its total assets;

. purchase and write put and call options on foreign currencies;

. purchase or sell forward foreign currency exchange contracts;

. enter into interest rate swaps (involving payments in the same currency
or in different currencies), caps, and floors;

. enter into forward commitments for up to 30% of its total assets;

. enter into standby commitments;

. invest in zero coupon securities;

. invest in variable, floating, and inverse floating rate instruments;

. make secured loans of its portfolio securities of up to 20% of net
assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements.

40
<PAGE>

Global Dollar Government Portfolio

. for U.S. fixed-income securities, nine to 15 years;

. for non-U.S. fixed-income securities, 15 to 25 years; and

. for sovereign debt obligations longer than 25 years.

As of December 31, 1998, securities ratings (or equivalent quality) of the
Portfolio's securities were:

. Baa or BBB 6.0%
. Ba or BB 50.6%
. B 40.9%
. CC 2.0%
. Unrated 0.5%

41
<PAGE>

The Portfolio also may:

. invest in structured securities of up to 25% of its total assets;

. invest up to 10% of its total assets in other investment companies whose
investment objectives and policies are consistent with those of the
Portfolio;

. invest in warrants;

. enter into interest rate swaps, caps and floors;

. enter into forward commitments for up to 30% of its total assets;

. enter into standby commitment agreements;

. make short sales of securities "against the box" or maintain a short
position of up to 10% of its net assets;

. write put and call options on securities of the types in which it is
permitted to invest and write call options for cross-hedging purposes;

. write privately negotiated options on securities;

. purchase and sell exchange-traded options on any securities index of the
types of securities in which it may invest;

. invest in variable, floating, and inverse floating rate instruments;

. enter into reverse repurchase agreements and dollar rolls;

. invest in loan participations and assignments up to 25% of its total
assets;

. make secured loans of its portfolio securities of up to 30% of its net
assets;

. invest in illiquid securities of up to 15% of its total assets; and

. enter into repurchase agreements.

While it does not currently intend to do so, the Portfolio reserves the right
to borrow an amount not to exceed one-third of the Portfolio's net assets.

Utility Income Portfolio

42
<PAGE>

The Portfolio also may:

. invest up to 30% of its net assets in convertible securities;

. invest up to 5% of its net assets in rights or warrants;

. invest in depositary receipts, securities of supranational entities
denominated in the currency of any country, securities denominated in
the Euro, and "semi-governmental securities";

. purchase and sell exchange-traded options on any securities index
composed of the types of securities in which it may invest;

. purchase and write call and put options on foreign currencies traded on
U.S. and foreign exchanges or over-the-counter for hedging purposes;

. purchase or sell forward foreign currency exchange contracts;

. enter into interest rate swaps (in the same or different currencies) and
purchase or sell interest rate caps and floors;

. enter into forward commitments for up to 30% of its total assets;

. enter into standby commitment agreements;

. make short sales "against the box" of securities or maintain a short
position of up to 10% of its net assets;

. make secured loans of portfolio securities of up to 20% of its total
assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements for U.S. Government securities.

43
<PAGE>

Conservative Investors Portfolio

44
<PAGE>

The Portfolio also may:

. invest up to 15% of its total assets in foreign securities;

. invest in unrated securities;

. invest in mortgage-related securities, asset-backed securities, and
adjustable rate securities;

. invest in convertible securities;

. invest in zero coupon and pay-in-kind bonds;

. buy and sell stock index futures contracts and buy options on index
futures and on stock indices for hedging purposes;

. write covered call and put options on securities it owns or in which it
may invest;

. enter into forward commitments;

. make loans of portfolio securities of up to 25% of its total assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements of up to 25% of its total assets.

Growth Investors Portfolio

The Portfolio also may:

. invest up to 30% of its total assets in foreign securities;

. invest in unrated securities;

. invest in mortgage-related securities, asset-backed securities, and
adjustable rate securities;

. invest in convertible securities;

. invest in zero coupon and pay-in-kind bonds;

. buy and sell stock index futures contracts and buy options on index
futures and on stock indices for hedging purposes;

45
<PAGE>

. write covered call and put options on securities it owns or in which it
may invest;

. enter into forward commitments;

. make loans of portfolio securities of up to 25% of its total assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements of up to 25% of its total assets.

Growth Portfolio

The Portfolio also may:

. invest in zero coupon and payment-in-kind bonds;

. invest in foreign securities although not generally in excess of 15% of
its total assets;

. buy or sell foreign currencies, options on foreign currencies, foreign
currency futures contracts (and related options) and deal in forward
foreign currency exchange contracts;

. enter into forward commitments;

. buy and sell stock index futures contracts and options on those
contracts and on stock indices;

. purchase and sell futures contracts and options on futures and U.S.
Treasury securities;

. write covered call and put options;

. purchase and sell put and call options;

. make loans of portfolio securities of up to 25% of its total assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements of up to 25% of its total assets.

Worldwide Privatization Portfolio

46
<PAGE>

The Portfolio also may:

. invest up to 20% of its total assets in rights or warrants;

. purchase and write put and call options on foreign currencies for
hedging purposes;

47
<PAGE>

. purchase or sell forward foreign currency contracts;

. enter into forward commitments;

. enter into standby commitment agreements;

. enter into currency swaps for hedging purposes;

. make short sales "against the box" of securities or maintain a short
position of up to 10% of its net assets;

. make secured loans of portfolio securities of up to 30% of its total
assets;

. invest up to 15% of its total assets in illiquid securities; and

. enter into repurchase agreements for U.S. Government securities.

Technology Portfolio

The Portfolio also may:

. invest up to 10% of its total assets in warrants;

. invest up to 15% of its net assets in illiquid securities; and

. make loans of portfolio securities of up to 30% of its total assets.

Quasar Portfolio

48
<PAGE>

The Portfolio also may:

. make short sales of securities "against the box" but not more than 15%
of its net assets may be deposited on short sales;

. write covered call options of up to 15% of its total assets and
purchase and sell put and call options written by others of up to, for
all options, 10% of its total assets; and

. invest up to 15% of its assets in illiquid securities.

Real Estate Investment Portfolio

49
<PAGE>

50
<PAGE>

The Portfolio also may:

. invest up to 10% of its net assets in rights or warrants;

. invest up to 15% of its net assets in convertible securities of
companies whose common stocks are eligible for purchase by the
Portfolio;

. enter into forward commitments for up to 30% of its total assets;

. enter into standby commitment agreements;

. make short sales of securities or maintain a short position provided
that not more than 25% of the Portfolio's net assets are held as
collateral for such sales;

. invest up to 15% of its net assets in illiquid securities;

. make loans of portfolio securities of up to 25% of its total assets;
and

. enter into repurchase agreements of up to seven days' duration.

DESCRIPTION OF INVESTMENT PRACTICES

This section describes the Portfolios' investment practices and associated
risks. Unless otherwise noted, a Portfolio's use of any of these practices was
specified in the previous section.

51
<PAGE>

There are four principal types of derivative instruments--options, futures,
forwards, and swaps--from which virtually any type of derivative transaction
can be created.

52
<PAGE>

53
<PAGE>

notional principal amount, even if the parties have not made any
initial investment. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial investment.

Derivatives Used by the Portfolios. The following describes specific
derivatives that one or more of the Portfolios may use.

54
<PAGE>

55
<PAGE>

options purchased or written by a Portfolio may be illiquid and it may not be
possible for the Portfolio to effect a closing transaction at an advantageous
time.

56
<PAGE>

57
<PAGE>

(ii) over the counter options and assets used to cover over the counter
options, and (iii) repurchase agreements not terminable within seven days.

58
<PAGE>

59
<PAGE>

60
<PAGE>

61
<PAGE>

62
<PAGE>

63
<PAGE>

objective and legally permissible for the Portfolio. Such investment practices,
if they arise, may involve risks that are different from or exceed those
involved in the practices described above.

ADDITIONAL RISK CONSIDERATIONS

Investment in certain of the Portfolios involves the special risk
considerations described below. Certain of these risks may be heightened when
investing in emerging markets.

64
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65
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66
<PAGE>

67
<PAGE>

secondary market for lower-rated securities, a Portfolio may experience
difficulty in valuing such securities and, in turn, the Portfolio's assets.

68
<PAGE>

69
<PAGE>

MANAGEMENT OF THE PORTFOLIOS

70
<PAGE>

Portfolio Managers

71
<PAGE>

<TABLE>
<CAPTION>
Principal Occupation
Employee; Time Period; During
Portfolio Title With ACMC The Past Five Years*
--------- -------------------------- ------------------------
<C> <S> <C>
Growth Investors Portfolio Nicholas D.P. Carn; since (see above)
1997; (see above)
Growth Portfolio Tyler J. Smith; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
Worldwide Privatization Portfolio Mark H. Breedon; since Associated with Alliance
inception; Vice President since prior to 1994
of ACMC and Director and
Senior Vice President of
Alliance Capital
Limited***
Technology Portfolio Peter Anastos; since 1992; Associated with Alliance
Senior Vice President of since prior to 1994
ACMC
Gerald T. Malone; since Associated with Alliance
1992; Senior Vice since prior to 1994
President of ACMC
Quasar Portfolio Alden M. Stewart; since Associated with Alliance
inception; Executive Vice since prior to 1994
President of ACMC
Randall E. Hasse; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
Real Estate Investment Portfolio Daniel G. Pine; since Associated with Alliance
inception; Senior Vice since 1996; prior
President of ACMC thereto associated with
Desai Capital Management
since prior to 1994
David Kruth; since 1997; Associated with Alliance
Vice President of ACMC since 1997; prior
thereto, Senior Vice
President of Yarmouth
Group
</TABLE>
- --------
* Unless indicated otherwise, persons associated with Alliance have been
employed in a portfolio management, research or investment capacity.
** The sole general partner of Alliance.
*** An indirect wholly-owned subsidiary of Alliance.

72
<PAGE>

PURCHASE AND SALE OF SHARES

How The Portfolios Value Their Shares

Your order for purchase or sale of shares is priced at the next NAV calculated
after your order is received by the Portfolio.

How To Purchase and Sell Shares

DIVIDENDS, DISTRIBUTIONS AND TAXES

The other Portfolios declare dividends on their shares at least annually. The
income and capital gains distribution will be made in shares of each Portfolio.

See the Prospectus of the separate account of the participating insurance
company for federal income tax information.

DISTRIBUTION ARRANGEMENTS

This Prospectus offers Class B shares of the Portfolios. The Class B shares
have an asset-based sales charge or Rule 12b-1 fee. Each Portfolio has adopted
a plan under the Commission Rule 12b-1 that allows the Portfolio to pay asset-
based sales charges or distribution fees for the distribution and sale of its
shares. The amount of these fees for the Class B shares as a percentage of
average net assets is 0.25%. Because these fees are paid out of the Portfolio's
assets on an on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales fees.

73
<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the
Portfolio's financial performance for the period of the Portfolio's operations.
Certain information reflects financial results for a single Class A share of
each Portfolio. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in Class A shares of the
Portfolio (assuming reinvestment of all dividends and distributions). The
information has been audited by Ernst & Young LLP, the Fund's independent
auditor, whose report, along with each Portfolio's financial statements, is
included in the SAI, which is available upon request. Since the Portfolios did
not offer Class B shares prior to January 1999, the financial highlights are
solely for Class A shares and do not reflect the annual Class B Rule 12b-1 fee
of .25% of average net assets.

74
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75
<PAGE>

76
<PAGE>

77
<PAGE>

78
<PAGE>

79
<PAGE>

80
<PAGE>

81
<PAGE>

82
<PAGE>

83
<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
shortcomings.

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.

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:

84
<PAGE>

Standard & Poor's Ratings Services

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
principal and differs from the highest rated issues only in small degree.

CC--Debt rated CC is currently highly vulnerable to nonpayment.

C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.

D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.

Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NR--Not rated.

85
<PAGE>

Duff & Phelps Credit Rating Co.

AAA--Highest credit quality. The 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 conditions.

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

BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

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

DP--Preferred stock with dividend arrearages.

Fitch Ibca, Inc.

86
<PAGE>

CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic 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.

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

87
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APPENDIX B

GENERAL INFORMATION
ABOUT THE UNITED KINGDOM, JAPAN, CANADA,
MEXICO AND ARGENTINA

General Information About the United Kingdom

General Information About Japan

88
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General Information About Canada

89
<PAGE>

General Information About The United Mexican States

90
<PAGE>

General Information About The Republic of Argentina

91
<PAGE>

For more information about the Portfolios, the following documents are
available upon request:

Annual/Semi-annual Reports to Shareholders

Statement of Additional Information (SAI)

You may request a free copy of the current annual/semi-annual report or the
SAI, by contacting your broker or other financial intermediary, or by
contacting Alliance:

By mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520

By phone: For Information:
(800) 221-5672
For Literature:(800) 227-4618

Or you may view or obtain these documents from the Commission:

In person: at the Commission's Public Reference Room in
Washington, D.C.

By phone: 1-800-SEC-0330

By mail: Public Reference Section Securities and Exchange
Commission Washington, DC 20549-6009 (duplicating fee
required)

On the Internet: www.sec.gov

You also may find more information about Alliance and the Portfolios on the
internet at: www.Alliancecapital.com.

<PAGE>

ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.

_________________________________________________________________
c/o Alliance Fund Services, Inc.
P. O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
_________________________________________________________________

STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
_________________________________________________________________

This Statement of Additional Information is not a prospectus
but supplements and should be read in conjunction with the
Prospectus dated May 3, 1999 for Alliance Variable Products
Series Fund, Inc. (the "Fund") that offers Class A shares. A
separate Prospectus and Statement of Additional Information
relates to the Fund's Class B shares. Copies of the Prospectuses
of the Fund may be obtained by contacting Alliance Fund Services,
Inc. at the address or telephone number shown above.

TABLE OF CONTENTS

PAGE

Introduction...........................................
Investment Policies and Restrictions...................
Money Market Portfolio............................
Premier Growth Portfolio..........................
Growth and Income Portfolio.......................
U.S. Government/High Grade
Securities Portfolio............................
High-Yield Portfolio..............................
Total Return Portfolio............................
International Portfolio...........................
Short-Term Multi-Market Portfolio
and Global Bond Portfolio.......................
North American Government Income
Portfolio.......................................
Global Dollar Government Portfolio................
Utility Income Portfolio..........................
Conservative Investors Portfolio,
Growth Investors Portfolio and
Growth Portfolio................................
Worldwide Privatization Portfolio.................
Technology Portfolio..............................
Quasar Portfolio..................................
Real Estate Investment Portfolio..................
Other Investment Policies.........................
Management of the Fund.................................

<PAGE>

Purchase and Redemption of Shares......................
Net Asset Value........................................
Portfolio Transactions.................................
Dividends, Distributions and Taxes.....................
General Information....................................
Financial Statements and Report of Independent
Auditors..........................................
Appendix A - Description of Obligations Issued
or Guaranteed by U.S. Government Agencies
or Instrumentalities.............................. A-1
Appendix B - Futures Contracts and Options on
Futures Contracts and Foreign Currencies.......... B-1
Appendix C - Options................................... C-1
Appendix D - Additional Information About
the United Kingdom, Japan, Canada, Mexico
and Argentina..................................... D-1

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

<PAGE>

_________________________________________________________________

INTRODUCTION
_________________________________________________________________

Alliance Variable Products Series Fund, Inc. (the
"Fund") is an open-end series investment company designed to fund
variable annuity contracts and variable life insurance policies
offered by the separate accounts of certain life insurance
companies. The Fund currently offers an opportunity to choose
among the separately managed pools of assets (the "Portfolios")
described in the Fund's Prospectus which have differing
investment objectives and policies. The Fund currently has
nineteen Portfolios, all of which are described in this Statement
of Additional Information.
_________________________________________________________________

INVESTMENT POLICIES AND RESTRICTIONS
_________________________________________________________________

The following investment policies and restrictions
supplement, and should be read in conjunction with, the
information regarding the investment objectives, policies and
restrictions of each Portfolio set forth in the Fund's
Prospectus. Except as noted below, the investment policies
described below are not fundamental and may be changed by the
Board of Directors of the Fund without the approval of the
shareholders of the affected Portfolio or Portfolios; however,
shareholders will be notified prior to a material change in such
policies.

Whenever any investment policy or restriction states a
minimum or maximum percentage of a Portfolio's assets which may
be invested in any security or other asset, it is intended that
such minimum or maximum percentage limitation be determined
immediately after and as a result of such Portfolio's acquisition
of such security or other asset. Accordingly, any later increase
or decrease in percentage beyond the specified limitations
resulting from a change in value or net assets will not be
considered a violation.

MONEY MARKET PORTFOLIO

GENERAL. The objectives of the Money Market Portfolio
are in the following order of priority: safety of principal,
excellent liquidity and maximum current income to the extent
consistent with the first two objectives. As a matter of
fundamental policy, the Fund pursues its objectives in this
Portfolio by maintaining the Portfolio's assets in high quality
money market securities, all of which at the time of investment
have remaining maturities of one year or less (which maturities

<PAGE>

may extend to 397 days). Accordingly, the Portfolio may make the
following investments diversified by maturities and issuers:

1. Marketable obligations of, or guaranteed by, the
United States Government, its agencies or instrumentalities.
These include issues of the U.S. Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of
agencies and instrumentalities established under the authority of
an act of Congress. The latter issues include, but are not
limited to, obligations of the Bank for Cooperatives, Federal
Financing Bank, Federal Home Loan Bank, Federal Intermediate
Credit Banks, Federal Land Banks, Federal National Mortgage
Association and Tennessee Valley Authority. Some of the
securities are supported by the full faith and credit of the U.S.
Treasury, others are supported by the right of the issuer to
borrow from the U.S. Treasury, and still others are supported
only by the credit of the agency or instrumentality.

2. Certificates of deposit, bankers acceptances and
interest-bearing savings deposits issued or guaranteed by banks
or savings and loan associations having total assets of more than
$1 billion and which are members of the Federal Deposit Insurance
Corporation. Certificates of deposit are receipts issued by a
depository institution in exchange for the deposit of funds. The
issuer agrees to pay the amount deposited plus interest to the
bearer of the receipt on the date specified on the certificate.
Such certificates may include, for example, those issued by
foreign subsidiaries of such banks which are guaranteed by them.
The certificate usually can be traded in the secondary market
prior to maturity. Bankers acceptances typically arise from
short-term credit arrangements designed to enable businesses to
obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an
importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then accepted by a bank that, in
effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held
by the accepting bank as an earning asset or it may be sold in
the secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as
270 days, most acceptances have maturities of six months or less.

3. Commercial paper, including variable amount master
demand notes, of prime quality rated A-1+ or A-1 by Standard &
Poor's Corporation (S&P), Prime-1 by Moody's Investors Service,
Inc. (Moody's), D-1 by Duff & Phelps Credit Rating Co. ("Duff &
Phelps") or F1 by Fitch IBCA, Inc. ("Fitch") or, if not rated,
issued by domestic and foreign companies which have an
outstanding debt issue rated AAA or AA by S&P, Duff & Phelps or
Fitch, or Aaa or Aa by Moody's. For a description of such
ratings see Appendix A to the Prospectus. Commercial paper

<PAGE>

consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their
current operations. A variable amount master demand note
represents a direct borrowing arrangement involving periodically
fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to
which the lender may determine to invest varying amounts.

4. Repurchase agreements are collateralized fully as
that term is defined in Rule 2a-7 under the Investment Company
Act of 1940. Repurchase agreements may be entered into with
member banks of the Federal Reserve System or primary dealers (as
designated by the Federal Reserve Bank of New York) in U.S.
Government securities or the Fund's Custodian. It is the
Portfolio's current practice, which may be changed at any time
without shareholder approval, to enter into repurchase agreements
only with such primary dealers or the Fund's Custodian. While
the maturities of the underlying collateral may exceed one year,
the term of the repurchase agreement is always less than one
year. Repurchase agreements not terminable within seven days
will be limited to no more than 10% of the Portfolio's total
assets.

For additional information regarding repurchase
agreements, see Other Investment Policies -- Repurchase
Agreements, below.

REVERSE REPURCHASE AGREEMENTS. While the Portfolio has
no current plans to do so, it may enter into reverse repurchase
agreements, which involve the sale of money market securities
held by the Portfolio with an agreement to repurchase the
securities at an agreed-upon price, date and interest payment.
The Fund's Custodian will place cash not available for investment
or securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (Government Securities) or other
liquid high-quality debt securities in a separate account of the
Fund having a value equal to the aggregate amount of the Money
Market Portfolio's commitments in reverse repurchase agreements.

LIQUID RESTRICTED SECURITIES. The Portfolio may
purchase restricted securities eligible for resale under Rule
144A of the Securities Act of 1933, as amended (the Securities
Act) that are determined by Alliance Capital Management L.P. (the
Adviser) to be liquid in accordance with procedures adopted by
the Directors. Restricted securities are securities subject to
contractual or legal restrictions on resale, such as those
arising from an issuers reliance upon certain exemptions from
registration under the Securities Act.

In recent years, a large institutional market has
developed for certain types of restricted securities including,

<PAGE>

among others, private placements, repurchase agreements,
commercial paper, foreign securities and corporate bonds and
notes. These instruments are often restricted securities because
they are sold in transactions not requiring registration. For
example, commercial paper issues in which the Portfolio may
invest include, among others, securities issued by major
corporations without registration under the Securities Act in
reliance on the exemption from registration afforded by Section
3(a)(3) of such Act and commercial paper issued in reliance on
the private placement exemption from registration which is
afforded by Section 4(2) of the Securities Act (Section 4(2)
paper). Section 4(2) paper is restricted as to disposition under
the Federal securities laws in that any resale must also be made
in an exempt transaction. Section 4(2) paper is normally resold
to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper,
thus providing liquidity. Institutional investors, rather than
selling these instruments to the general public, often depend on
an efficient institutional market in which such restricted
securities can be readily resold in transactions not involving a
public offering. In many instances, therefore, the existence of
contractual or legal restrictions on resale to the general public
does not, in practice, impair the liquidity of such investments
from the perspective of institutional holders.

In 1990, in part to enhance the liquidity in the
institutional markets for restricted securities, the Securities
and Exchange Commission (the Commission) adopted Rule 144A under
the Securities Act to establish a safe harbor from the Securities
Acts registration requirements for resale of certain restricted
securities to qualified institutional buyers. Section 4(2) paper
that is issued by a company that files reports under the
Securities Exchange Act of 1934 is generally eligible to be
resold in reliance on the safe harbor of Rule 144A. Pursuant to
Rule 144A, the institutional restricted securities markets may
provide both readily ascertainable values for restricted
securities and the ability to liquidate an investment in order to
satisfy share redemption orders on a timely basis. An
insufficient number of qualified institutional buyers interested
in purchasing certain restricted securities held by the
Portfolio, however, could affect adversely the marketability of
such portfolio securities and the Portfolio might be unable to
dispose of such securities promptly or at reasonable prices. Rule
144A has already produced enhanced liquidity for many restricted
securities, and market liquidity for such securities may continue
to expand as a result of Rule 144A and the consequent inception
of the PORTAL System sponsored by the National Association of
Securities Dealers, Inc., an automated system for the trading,
clearance and settlement of unregistered securities. The
Portfolio's investments in Rule 144A eligible securities are not

<PAGE>

subject to the limitations described above on securities issued
under Section 4(2).

The Fund's Directors have the ultimate responsibility
for determining whether specific securities are liquid or
illiquid. The Directors have delegated the function of making
day-to-day determinations of liquidity to the Adviser, pursuant
to guidelines approved by the Directors. The Adviser takes into
account a number of factors in determining whether a restricted
security being considered for purchase is liquid, including at
least the following:

(i) the frequency of trades and quotations for the
security;

(ii) the number of dealers making quotations to
purchase or sell the security;

(iii) the number of other potential purchasers of
the security;

(iv) the number of dealers undertaking to make a
market in the security;

(v) the nature of the security (including its
unregistered nature) and the nature of the
marketplace for the security (e.g., the time
needed to dispose of the security, the method
of soliciting offers and the mechanics of
transfer); and

(vi) any applicable Securities and Exchange
Commission interpretation or position with
respect to such types of securities.

Following the purchase of a restricted security by the
Portfolio, the Adviser monitors continuously the liquidity of
such security and reports to the Directors regarding purchases of
liquid restricted securities.

MONEY MARKET REQUIREMENTS. While there are many kinds
of short-term securities used by money market investors, the
Portfolio, in keeping with its primary investment objective of
safety of principal, restricts its portfolio to the types of
investments listed above. Of note, the Portfolio does not invest
in issues of savings and loan associations, letters of credit, or
issues of foreign banks. The Portfolio may make investments in
certificates of deposit issued by, and time deposits maintained
at, foreign branches of domestic banks specified above, prime
quality dollar-denominated commercial paper issued by foreign
companies meeting the rating criteria specified above, and in

<PAGE>

certificates of deposit and bankers acceptances denominated in
U.S. dollars that are issued by U.S. branches of foreign banks
having total assets of at least $1 billion that are believed by
the Adviser to be of quality equivalent to that of other such
investments in which the Portfolio may invest. To the extent
that the Portfolio invests in such instruments, consideration is
given to their domestic marketability, the lower reserve
requirements generally mandated for overseas banking operations,
the possible impact of interruptions in the flow of international
currency transactions, potential political and social instability
or expropriation, imposition of foreign taxes, less government
supervision of issuers, difficulty in enforcing contractual
obligations and lack of uniform accounting standards. As even
the safest of securities involve some risk, there can be no
assurance, as is true with all investment companies, that the
Portfolio's objective will be achieved. The market value of the
Portfolio's investments tends to decrease during periods of
rising interest rates and to increase during intervals of falling
rates.

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

Currently, pursuant to Rule 2a-7, the Money Market
Portfolio may invest only in U.S. denominated "Eligible
Securities," (as that term is defined in the Rule) that have been
determined by the Adviser to present minimal credit risks
pursuant to procedures approved by the Board of Directors.
Generally, an eligible security is a security that (i) has a
remaining maturity of 397 days or less and (ii) is rated, or is
issued by an issuer with short-term debt outstanding that is
rated, in one of the two highest rating categories by two
nationally recognized statistical rating organizations (NRSROs)
or, if only one NRSRO has issued a rating, by that NRSRO. A
security that originally had a maturity of greater than 397 days
is an eligible security if the issuer has outstanding short-term
debt that would be an eligible security. Unrated securities may
also be eligible securities if the Adviser determines that they
are of comparable quality to a rated eligible security pursuant
to guidelines approved by the Board of Directors. A description
of the ratings of some NRSROs appears in Appendix A to the
Prospectus.

Under Rule 2a-7, the Money Market Portfolio may not
invest more than 5% of its assets in the first tier securities of
any one issuer other than the United States Government, its

<PAGE>

agencies and instrumentalities. Generally, a first tier security
is an Eligible Security that has received a short-term rating
from the requisite NRSROs in the highest short-term rating
category for debt obligations, or is an unrated security deemed
to be of comparable quality. Government securities are also
considered to be first tier securities. In addition, the
Portfolio may not invest in a security that has received, or is
deemed comparable in quality to a security that has received, the
second highest rating by the requisite number of NRSROs (a second
tier security) if immediately after the acquisition thereof that
Portfolio would have invested more than (A) the greater of 1% of
its total assets or one million dollars in securities issued
bythat issuer which are second tier securities, or (B) five
percent of its total assets in second tier securities.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Money Market Portfolio, supplement
those set forth above and may not be changed without Shareholder
Approval, as defined under the caption "General Information,"
below.

The Portfolio may not:

1. 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 regard to such 5% limitation;

2. 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);

3. Invest more than 25% of the value of its total
assets at the time an investment is made in the securities of
issuers conducting their principal business activities in any one
industry, except that there is no such limitation with respect to
U.S. Government securities or certificates of deposit, bankers'
acceptances and interest-bearing deposits (for purposes of this
investment restriction, the electric, gas, telephone and water
business shall each be considered as a separate industry);

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

<PAGE>

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Purchase any security which has a maturity date
more than one year from the date of the Portfolio's purchase;

9. Make investments for the purpose of exercising
control;

10. Purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition or
reorganization;

11. Invest in real estate (other than money market
securities secured by real estate or interests therein or money
market securities issued by companies which invest in real estate
or interests therein), commodities or commodity contracts,
interests in oil, gas and other mineral exploration or other
development programs;

12. Make short sales of securities or maintain a short
position or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof; or

13. Purchase or retain securities of any issuers if
those officers and directors of the Fund and officers and
directors of the Adviser who own individually more than 1/2% of
the outstanding securities of such issuer together own more than
5% of the securities of such issuer.

PREMIER GROWTH PORTFOLIO

GENERAL. The objective of the Premier Growth Portfolio
is capital growth rather than current income. Since investments
are made based upon their potential for capital appreciation,
current income is incidental to the objective of capital growth.
The Portfolio will seek to achieve its objective through
aggressive investment policies and, therefore, is not intended
for investors whose principal objective is assured income or
conservation of capital. Ordinarily, the annual portfolio
turnover rate may be in excess of 100%.

<PAGE>

In seeking its investment goal, the Portfolio invests
predominantly in the equity securities (common stocks, securities
convertible into common stocks and rights and warrants to
subscribe for or purchase common stocks) of a limited number of
large, carefully selected, high-quality American companies that,
in the judgment of the Adviser, are likely to achieve superior
earnings growth. Normally, about 40 companies are represented in
the Portfolio's investment portfolio with the most highly
regarded of these companies usually constituting approximately
70% of the Portfolio's net assets. The Portfolio thus differs
from more typical equity mutual funds by investing most of its
assets in a relatively small number of intensively researched
companies and is designed for those seeking to accumulate capital
over time with less volatility than that associated with
investment in smaller companies.

The Adviser's investment strategy for the Portfolio
emphasizes stock selection and investment in the securities of a
limited number of issuers. The Adviser relies heavily upon the
fundamental analysis and research of its large internal research
staff, which generally follows a primary research universe of
more than 600 companies that have strong management, superior
industry positions, excellent balance sheets and superior
earnings growth prospects. An emphasis is placed on identifying
companies whose substantially above average prospective earnings
growth is not fully reflected in current market valuations.

The Adviser expects the average weighted market
capitalization of companies represented in the Portfolio's
portfolio (that is the number of a company's shares outstanding
multiplied by the price per share) to normally be in the range of
or exceed the average weighted market capitalization of companies
comprising the "S&P 500" (Standard & Poor's 500 Composite Stock
Price Index), a widely recognized unmanaged index of market
activity based upon the aggregate performance of a selected
portfolio of publicly traded common stocks, including monthly
adjustments to reflect the reinvestment of dividends and other
distributions which reflects the total return of securities
comprising the Index, including changes in market prices as well
as accrued investment income, which is presumed to be reinvested.
Investments are made based upon their potential for capital
appreciation. Current income will be incidental to that
objective. Because of the market risks inherent in any
investment, the selection of securities on the basis of their
appreciation possibilities cannot ensure against possible loss in
value, and there is, of course, no assurance that the Portfolio's
investment objective will be met.

The Adviser expects that, under normal circumstances,
the Portfolio will invest at least 85% of the value of its total
assets in the equity securities of American companies (except

<PAGE>

when in a temporary defensive position). The Portfolio defines
American companies to be entities (i) that are organized under
the laws of the United States and have their principal office in
the United States, and (ii) the equity securities of which are
traded principally in the United States securities markets.

The Portfolio may invest in both listed and unlisted
domestic and foreign securities, and in restricted securities,
and in other assets having no ready market, but not more than 10%
of the Portfolio's total assets may be invested in all such
restricted or not readily marketable assets at any one time.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act, or
pursuant to Rule 144 promulgated under such Act. Where
registration is required, the Portfolio may be obligated to pay
all or part of the registration expense, and a considerable
period may elapse between the time of the decision to sell and
the time the Portfolio may be permitted to sell a security under
an effective registration statement. If during such a period
adverse market conditions were to develop, the Portfolio might
obtain a less favorable price than that which prevailed when it
decided to sell. Restricted securities and other not readily
marketable assets will be valued in such a manner as the Board of
Directors of the Fund in good faith deems appropriate to reflect
their fair market value. See "Other Investment Policies --
Illiquid Securities" below, for a more detailed discussion of the
Portfolio's investment policy on restricted securities and
securities with legal or contractual restrictions on resale.

SPECIAL SITUATIONS. The Portfolio will invest in
special situations from time to time. A special situation arises
when, in the opinion of the Adviser, the securities of a
particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value
solely by reason of a development particularly or uniquely
applicable to that company, and regardless of general business
conditions or movements of the market as a whole. Developments
creating special situations might include, among others,
liquidations, reorganizations, recapitalizations or mergers,
material litigation, technological breakthroughs and new
management or management policies. Although large and well-known
companies may be involved, special situations often involve much
greater risk than is inherent in ordinary investment securities.

SHORT SALES. The Portfolio may not sell securities
short, except that it may make short sales against the box. Such
sales may be used in some cases by the Portfolio to defer the
realization of gain or loss for federal income tax purposes on
securities then owned by the Portfolio. However, if the
Portfolio has unrealized gain with respect to a security and

<PAGE>

enters into a short sale with respect to such security, the
Portfolio generally will be deemed to have sold the appreciated
security and thus will recognize gain for tax purposes.

OPTIONS. The Portfolio may write call options and may
purchase and sell put and call options written by others,
combinations thereof, or similar options. The Portfolio may not
write put options. A put option gives the buyer of such option,
upon payment of a premium, the right to deliver a specified
number of shares of a stock to the writer of the option on or
before a fixed date at a predetermined price. A call option
gives the purchaser of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified number of
shares of a specified stock on or before a fixed date, at a
predetermined price, usually the market price at the time the
contract is negotiated. A call option written by the Portfolio
is covered if the Portfolio owns the underlying security covered
by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for
additional cash, U.S. Government Securities or other liquid high
grade debt obligation held in a segregated account by the Fund's
Custodian) upon conversion or exchange of other securities held
in its portfolio. A call option is also covered if the Portfolio
holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash
in a segregated account with the Fund's Custodian. The premium
paid by the purchaser of an option will reflect, among other
things, the relationship of the exercise price to the market
price and volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.

The writing of call options will, therefore, involve a
potential loss of opportunity to sell securities at high prices.
In exchange for the premium received by it, the writer of a fully
collateralized call option assumes the full downside risk of the
securities subject to such option. In addition, the writer of
the call gives up the gain possibility of the stock protecting
the call. Generally, the opportunity for profit from the writing
of options occurs when the stocks involved are lower priced or
volatile, or both. While an option that has been written is in
force, the maximum profit that may be derived from the optioned
stock is the premium less brokerage commissions and fees.

<PAGE>

the Portfolio must be deducted from such premium receipts.
Option premiums vary widely depending primarily on supply and
demand. Calls written by the Portfolio will ordinarily be sold
either on a national securities exchange or through put and call
dealers, most, if not all, of which are members of a national
securities exchange on which options are traded, and will in such
case be endorsed or guaranteed by a member of a national
securities exchange or qualified broker-dealer, which may be
Donaldson, Lufkin & Jenrette Securities Corporation, an affiliate
of the Adviser. The endorsing or guaranteeing firm requires that
the option writer (in this case the Portfolio) maintain a margin
account containing either corresponding stock or other equity as
required by the endorsing or guaranteeing firm.

The Portfolio will not sell a call option written or
guaranteed by it if, as a result of such sale, the aggregate of
the Portfolio's securities subject to outstanding call options
(valued at the lower of the option price or market value of such
securities) would exceed 15% of the Portfolio's total assets.
The Portfolio will not sell any call option if such sale would
result in more than 10% of the Portfolio's assets being committed
to call options written by the Portfolio which, at the time of
sale by the Portfolio, have a remaining term of more than 100
days.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Premier Growth Portfolio, supplement
those set forth above and may not be changed without Shareholder
Approval, as defined under the caption "General Information,"
below.

The Portfolio may not:

<PAGE>

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);

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

5. Mortgage, pledge or hypothecate any of its assets,
except as may be necessary in connection with permissible
borrowings described in paragraph 4 above (in an aggregate amount
not to exceed 15% of total assets of the Portfolio), or a
permitted in connection with short sales of securities "against
the box" by the Portfolio, as described above;

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Write put options;

9. Make investments for the purpose of exercising
control;

10. Except as permitted in connection with short sales
of securities against the box described under the heading Short
Sales above, make short sales of securities;

11. Buy or hold securities of any issuer if any officer
or director of the Fund, the Adviser or any officer, director or
10% shareholder of the Adviser owns individually 1/2 of 1% of a
class of securities of such issuer, and such persons together own
beneficially more than 5% of such securities; or

12. Buy or sell any real estate or interests therein,
commodities or commodity contracts, including commodity futures
contracts.

GROWTH AND INCOME PORTFOLIO

GENERAL. The Growth and Income Portfolio's objective is
reasonable current income and reasonable opportunity for
appreciation through investments primarily in dividend-paying
common stocks of good quality. It may invest whenever the
economic outlook is unfavorable for common stock investments in
other types of securities, such as bonds, convertible bonds,
preferred stocks and convertible preferred stocks. The Portfolio

<PAGE>

may also write covered call options listed on domestic securities
exchanges. The Portfolio engages primarily in holding securities
for investment and not for trading purposes. Purchases and sales
of portfolio securities are made at such times and in such
amounts as are deemed advisable in the light of market, economic
and other conditions, irrespective of the volume of portfolio
turnover. Ordinarily the annual portfolio turnover rate will not
exceed 100%.

The Portfolio may invest in foreign securities. Although
not a fundamental policy, the Portfolio will not make any such
investments unless such securities are listed on a national
securities exchange.

It is the Portfolio's policy not to concentrate its
investments in any one industry by investment of more than 25% of
the value of its total assets in such industry, underwrite
securities issued by other persons, purchase any securities as to
which it might be deemed a statutory underwriter under the
Securities Act, purchase or sell commodities or commodity
contracts or engage in the business of purchasing and selling
real estate.

OPTIONS. The Portfolio may write covered call options,
provided that the option is listed on a domestic securities
exchange and that no option will be written if, as a result, more
than 25% of the Portfolio's assets are subject to call options.
For a discussion of options, see "Premier Growth Portfolio -
Options" above.

The Portfolio will purchase call options only to close
out a position in an option written by it. In order to close out
a position, the Portfolio will make a closing purchase
transaction if such is available. In such a transaction, the
Portfolio will purchase a call option on the same security option
which it has previously written. When a security is sold from
the Portfolio against which a call option has been written, the
Portfolio will effect a closing purchase transaction so as to
close out any existing call option on that security. The
Portfolio will realize a profit or loss from a closing purchase
transaction if the amount paid to purchase a call option is less
or more than the amount received as a premium for the writing
thereof. A closing purchase transaction cannot be made if
trading in the option has been suspended.

The premium received by the Portfolio upon writing a
call option will increase the Portfolio's assets, and a
corresponding liability will be recorded and subsequently
adjusted from day to day to the current value of the option
written. For example, if the current value of the option exceeds
the premium received, the excess would be an unrealized loss and,

<PAGE>

conversely, if the premium exceeds the current value, such excess
would be an unrealized gain. The current value of the option
will be the last sales price on the principal exchange on which
the option is traded or, in the absence of any transactions, the
mean between the closing bid and asked price.

INVESTMENT RESTRICTIONS. The following investment
restrictions, which are applicable to the Growth and Income
Portfolio, supplement those set forth above and may not be
changed without shareholder approval, as defined under the
caption "General Information," below.

The Portfolio may not:

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

6. 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;

<PAGE>

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days.

8. Purchase the securities of any other investment
company except in a regular transaction on the open market;

9. Purchase the securities of any issuer if directors
or officers of the Fund or certain other interested persons own
more than 5% of such securities; or

10. Invest in the securities of any company for the
purpose of exercising control of management.

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO

The investment objective of the U.S. Government/High
Grade Securities Portfolio is high current income consistent with
preservation of capital. In seeking to achieve this objective,
the Portfolio invests principally in a portfolio of
(i) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (U.S. Government Securities) and
repurchase agreements pertaining to U.S. Government Securities
and (ii) other high grade debt securities rated AAA, AA or A by
S&P, Duff & Phelps Credit Rating Co. ("Duff & Phelps") or Fitch
IBCA, Inc. ("Fitch") 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 invests at least 65% of its total assets in these types
of securities, including the securities held subject to
repurchase agreements. The Portfolio may utilize certain other
investment techniques, including options and futures contracts,
intended to enhance income and reduce market risk. The Fund's
Custodian will place cash not available for investment or U.S.
Government Securities or other liquid high-quality debt
securities in a separate account of the Fund having a value equal
to the aggregate amount of any options transactions which may be
entered into by the Portfolio. The Portfolio is designed
primarily for long-term investors and investors should not
consider it a trading vehicle. As with all investment company
portfolios, there can be no assurance that the Portfolio's
objective will be achieved.

The Portfolio is subject to the diversification
requirements imposed by the Internal Revenue Code of 1986, as
amended, which, among other things, limits the Portfolio to
investing no more than 55% of its total assets in any one
investment. For this purpose, all securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities are considered a single investment.
Accordingly, the U.S. Government/High Grade Securities Portfolio
limits its purchases of U.S. Government Securities to 55% of the

<PAGE>

total assets of the Portfolio. Consistent with this limitation,
the Portfolio, as a matter of fundamental policy, invests at
least 45% of its total assets in U.S. Government Securities.
Nevertheless, the Portfolio reserves the right to modify the
percentage of its investments in U.S. Government Securities in
order to comply with all applicable tax requirements.

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

U.S. GOVERNMENT GUARANTEED MORTGAGE-RELATED SECURITIES--
GENERAL. Mortgages backing the U.S. Government guaranteed
mortgage-related securities purchased by the Portfolio include,
among others, conventional 30 year fixed rate mortgages,
graduated payment mortgages, 15 year mortgages and adjustable
rate mortgages. All of these mortgages can be used to create
pass-through securities. A pass-through security is formed when
mortgages are pooled together and undivided interests in the pool
or pools are sold. The cash flow from the mortgages is passed
through to the holders of the securities in the form of periodic
payments of interest, principal and prepayments (net of a service
fee). Prepayments occur when the holder of an individual
mortgage prepays the remaining principal before the mortgages
scheduled maturity date. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-
backed securities are often subject to more rapid prepayment of
principal than their stated maturity would indicate. Because the
prepayment characteristics of the underlying mortgages vary, it
is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates.
Prepayment rates are important because of their effect on the
yield and price of the securities. Accelerated prepayments
adversely impact yields for pass-throughs purchased at a premium

<PAGE>

(i.e., a price in excess of principal amount) and may involve
additional risk of loss of principal because the premium may not
be fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The
Portfolio may purchase mortgage-related securities at a premium
or at a discount. Principal and interest payments on the
mortgage-related securities are government guaranteed to the
extent described below. Such guarantees do not extend to the
value or yield of the mortgage-related securities themselves or
of the Portfolio's shares of Common Stock.

GNMA CERTIFICATES. Certificates of the Government
National Mortgage Association (GNMA Certificates) are mortgage-
related securities, which evidence an undivided interest in a
pool or pools of mortgages. GNMA Certificates that the Portfolio
may purchase are the modified pass-through type, which entitle
the holder to receive timely payment of all interest and
principal payments due on the mortgage pool, net of fees paid to
the issuer and GNMA, regardless of whether or not the mortgagors
actually make mortgage payments when due.

The National Housing Act authorizes GNMA to guarantee
the timely payment of principal and interest on securities backed
by a pool or mortgages insured by the Federal Housing
Administration (FHA) or guaranteed by the Veterans Administration
(VA). The GNMA guarantee is backed by the full faith and credit
of the United States Government. GNMA is also empowered to
borrow without limitation from the U.S. Treasury if necessary to
make any payments required under its guarantee.

The average life of a GNMA Certificate is likely to be
substantially shorter than the original maturity of the mortgages
underlying the securities. Prepayments of principal by
mortgagors and mortgage foreclosures will usually result in the
return of the greater part of principal investment long before
the maturity of the mortgages in the pool. Foreclosures impose
no risk to principal investment because of the GNMA guarantee,
except to the extent that the Portfolio has purchased the
certificates above par in the secondary market.

FHLMC SECURITIES. The Federal Home Loan Mortgage
Corporation (FHLMC) was created in 1970 through enactment of
Title III of the Emergency Home Finance Act of 1970. Its purpose
is to promote development of a nationwide secondary market in
conventional residential mortgages.

The FHLMC issues two types of mortgage-related pass-
through securities (FHLMC Certificates), mortgage participation
certificates (PCs) and guaranteed mortgage securities (GMCs).
PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made and owed

<PAGE>

on the underlying pool. The FHLMC guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal.

GMCs also represent a PRO RATA interest in a pool of
mortgages. However, these instruments pay interest semi-annually
and return principal once a year in guaranteed minimum payments.
The expected average life of these securities is approximately
ten years. The FHLMC guarantee is not backed by the full faith
and credit of the United States.

FNMA SECURITIES. The Federal National Mortgage
Association (FNMA) was established in 1938 to create a secondary
market in mortgages insured by the FHA. FNMA issues guaranteed
mortgage pass-through certificates (FNMA Certificates). FNMA
Certificates resemble GNMA Certificates in that each FNMA
Certificate represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. FNMA
guarantees timely payment of interest and principal on FNMA
Certificates. The FNMA guarantee is not backed by the full faith
and credit of the United States.

ZERO COUPON TREASURY SECURITIES. The Portfolio may
invest in zero coupon Treasury securities, which are U.S.
Treasury bills, notes and bonds which have been stripped of their
unmatured interest coupons and receipts or certificates
representing interests in such stripped debt obligations and
coupons. A zero coupon security is a debt obligation that does
not entitle the holder to any periodic payments prior to maturity
but; instead, is issued and traded at a discount from its face
amount. The discount varies depending on the time remaining
until maturity, prevailing interest rates, liquidity of the
security and perceived credit quality of the issuer. The market
prices of zero coupon securities are generally more volatile than
those of interest-bearing securities, and are likely to respond
to changes in interest rates to a greater degree than otherwise
comparable securities that do pay periodic interest. Current
federal tax law requires that a holder (such as the Portfolio) of
a zero coupon security accrue a portion of the discount at which
the security was purchased as income each year, even though the
holder receives no interest payment on the security during the
year. As a result, in order to make the distributions necessary
for the Portfolio not to be subject to federal income or excise
taxes, the Portfolio might be required to pay out as an income
distribution each year an amount, obtained by liquidation of
portfolio securities if necessary, greater than the total amount
of cash that the Portfolio has actually received as interest
during the year. The Adviser believes, however, that it is
highly unlikely that it would be necessary to liquidate any
portfolio securities for this purpose.

<PAGE>

Currently the only U.S. Treasury security issued without
coupons is the Treasury bill. Although the U.S. Treasury does
not itself issue treasury notes and bonds without coupons, under
the U.S. Treasury STRIPS program interest and principal on
certain long term treasury securities may be maintained
separately in the Federal Reserve book entry system and may be
separately traded and owned. However, in the last few years a
number of banks and brokerage firms have separated (stripped) the
principal portions (corpus) from the coupon portions of the U.S.
Treasury bonds and notes and sold them separately in the form of
receipts or certificates representing undivided interests in
these instruments (which instruments are generally held by a bank
in a custodial or trust account). The staff of the Commission
has indicated that these receipts or certificates representing
stripped corpus interests in U.S. Treasury securities sold by
banks and brokerage firms should be considered as securities
issued by the bank or brokerage firm involved and, therefore,
should not be included in the Portfolio's categorization of U.S.
Government Securities for purposes of the Portfolio's investing
at least 45% of its assets in U.S. Government Securities. The
Fund disagrees with the staffs interpretation but has undertaken,
until final resolution of the issue, to include the Portfolio's
purchases of such securities in the non-U.S. Government
Securities portion of the Portfolio's investments which may be as
much as 55% of its total assets. However, if such securities are
deemed to be U.S. Government Securities, the Portfolio will
include them as such for purposes of determining the 55%
limitation on U.S. Government Securities.

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

<PAGE>

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

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

2. Obligations of, or guaranteed by, national or state
bank holding companies, which obligations, although not rated as
a matter of policy by either S&P or Moody's, are rated AAA, AA or
A by Fitch;

3. Commercial paper rated A-1+, A-1, A-2 or A-3 by
S&P, D-1, D-2 or D-3 by Duff & Phelps, F1, F2 or F3 by Fitch or
Prime-1, Prime-2 or Prime-3 by Moody's; and

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

INVESTMENT IN HIGH GRADE DEBT SECURITIES. With respect
to the Portfolio's investment in high grade debt securities, the
Portfolio does not acquire common stocks or equities exchangeable
for or convertible into common stock or rights or warrants to
subscribe for or purchase common stock, except that with respect
to convertible debt securities, the Portfolio may acquire common
stock through the exercise of conversion rights in situations
where it believes such exercise is in the best interest of the
Portfolio and its shareholders. In such event, the Portfolio
will sell the common stock resulting from such conversion as soon
as practical. The Portfolio may acquire debt securities and
nonconvertible preferred stock which may have voting rights, but
in no case will the Portfolio acquire more than 10% of the voting
securities of any one issuer. The relative size of the
Portfolio's investments in any grade or type of security will
vary from time to time. Critical factors which are considered in
the selection of securities relate to other investment
alternatives as well as trends in the determinants of interest
rates, corporate profits and management capabilities and
practices.

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 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.

<PAGE>

RESTRICTED SECURITIES. Consistent with its investment
restrictions, the Portfolio may acquire restricted securities.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act or
pursuant to Rule 144 promulgated under such Act. Where
registration is required, the Portfolio may be obligated to pay
all or part of the registration expense, and a considerable
period may elapse between the time of the decision to sell and
the time the Portfolio may be permitted to sell a security under
an effective registration statement. If during such a period
adverse market conditions were to develop, the Portfolio might
obtain a less favorable price than prevailed when it decided to
sell. Restricted securities will be valued in such manner as the
Board of Directors of the Fund in good faith deem appropriate to
reflect their fair market value. If through the appreciation of
restricted securities or the depreciation of unrestricted
securities, the Portfolio should be in a position where more than
10% of the value of its total assets is invested in illiquid
assets, including restricted securities, the Portfolio will take
appropriate steps to protect liquidity. See "Other Investment
Policies -- Illiquid Securities" below, for a more detailed
discussion of the Portfolio's investment policy in securities
with legal or contractual restrictions on resale.

OTHER SECURITIES. While the Portfolio's investment
strategy emphasizes U.S. Government Securities and high grade
debt securities, the Portfolio may, consistent with its
investment objectives, invest up to 35% of its total assets in
securities other than U.S. Government Securities and high grade
debt securities, including (i) investment grade corporate debt
securities of a type other than the high grade debt securities
described above (including collateralized mortgage obligations),
(ii) certificates of deposit, bankers acceptances and
interest-bearing savings deposits of banks having total assets of
more than $1 billion and which are members of the Federal Deposit
Insurance Corporation, and (iii) put and call options, futures
contracts and options thereon. Investment grade debt securities
are those rated Baa or higher by Moody's or BBB or higher by S&P,
Duff & Phelps or Fitch or, if not so rated, of equivalent
investment quality in the opinion of the Adviser. Securities
rated Baa by Moody's or BBB by S&P, Duff & Phelps or Fitch
normally provide higher yields but are considered to have
speculative characteristics. Sustained periods of deteriorating
economic conditions or rising interest rates are more likely to
lead to a weakening in the issuers capacity to pay interest and
repay principal than in the case of higher-rated securities. See
Appendix A to the Prospectus for a description of corporate debt
ratings.

<PAGE>

COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized
mortgage obligations (CMOs) are debt obligations issued generally
by finance subsidiaries or trusts that are secured by mortgage-
backed certificates, including, in many cases, GNMA Certificates,
FHLMC Certificates and FNMA Certificates, together with certain
funds and other collateral.

Scheduled distributions on the mortgage-backed
certificates pledged to secure the CMOs, together with certain
funds and other collateral, will be sufficient to make timely
payments of interest on the CMOs and to retire the CMOs not later
than their stated maturity. Since the rate of payment of
principal of the CMOs depends on the rate of payment (including
prepayments) of the principal of the underlying mortgage-backed
certificates, the actual maturity of the CMOs could occur
significantly earlier than their stated maturity. The CMOs may
be subject to redemption under certain circumstances. CMOs
bought at a premium (i.e., a price in excess of principal amount)
may involve additional risk of loss of principal in the event of
unanticipated prepayments of the underlying mortgages because the
premium may not have been fully amortized at the time the
obligation is repaid.

Although payment of the principal of and interest on the
mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FHLMC, or FNMA, the CMOs represent
obligations solely of the issuer and are not insured or
guaranteed by GNMA, FHLMC, FNMA or any other governmental agency,
or by any other person or entity. The issuers of CMOs typically
have no significant assets other than those pledged as collateral
for the obligations.

The staff of the Commission currently takes the
position, in a reversal of its former view, that certain issuers
of CMOs are not investment companies for purposes of Section
12(d)(i) of the 1940 Act, which limits the ability of one
investment company to invest in another investment company. The
staff of the Commission has determined that certain issuers of
CMOs are investment companies for purposes of the 1940 Act. In
reliance on a recent staff interpretation, the Portfolio's
investments in certain qualifying CMOs, including CMOs that have
elected to be treated as real estate mortgage investment conduits
(REMICs), are not subject to the 1940 Acts limitation on
acquiring interests in other investment companies. In order to
be able to rely on the staffs interpretation, the CMOs and REMICs
must be unmanaged, fixed-asset issuers, that (a) invest primarily
in mortgage-backed securities, (b) do not issue redeemable
securities, (c) operate under general exemptive orders exempting
them from all provisions of the 1940 Act, and (d) are not
registered or regulated under the 1940 Act as investment
companies. To the extent that the Portfolio selects CMOs or

<PAGE>

REMICs that do not meet the above requirements, the Portfolio may
not invest more than 10% of its assets in all such entities and
may not acquire more than 3% of the voting securities of any
single such entity.

INVESTMENT PRACTICES.

OPTIONS ON U.S. GOVERNMENT SECURITIES. In an effort to
increase current income and to reduce fluctuations in net asset
value, the Portfolio intends to write covered put and call
options and purchase put and call options on U.S. Government
Securities that are traded on United States securities exchanges
and over the counter. The Portfolio may also write such call
options that are not covered for cross-hedging purposes. There
are no specific percentage limitations on the Portfolio's
investments in options.

The Portfolio intends to write call options for cross-
hedging purposes. A call option is for cross-hedging purposes if
it is designed to provide a hedge against a decline in value in
another security which the Portfolio owns or has the right to
acquire. In such circumstances, the Portfolio collateralizes the
option by maintaining in a segregated account with the Custodian,
cash or U.S. Governmental Securities in an amount not less than
the market value of the underlying security, marked to market
daily.

In purchasing a call option, the Portfolio would be in a
position to realize a gain if, during the option period, the
price of the security increased by an amount in excess of the
premium paid. It would realize a loss if the price of the
security declined or remained the same or did not increase during
the period by more than the amount of the premium. In purchasing
a put option, the Portfolio would be in a position to realize a
gain if, during the option period, the price of the security
declined by an amount in excess of the premium paid. It would
realize a loss if the price of the security increased or remained
the same or did not decrease during that period by more than the
amount of the premium. If a put or call option purchased by the
Portfolio were permitted to expire without being sold or
exercised, its premium would be lost by the Portfolio.

If a put option written by the Portfolio were exercised,
the Portfolio would be obligated to purchase the underlying
security at the exercise price. If a call option written by the
Portfolio were exercised, the Portfolio would be obligated to
sell the underlying security at the exercise price. The risk
involved in writing a put option is that there could be a
decrease in the market value of the underlying security caused by
rising interest rates or other factors. If this occurred, the
option could be exercised and the underlying security would then

<PAGE>

be sold to the Portfolio at a higher price than its current
market value. The risk involved in writing a call option is that
there could be an increase in the market value of the underlying
security caused by declining interest rates or other factors. If
this occurred, the option could be exercised and the underlying
security would then be sold by the Portfolio at a lower price
than its current market value. The Portfolio retains the premium
received from writing a put or call option whether or not the
option is exercised.

Over-the-counter options are purchased or written by the
Portfolio in privately negotiated transactions. Such options are
illiquid and it may not be possible for the Portfolio to dispose
of any option it has purchased or terminate its obligations under
an option it has written at a time when the Adviser believes it
would be advantageous to do so.

The Portfolio intends to write covered put and call
options and purchase put and call options on U.S. Government
Securities that are traded on United States securities exchanges
and over the counter. The Portfolio also intends to write call
options that are not covered for cross-hedging purposes.

For additional information on the use, risks and costs
of options, see Appendix C.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The
Portfolio may enter into contracts for the purchase or sale for
future delivery of fixed-income securities or contracts based on
financial indices including any index of U.S. Government
Securities (futures contracts) and may purchase and write options
to buy or sell futures contracts (options on futures contracts).
Options on futures contracts to be written or purchased by the
Portfolio will be traded on U.S. exchanges or over the counter.
These investment techniques will be used only to hedge against
anticipated future changes in interest or exchange rates which
otherwise might either adversely affect the value of the
Portfolio's securities or adversely affect the prices of
securities which the Portfolio intends to purchase at a later
date. The successful use of such instruments draws upon the
Advisers special skills and experience with respect to such
instrumentalities and usually depends on the Advisers ability to
forecast interest rate movements correctly. Should interest
rates move in an unexpected manner, the Portfolio may not achieve
the anticipated benefits of futures contracts or options on
futures contracts or may realize losses and thus will be in a
worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of
futures contracts or options on futures contracts and movements
in the price of securities hedged or used for cover will not be
perfect.

<PAGE>

A sale of a futures contract means the acquisition of a
contractual obligation to deliver the securities called for by
the contract at a specified price on a specified date. A
purchase of a futures contract means the acquisition of a
contractual obligation to acquire the securities called for by
the contract at a specified price on a specified date. The
purchaser of a futures contract on an index agrees to take or
make delivery of an amount of cash equal to the difference
between a specified dollar multiple of the value of the index on
the expiration date of the contract and the price at which the
contract was originally struck.

The Portfolio enters into futures contracts which are
based on debt securities that are backed by the full faith and
credit of the U.S. Government, such as long-term U.S. Treasury
bonds, Treasury notes, GNMA modified pass-through mortgage-backed
securities and three-month U.S. Treasury bills. The Portfolio
may also enter into futures contracts which are based on non-U.S.
Government bonds.

The Portfolio's ability to engage in the options and
futures strategies described above depends on the availability of
liquid markets in such instruments. Markets in options and
futures with respect to U.S. Government Securities are relatively
new and still developing. It is impossible to predict the amount
of trading interest that may exist in various types of options or
futures. Therefore no assurance can be given that the Portfolio
will be able to utilize these instruments effectively for the
purposes set forth above. Furthermore, the Portfolio's ability
to engage in options and futures transactions may be limited by
tax considerations.

It is the policy of the Portfolio that futures contracts
and options on futures contracts only be used as a hedge and not
for speculation. In addition to this requirement, the Portfolio
adheres to two percentage restrictions on the use of futures
contracts. The first restriction is that the Portfolio will not
enter into any futures contracts and options on futures contracts
if immediately thereafter the amount of initial margin deposits
on all the futures contracts of the Portfolio and premiums paid
on options on futures contracts would exceed 5% of the market
value of the total assets of the Portfolio. The second
restriction is that the aggregate market value of the futures
contracts held by the Portfolio not exceed 50% of the market
value of the total assets of the Portfolio. Neither of these
restrictions will be changed by the Portfolio without considering
the policies and concerns of the various applicable federal and
state regulatory agencies.

<PAGE>

For additional information on the use, risks and costs
of future contracts and options on future contracts, see
Appendix B.

LENDING OF PORTFOLIO SECURITIES. In order to increase
income, the Portfolio may from time to time lend its securities
to brokers, dealers and financial institutions and receive
collateral in the form of cash or U.S. Government Securities.
Under the Portfolio's procedures, collateral for such loans must
be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities (including
interest accrued on the loaned securities). The interest
accruing on the loaned securities will be paid to the Portfolio
and the Portfolio will have the right, on demand, to call back
the loaned securities. The Portfolio may pay fees to arrange the
loans. The Portfolio will not lend its securities in excess of
30% of the value of its total assets, nor will the Portfolio lend
its securities to any officer, director, employee or affiliate of
the Fund or the Adviser.

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

When such transactions are negotiated, the price, which
is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities
take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements
beyond two months may be negotiated. Securities purchased or
sold under a forward commitment are subject to market
fluctuation, and no interest (or dividend) accrues to the
purchaser prior to the settlement date. At the time the
Portfolio enters into a forward commitment, it will record the
transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a when, as and if
issued security would be cancelled in the event that the required
condition did not occur and the trade was cancelled.

The use of when-issued transactions and forward
commitments enables the Portfolio to protect against anticipated
changes in interest rates and prices. For instance, in periods
of rising interest rates and falling bond prices, the Portfolio
might sell its securities on a forward commitment basis to limit

<PAGE>

its exposure to falling prices. In periods of falling interest
rates and rising bond prices, the Portfolio might sell a security
and purchase the same or a similar security on a when-issued or
forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements,
the Portfolio might be required to complete such when-issued or
forward transactions at prices inferior to then current market
values. No when-issued transactions forward commitments will be
made by the Portfolio if, as a result, the Portfolio's aggregate
commitments under such transactions would be more than 30% of the
then current value of the Portfolio's total assets.

When-issued and forward commitments may be sold prior to
the settlement date, but the Portfolio enters into forward
commitments only with the intention of actually receiving or
delivering the securities, as the case may be. To facilitate
such transactions, the Custodian will maintain, in the separate
account, cash, U.S. Government Securities or other liquid, high-
grade debt obligations, having value equal to, or greater than,
any commitments to purchase securities on a when-issued or
forward commitment basis and, with respect to forward commitments
to sell the Portfolio's securities themselves. If the Adviser,
however, chooses to dispose of its right to acquire a when-issued
security prior to its acquisition or dispose of its right to
receive or deliver a security subject to a forward commitment
prior to the settlement date of the transaction, the Portfolio
can incur a gain or loss. At the time the Portfolio makes the
commitment to purchase or sell a security on a when-issued or
forward commitment basis, it records the transaction and reflects
the value of the security purchased or, if a sale, the proceeds
to be received, in determining its net asset value. In the event
the other party to a forward commitment transaction were to
default, the Portfolio might lose the opportunity to invest money
at favorable rates or to dispose of securities at favorable
prices.

FUTURE DEVELOPMENTS. The Portfolio may, following
written notice thereof to its shareholders, take advantage of
opportunities in the area of options and futures contracts and
options on futures contracts which are not presently contemplated
for use by the Portfolio or which are not currently available but
which may be developed, to the extent such opportunities are both
consistent with the Portfolio's investment objective and legally
permissible for the Portfolio. Such opportunities, if they
arise, may involve risks which exceed those involved in the
options and futures activities described above.

PORTFOLIO TURNOVER. Because the Portfolio actively uses
trading to benefit from yield disparities among different issues
of fixed-income securities or otherwise to achieve its investment

<PAGE>

objective and policies, the Portfolio may be subject to a greater
degree of portfolio turnover than might be expected from
investment companies which invest substantially all of their
funds on a long-term basis. The Portfolio cannot accurately
predict its portfolio turnover rate, but it is anticipated that
the annual turnover rate of the Portfolio generally will not
exceed 400% (excluding turnover of securities having a maturity
of one year or less). An annual turnover rate of 400% occurs,
for example, when all of the Portfolio's securities are replaced
four times in a period of one year. A 400% turnover rate is
greater than that of many other investment companies. A higher
incidence of short term capital gain taxable as ordinary income
than might be expected from investment companies which invest
substantially all their funds on a long term basis and
correspondingly larger mark up charges can be expected to be
borne by the Portfolio.

INVESTMENT RESTRICTIONS. The following investment
restrictions, which are applicable to the U.S. Government/High
Grade Securities Portfolio, supplement those set forth above and
may not be changed without Shareholder Approval, as defined under
the caption "General Information" below.

The Portfolio may not:

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

<PAGE>

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Participate on a joint or joint and several basis
in any securities trading account;

9. Invest in companies for the purpose of exercising
control;

10. Issue senior securities, except in connection with
permitted borrowing for extraordinary emergency purposes;

11. Sell securities short or maintain a short position,
unless at all times when a short position is open it owns an
equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration,
securities of the same issue as, and equal in amount to, the
securities sold short (short sales against the box), and unless
not more than 10% of the Portfolio's net assets (taken at market
value) is held as collateral for such sales at any one time (it
is the Portfolio's present intention to make such sales only for
the purpose of deferring realization of gain or loss for federal
income tax purposes);

12. Invest more than 5% of the value of its total
assets at the time an investment is made in the nonconvertible
preferred stock of issuers whose nonconvertible preferred stock
is not readily marketable;

13. Invest in the securities of any investment company,
except in connection with a merger, consolidation, acquisition of
assets or other reorganization approved by the Fund's
shareholders;

14. Invest more than 25% of the value of its total
assets at the time of investment in the aggregate of:

(a) nonconvertible preferred stock of issuers
whose senior debt securities are rated Aaa, Aa, or A by Moody's
or AAA, AA or A by S&P, provided that in no event may such
nonconvertible preferred stocks exceed in the aggregate 20% of

<PAGE>

the value of the Portfolio's total assets at the time of
investment;

(b) debt securities of foreign issuers which are
rated Aaa, Aa or A by Moody's or AAA, AA or A by S&P; and

(c) convertible debt securities which are rated
Aaa, Aa or A by Moody's, or AAA, AA or A by S&P, provided that in
no event may such securities exceed in the aggregate 10% of the
value of the Portfolio's total assets at the time of investment;

15. Purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real
estate or interests therein;

16. Purchase or sell commodities or commodity contracts
(except currencies, currency futures, forward contracts or
contracts for the future acquisition or delivery of fixed-income
securities and related options) and other similar contracts; or

17. Purchase securities on margin, except for such
short-term credits as may be necessary for the clearance of
transactions.

HIGH-YIELD PORTFOLIO

GENERAL. As discussed in the Prospectus, the Portfolio
invests principally in lower-rated fixed-income securities. The
ratings of fixed-income securities by Moody's, S&P, Duff & Phelps
and Fitch are a generally accepted barometer of credit risk.
They are, however, subject to certain limitations from an
investors standpoint. For a description of credit ratings see
Appendix A to the Prospectus.

Such limitations include the following: the rating of
an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions; there is
frequently a lag between the time a rating is assigned and the
time it is updated; and there may be varying degrees of
difference in credit risk of securities in each rating category.
The Adviser attempts to reduce the overall portfolio credit risk
through diversification and selection of portfolio securities
based on considerations mentioned below.

While ratings provide a generally useful guide to credit
risks, they do not, nor do they purport to, offer any criteria
for evaluating interest rate risk. Changes in the general level
of interest rates cause fluctuations in the prices of fixed-
income securities already outstanding and will therefore result
in fluctuation in net asset value of the Portfolio's shares. The
extent of the fluctuation is determined by a complex interaction

<PAGE>

of a number of factors. The Adviser evaluates those factors it
considers relevant and makes portfolio changes when it deems it
appropriate in seeking to reduce the risk of depreciation in the
value of the Portfolio.

The Adviser anticipates that the annual turnover rate in
the Portfolio may be in excess of 200% in future years (but is
not expected to exceed 250%). An annual rate of 200% occurs, for
example, when all of the securities in the Portfolio's investment
portfolio are replaced two times in a period of one year.

PUBLIC UTILITIES. The High-Yield Portfolio's
investments in public utilities, if any, may be subject to
certain risks. Such utilities may have difficulty meeting
environmental standards and obtaining satisfactory fuel supplies
at reasonable costs. During an inflationary period, public
utilities also face increasing fuel, construction and other costs
and may have difficulty realizing an adequate return on invested
capital. There is no assurance that regulatory authorities will
grant sufficient rate increases to cover expenses associated with
the foregoing difficulties as well as debt service requirements.
In addition, with respect to utilities engaged in nuclear power
generation, there is the possibility that Federal, State or
municipal governmental authorities may from time to time impose
additional regulations or take other governmental action which
might cause delays in the licensing, construction, or operation
of nuclear power plants, or suspension of operation of such
plants which have been or are being financed by proceeds of the
fixed-income securities in the Portfolio.

MORTGAGE-RELATED SECURITIES. The mortgage-related
securities in which the High-Yield Portfolio may invest provide
funds for mortgage loans made to residential home buyers. These
include securities which represent interests on pools of mortgage
loans made by lenders such as savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled for sale to investors (such as the Portfolio)
by various governmental, government-related and private
organizations.

Government-related (i.e., not backed by the full faith
and credit of the United States Government) guarantors include
FNMA and FHLMC. For a description of FNMA and FHLMC and the
securities they issue see above, "U.S. Government/High Grade
Securities Portfolio -- U.S. Government Securities, FHLMC
Securities and FNMA Securities."

Yields on mortgage-related securities are typically
quoted by investment dealers and vendors based on the maturity of
the underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of

<PAGE>

prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-related securities.
Conversely, in periods of rising interest rates the rate of
prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Historically, actual average life has
been consistent with the 12-year assumption referred to above.

Actual prepayment experience may cause the yield to
differ from the issued average life yield. Reinvestment of
prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of the Portfolio.
The compounding effect from reinvestment of monthly payments
received by the Portfolio will increase the yield to shareholders
compared to bonds that pay interest semi-annually.

DIRECT INVESTMENT IN MORTGAGES. The High-Yield
Portfolio may invest directly in residential mortgages securing
residential real estate (i.e., the Portfolio becomes the
mortgagee). Such investments are not mortgage-related securities
as described above. They are normally available from lending
institutions which group together a number of mortgages for
resale (usually from 10 to 50 mortgages) and which act as serving
agent for the purchaser with respect to, among other things, the
receipt of principal and interest payments. (Such investments
are also referred to as whole loans). The vendor of such
mortgages receives a fee from the Portfolio for acting a
servicing agent. The vendor does not provide any insurance or
guarantees covering the repayment of principal or interest on the
mortgages. At present, such investments are considered to be
illiquid by the Adviser. The Portfolio will invest in such
mortgages only if the Adviser has determined through an
examination of the mortgage loans and their originators (which
may include an examination of such factors as percentage of
family income dedicated to loan service and relationship between
loan value and market value) that the purchase of the mortgages
should not present a significant risk of loss to the Portfolio.
The Portfolio has no present intention of making direct
investments in mortgages.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The
High-Yield Portfolio may purchase securities offered on a when-
issued basis and may purchase or sell securities on a forward
commitment basis. For a general description of when-issued
securities and forward commitments, see above, "U.S.
Government/High Grade Portfolio-Investment Practices-When-Issued
Securities and Forward Commitments". No when-issued or forward
commitments will be made by the Portfolio if, as a result, more
than 20% of the value of the Portfolio's total assets would be
committed to such transactions.

<PAGE>

The High-Yield Portfolio may purchase securities on a
when, as and if issued basis as described above in "U.S.
Government/High Grade Portfolio-Investment Practices-When-Issued
Securities and Forward Commitments". The commitment for the
purchase of any such security will not be recognized in the
Portfolio until the Adviser determines that issuance of the
security is probable. At such time, the Portfolio will record
the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the
Portfolio will also establish a segregated account with its
custodian bank in which it will maintain U.S. Government
Securities, cash or cash equivalents or other high grade debt
portfolio securities equal in value to recognized commitments for
such securities. The value of the Portfolio's commitments to
purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Portfolio,
may not exceed 5% of the value of the Portfolio's total assets at
the time the initial commitment to purchase such securities is
made. Subject to the foregoing restrictions, the Portfolio may
purchase securities on such basis without limit. An increase in
the percentage of the Portfolio's assets committed to the
purchase of securities on a when, as and if issued basis may
increase the volatility of its net asset value. The Adviser and
the Directors of the Fund do not believe that the net asset value
of the Portfolio will be adversely affected by its purchase of
securities on such basis.

FUTURES CONTRACTS AND OPTIONS ON FUTURES. The High-
Yield Portfolio may invest in financial futures contracts
(futures contracts) and related options thereon. The Portfolio
may sell a futures contract or a call option thereon or purchase
a put option on such futures contract if the Adviser anticipates
that interest rates will rise, as a hedge against a decrease in
the value of the Portfolio's securities. If the Adviser
anticipates that interest rates will decline, the Portfolio may
purchase a futures contract or a call option thereon to protect
against an increase in the price of the securities the Portfolio
intends to purchase. These futures contracts and related options
thereon will be used only as a hedge against anticipated interest
rate changes. For a general discussion of futures contracts and
options thereon, including their risks, see U.S. Government/High
Grade Securities Portfolio-Investment Practices-Futures Contracts
and Options on Futures Contracts above and Appendix B.

Currently, futures contracts can be purchased on debt
securities such as U.S. Treasury bills and bonds, U.S. Treasury
notes with maturities between 6 l/2 years and 10 years,
Government National Mortgage Association ("GNMA") certificates
and bank certificates of deposit. The Portfolio may invest in
futures contracts covering these types of financial instruments

<PAGE>

as well as in new types of such contracts that may become
available.

Financial futures contracts are traded in an auction
environment on the floors of several exchanges principally the
Chicago Board of Trade, the Chicago Mercantile Exchange and the
New York Futures Exchange. Each exchange guarantees performance
under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership which
is also responsible for handling daily accounting of deposits or
withdrawals of margin.

The Portfolio may not enter into futures contracts or
related options thereon if immediately thereafter the amount
committed to margin plus the amount paid for option premiums
exceeds 5% of the value of the Portfolio's total assets. In
instances involving the purchase of futures contracts by the
Portfolio, an amount equal to the market value of the futures
contract will be deposited in a segregated account of cash and
cash equivalents to collateralize the position and thereby insure
that the use of such futures contract is unleveraged.

PUT AND CALL OPTIONS. The High-Yield Portfolio may
purchase put and call options written by others and write put and
call options covering the types of securities in which the
Portfolio may invest. For a description of put and call options,
including their risks, see above, U.S. Government/High Grade
Securities Portfolio-Investment Practices-Options on U.S. and
Foreign Government Securities. The Portfolio will not purchase
any option if, immediately thereafter, the aggregate cost of all
outstanding options purchased by the Portfolio would exceed 2% of
the value of its total assets; the Portfolio will not write any
option (other than options on futures contracts) if, immediately
thereafter, the aggregate value of its portfolio securities
subject to outstanding options would exceed 15% of its total
assets.

FOREIGN SECURITIES. The portfolio may purchase 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 Portfolio's total assets. For the risks
associated with investments in foreign debt securities, see
above, "U.S. Government/High Grade Securities Portfolio--High
Grade Debt Securities--Foreign Securities".

FOREIGN CURRENCY TRANSACTIONS. Since investments in
foreign companies usually involve currencies of foreign
countries, and since the High-Yield Portfolio may temporarily
hold funds in bank deposits in foreign currencies during the
completion of investment programs, the value of the assets of the

<PAGE>

Portfolio as measured in United States dollars may be affected
favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Portfolio may
incur costs in connection with conversions between various
currencies. The Portfolio conducts its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign
currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at
a future date, which may be any fixed number of days (usually
less than one year) from the date of the contract agreed upon by
the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly
between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for
trades. Although foreign exchange dealers do not charge a fee
for conversion, they do realize a profit based on the difference
(the spread) between the price at which they are buying and
selling various currencies.

The Portfolio may enter into forward foreign currency
exchange contracts only under two circumstances. First, when the
Portfolio enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to
"lock in" the U.S. Dollar price of the security. By entering
into a forward contract for the purchase or sale, for a fixed
amount of dollars, of the amount of foreign currency involved in
the underlying security transactions, the Portfolio will be able
to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. Dollar and
the subject foreign currency during the period between the date
the security is purchased or sold and the date on which payment
is made or received.

Second, when the Adviser believes that the currency of a
particular foreign country may suffer a substantial decline
against the U.S. Dollar, the Portfolio may enter into a forward
contract to sell for a fixed amount of dollars the amount of
foreign currency approximating the value of some or all of the
Portfolio's investment portfolio securities denominated in such
foreign currency. The precise matching of the forward contract
amounts and the value of the securities involved will not
generally be possible since the future value of such securities
in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the
forward contract is entered into and the date it matures. The
projection of short-term currency market movement is extremely
difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Adviser does not intend to

<PAGE>

enter into such forward contracts under this second set of
circumstances on a regular or continuous basis, and will not do
so if, as a result, the Portfolio will have more than 5% of the
value of its total assets committed to the consummation of such
contracts.

The Portfolio will also not enter into such forward
contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Portfolio to
deliver an amount of foreign currency in excess of the value of
the securities in the Portfolio or other assets denominated in
that currency. At the consummation of such a forward contract,
the Portfolio may either make delivery of the foreign currency or
terminate its contractual obligation to deliver the foreign
currency by purchasing an offsetting contract obligating it to
purchase, at the same maturity date, the same amount of such
foreign currency. If the Portfolio chooses to make delivery of
the foreign currency, it may be required to obtain such currency
through the sale of portfolio securities denominated in such
currency or through conversion of other assets of the Portfolio
into such currency. If the Portfolio engages in an offsetting
transaction, the Portfolio will incur a gain or a loss to the
extent that there has been a change in forward contract prices.

Under normal circumstances, consideration of the
prospect for currency parities will be incorporated in a longer
term investment decision made with regard to overall
diversification strategies. However, the Adviser believes that
it is important to have a flexibility to enter into such forward
contract when it determines that the best interest of the
Portfolio will be served.

The Fund's custodian bank places 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
forward foreign currency exchange contracts entered into under
the second set of circumstances, as set forth above. If the
value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account on a
daily basis so that the value of the account will equal the
amount of the Portfolio's commitments with respect to such
contracts.

The Portfolio's dealing in forward foreign currency
exchange contracts is limited to the transactions described
above. Of course, the Portfolio is not required to enter into
such transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by the
Adviser. It also should be realized that this method of
protecting the value of the Portfolio's portfolio securities
against a decline in the value of a currency does not eliminate

<PAGE>

fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which can be achieved at
some future point in time. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value
of the hedged currency, at the same time they tend to limit any
potential gain which might result should the value of such
currency increase.

RESTRICTED SECURITIES. The Portfolio may acquire
restricted securities within the limits set forth in the
Prospectus. For a description of such securities including their
risks, see above, "U.S. Government/High Grade Securities
Portfolio Restricted Securities and Other Investment Policies-
- -Illiquid Securities below". If through the appreciation of
restricted securities or the depreciation of unrestricted
securities the Portfolio should be in a position where more than
10% of the value of its total assets is invested in illiquid
assets, including restricted securities, the Portfolio will take
appropriate steps to protect liquidity.

REPURCHASE AGREEMENTS. The Portfolio may invest in
repurchase agreements terminable within seven days and pertaining
to issues of the United States Treasury with member banks of the
Federal Reserve System or primary dealers in United States
Government securities, so long as such investments do not in the
aggregate exceed the Investment Restrictions as set forth in the
Prospectus. Such investments would be made in accordance with
procedures established by the Portfolio to require that the
securities serving as collateral for each repurchase agreement be
delivered either physically or in book entry form to the Fund's
custodian and to require that such collateral be marked to the
market with sufficient frequency to ensure that each such
agreement is fully collateralized at all times. The Portfolio
follows established procedures, which are periodically reviewed
by the Fund's Board of Directors, pursuant to which the Adviser
will monitor the creditworthiness of the dealers with which the
Portfolio enters into repurchase agreement transactions. For a
discussion of repurchase agreements, see "Other Investment
Policies -- Repurchase Agreements," below.

LENDING OF PORTFOLIO SECURITIES. Consistent with
applicable regulatory requirements, the Portfolio may loan its
portfolio securities where such loans are continuously secured by
cash collateral equal to no less than the market value,
determined daily, of the securities loaned. In loaning its
portfolio securities, the Portfolio requires that interest or
dividends on securities loaned be paid to the Portfolio. Where
voting or consent rights with respect to loaned securities pass
to the borrower, the Portfolio follows the policy of calling the
loan, in whole or in part as may be appropriate, to permit it to
exercise such voting or consent rights if the exercise of such

<PAGE>

rights involves issues having a material effect on the
Portfolio's investment in the securities loaned. Although the
Portfolio cannot at the present time determine the types of
borrowers to whom it may lend its portfolio securities, the
Portfolio anticipates that such loans will be made primarily to
bond dealers.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the High-Yield Portfolio, supplement
those set forth above and may not be changed without Shareholder
Approval, as defined under the caption "General Information,"
below.

The Portfolio may not:

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

6. 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;
(illiquid securities purchased by the Portfolio may include

<PAGE>

(a) subordinated debentures or other debt securities issued in
the course of acquisition financing such as that associated with
leveraged buyout transactions, and (b) 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);

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Invest more than 5% of the value of its total
assets at the time an investment is made in the non-convertible
preferred stock of issuers whose non-convertible preferred stock
is not readily marketable;

9. Act as securities underwriter or invest in
commodities or commodity contracts, except that the Portfolio
(i) may acquire restricted or not readily marketable securities
under circumstances where, if such securities are sold, the
Portfolio might be deemed to be an underwriter for purposes of
the Securities Act, and (ii) may purchase financial futures as
described in the Prospectus and above;

10. Engage in the purchase or sale of real estate,
except that the Portfolio may invest in securities secured by
real estate or interests therein or issued by companies,
including real estate investment trusts, which deal in real
estate or interests therein;

11. Invest in companies for the purpose of exercising
control of management;

12. Issue any senior securities as defined in the 1940
Act (except to the extent that when-issued securities
transactions, forward commitments or stand-by commitments may be
considered senior securities);

13. Participate on a joint, or on a joint and several,
basis in any trading account in securities;

14. Effect a short sale of any security;

15. Purchase securities on margin, but it may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities; or

16. Invest in the securities of any other investment
company except in connection with a merger, consolidation,
acquisition of assets or other reorganization.

<PAGE>

TOTAL RETURN PORTFOLIO

The investment objective of the Total Return Portfolio
is to achieve a high return through a combination of current
income and capital appreciation. The Portfolio has adopted, as a
fundamental policy, that it be a "balanced fund"; this
fundamental policy cannot be changed without Shareholder
Approval. The percentage of the Portfolio's assets invested in
each type of security at any time is in accordance with the
judgment of the Adviser. The Portfolio's assets are invested in
U.S. Government and agency obligations, bonds whether convertible
or non-convertible and preferred and common stocks in such
proportions and of such type as are deemed best adapted to the
current economic and market outlooks. The Portfolio engages
primarily in holding securities for investment and not for
trading purposes. Purchases and sales of portfolio securities
are made at such times and in such amounts as are deemed
advisable in the light of market, economic and other conditions,
irrespective of the volume of portfolio turnover. Ordinarily,
the annual portfolio turnover rate will not exceed 100%.

Subject to market conditions the Portfolio may also try
to realize income by writing covered call options listed on a
domestic securities exchange. In so doing, the Portfolio
foregoes the opportunity to profit from an increase in the market
price in the underlying security above the exercise price of the
option in return for the premium it received from the purchaser
of the option. The Adviser believes that such premiums will
increase the Portfolio's distributions without subjecting it to
substantial risks. No option will be written by the Portfolio
if, as a result, more than 25% of the Portfolio's assets are
subject to call options. For a discussion of covered call
options see "High Yield Portfolio -- Put and Call Options" above.
The Portfolio purchases call options only to close out a position
in an option written by it. In order to close out a position the
Portfolio will make a closing purchase transaction if such is
available. Except as stated above, the Portfolio may not
purchase or sell puts or calls or combinations thereof.

Although the Portfolio may invest in foreign securities,
it has no present intention to do so.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Total Return Portfolio, supplement
those set forth above and may not be changed without Shareholder
Approval, as defined under the caption "General Information,"
below.

<PAGE>

The Portfolio may not:

1 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 regard to such 5% limitation;

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Purchase the securities of any other investment
company except in a regular transaction in the open market;

9. Retain investments in the securities of any issuer
if directors or officers of the Fund or certain other interested
persons own more than 5% of such securities;

10. Invest in other companies for the purchase of
exercising control of management;

<PAGE>

11 Purchase securities on margin, borrow money, or
sell securities short, except that the Portfolio may borrow in an
amount up to 10% of its total assets to meet redemption requests
and for the clearance of purchases and sales of portfolio
securities (this borrowing provision is not for investment
leverage but solely to enable the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed
to be disadvantageous or inconvenient and to obtain such short-
term credits as may be necessary for the clearance of purchases
and sales of portfolio securities; all borrowings at any time
outstanding will be repaid before any additional investments are
made; the Portfolio will not mortgage, pledge or hypothecate any
assets in connection with any such borrowing in excess of 15% of
the Portfolio's total assets);

12. Underwrite securities issued by other persons;

13. Purchase any securities as to which it would be
deemed a statutory underwriter under the Securities Act of 1933;

14 Purchase or sell commodities or commodity
contracts; or

15 Issue any securities senior to the capital stock
offered hereby.

INTERNATIONAL PORTFOLIO

GENERAL. The objective of the International Portfolio
is to seek to obtain a total return on its assets from long-term
growth of capital principally through a broad portfolio of
marketable securities of established non-United States companies
(e.g. incorporated outside the United States), companies
participating in foreign economies with prospects for growth and
foreign government securities. As a secondary objective, the
Portfolio attempts to increase its current income without
assuming undue risk. There is no limitation on the percent or
amount of the Portfolio's assets which may be invested for growth
or income, and therefore, at any point in time, the investment
emphasis may be placed solely or primarily on growth of capital
or solely or primarily on income. There can be no assurance, of
course, that the Portfolio will achieve its objective.
Ordinarily, the annual portfolio turnover rate will not exceed
100%.

<PAGE>

the Portfolio expects that its objective will, over the long
term, be met principally through investing in the equity
securities of established non-United States companies which, in
the opinion of the Adviser, have potential for growth of capital.
However, the Portfolio can be expected during certain periods to
place substantial emphasis on income through investment in
foreign debt securities when it appears that the total return
from such securities will equal or exceed the return on equity
securities.

Investments may be made from time to time in companies
in, or governments of, developing countries as well as developed
countries. Although there is no universally accepted definition,
a developing country is generally considered to be a country
which is in the initial stages of its industrialization cycle
with a low per capita gross national product. Historical
experience indicates that the markets of developing countries
have been more volatile than the markets of the more mature
economies of developed countries; however, such markets often
have provided higher rates of return to investors. The Adviser
at present does not intend to invest more than 10% of the
Portfolio's total assets in companies in, or governments of,
developing countries.

The Adviser, in determining the composition of the
Portfolio, will initially seek the appropriate distribution of
investments among various countries and geographic regions.
Accordingly, the Adviser considers the following factors in
making investment decisions on this basis: prospects for relative
economic growth between foreign countries; expected levels of
inflation; government policies influencing business conditions;
the outlook for currency relationships; and the range of
individual investment opportunities available to the
international portfolio investor. For a description of Japan and
the United Kingdom, see Appendix D.

The Adviser, in analyzing individual companies for
investment, looks for one or more of the following
characteristics: an above average earnings growth per share;
high return on invested capital; healthy balance sheet; sound
financial and accounting policies and overall financial strength;
strong competitive advantages; effective research and product
development and marketing; efficient service; pricing
flexibility; strength of management; and general operating
characteristics which enables the companies to compete
successfully in their marketplace. While current dividend income
is not a prerequisite in the selection of portfolio companies,
the companies in which the Portfolio invests normally have
records of paying dividends for at least one year, and will
generally are expected to increase the amounts of such dividends
in future years as earnings increase.

<PAGE>

It is expected that the Portfolio's investments will
ordinarily be traded on exchanges located in the respective
countries in which the various issuers of such securities are
principally based and in some case on other exchanges. As much
as 25% of the value of the Portfolio's total assets may be
invested in the securities of issuers having their principal
business activities in the same industry.

Under exceptional economic or market conditions abroad,
the Portfolio may temporarily invest for defensive purposes all
or a major portion of its assets in U.S. government obligations
or debt obligations of companies incorporated in and having their
principal activities in the United States. As discussed below,
the Portfolio may also from time to time invest its temporary
cash balances in United States short-term money market
instruments.

SECURITIES LENDING. The Portfolio may seek to increase
income by lending portfolio securities. The Portfolio has the
right to call a loan to obtain the securities loaned at any time
on five days notice or such shorter period as may be necessary to
vote the securities. During the existence of a loan the
Portfolio will receive the income earned on investment of the
collateral. The Portfolio does not, however, have the right to
vote any securities having voting rights during the existence of
the loan, but the Portfolio will call the loan in anticipation of
an important vote to be taken among holders of the securities or
the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit
there are risks of delay in recovery or even loss of rights in
the collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms
deemed by the Adviser to be in good standing, and when, in its
judgment, the amount which may be earned currently from
securities loans of this type justifies the attendant risk. The
value of the securities loaned will not exceed 30% of the value
of the Portfolio's total assets.

WARRANTS. The Portfolio may invest in warrants which
entitle the holder to buy equity securities at a specific price
for a specific period of time. Warrants may be considered more
speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with
respect to the securities which may be purchased nor do they
represent any rights in the assets of the issuing company. Also,
the value of the warrant does not necessarily change with the
value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to the expiration date.

SPECIAL RISK CONSIDERATIONS. Investors should
understand and consider carefully the substantial risks involved

<PAGE>

in securities of foreign companies and governments of foreign
nations, some of which are referred to below, and which are in
addition to the usual risks inherent in domestic investments.

There is generally less publicly available information
about foreign companies comparable to reports and ratings that
are published about companies in the United States. Foreign
companies are also generally not subject to uniform accounting
and auditing and financial reporting standards, practices and
requirements comparable to those applicable to United States
companies.

It is contemplated that foreign securities will be
purchased in over-the-counter markets or on stock exchanges
located in the countries in which the respective principal
offices of the issuers of the various securities are located, if
that is the best available market. Foreign securities markets
are generally not as developed or efficient as those in the
United States. While growing in volume, they usually have
substantially less volume than the New York Stock Exchange, and
securities of some foreign companies are less liquid and more
volatile than securities of comparable United States companies.
Similarly, volume and liquidity in most foreign bond markets is
less than in the United States and, at times, volatility of price
can be greater than in the United States. Fixed commissions on
foreign stock exchanges are generally higher than negotiated
commissions on United States exchanges, although the Portfolio
will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government
supervision and regulation of foreign stock exchanges, brokers
and listed companies than in the United States.

With respect to certain foreign countries, there is the
possibility of adverse changes in investment or exchange control
regulations and interest rates, expropriation or confiscatory
taxation, limitations on the removal of funds or other assets of
the Portfolio, political or social instability, or diplomatic
developments which could affect United States investments in
those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States economy in
such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.

The dividends and interest payable on certain of the
Portfolio's foreign securities may be subject to foreign
withholding taxes, thus reducing the net amount of income
available for distribution to the Portfolio's shareholders. A
shareholder otherwise subject to United States federal income
taxes may, subject to certain limitations, be entitled to claim a
credit or deduction for U.S. federal income tax purposes for his

<PAGE>

or her proportionate share of such foreign taxes paid by the
Portfolio.

Although the Portfolio values its assets daily in terms
of U.S. Dollars, its does not intend to convert its holdings of
foreign currencies into U.S. Dollars on a daily basis. It will
do so from time to time, and investors should be aware of the
costs of currency conversion. Although foreign exchange dealers
do not charge a fee, they do realize a profit based on the
difference (commonly known as the spread) between the price at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Portfolio at
one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.

Investors should understand that the expense ratio of
the Portfolio can be expected to be higher than investment
companies investing in domestic securities since, among other
things, the cost of maintaining the custody of foreign securities
is higher and the purchase and sale of portfolio securities may
be subject to higher transaction charges, such as stamp duties
and turnover taxes.

Investors should further understand that all investments
have a risk factor. There can be no guarantee against loss
resulting from an investment in the Portfolio, and there can be
no assurance that the Portfolio's investment objective will be
attained. The Portfolio is designed for investors who wish to
diversify beyond the United States in an actively researched and
managed portfolio. The Portfolio may not be suitable for all
investors and is intended for long-term investors who can accept
the risks entailed in seeking long-term growth of capital through
investment in foreign securities as described above.

FOREIGN CURRENCY TRANSACTIONS. Since investments in
foreign companies usually involve currencies of foreign
countries, and since the Portfolio may temporarily hold funds in
bank deposits in foreign currencies during the completion of
investment programs, the value of the assets of the Portfolio as
measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Portfolio may incur costs
in connection with conversions between various currencies. The
Portfolio will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. For a
discussion of forward foreign currency exchange contracts which
also apply to the International Portfolio, see "High Yield
Portfolio -- Foreign Currency Transactions," above.

<PAGE>

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the International Portfolio, supplement
those set forth above and may not be changed without Shareholder
Approval, as defined under the caption "General Information,"
below.

The Portfolio may not:

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

<PAGE>

Portfolio's total assets would be invested in securities of any
closed-end investment company or more than 10% of such value in
closed-end investment companies in general, unless the security
is acquired pursuant to a plan of reorganization or an offer of
exchange;

9. Purchase or sell real estate (although it may
purchase securities secured by real estate or interest therein,
or issued by companies or investment trusts which invest in real
estate or interest therein);

10. Purchase or sell commodity contracts, provided,
however, that this policy does not prevent the Portfolio from
entering into forward foreign currency exchange contracts;

11. Purchase securities on margin, except for use of
the short-term credit necessary for clearance of purchases of
portfolio securities;

12. Effect short sales of securities;

13. Act as an underwriter of securities, except insofar
as it might be deemed to be such for purposes of the Securities
Act with respect to the disposition of certain portfolio
securities acquired within the limitations of restriction 4
above;

14. Purchase or retain the securities of any issuer if,
to the knowledge of the Adviser, the officers and directors of
the Fund and of the Adviser, who each owns beneficially more than
1/2 of 1% of the outstanding securities of such issuer, and
together own beneficially more than 5% of the securities of such
issuer;

15. Invest in companies for the purpose of exercising
management or control; or

16. Issue senior securities except as permitted by the
1940 Act.

SHORT-TERM MULTI-MARKET PORTFOLIO AND GLOBAL BOND PORTFOLIO

<PAGE>

securities markets. While the Portfolio normally maintains a
substantial portion of its assets in debt securities denominated
in foreign currencies, the Portfolio invests at least 25% of its
net assets in U.S. Dollar-denominated securities. The Portfolio
is designed for the investor who seeks a higher yield than a
money market fund or certificate of deposit and less fluctuation
in net asset value than a longer-term bond fund. Certificates of
deposit are insured and generally have fixed interest rates while
yields for the Portfolio fluctuate with changes in interest rates
and other market conditions.

The investment objective of the Global Bond Portfolio is
to seek a high level of return from a combination of current
income and capital appreciation by investing in a globally
diversified portfolio of high quality debt securities denominated
in the U.S. Dollar and a range of foreign currencies.

INVESTMENT POLICIES. The following investment policies,
which are applicable to the Short-Term Multi-Market Portfolio and
the Global Bond Portfolio, supplement, and should be read in
conjunction with, the information set forth in the Prospectus
under "Other Investment Policies and Techniques." The investment
policies are not designated fundamental policies within the
meaning of the 1940 Act and may be changed by the Fund's Board of
Directors without Shareholder Approval as defined under the
caption "General Information," below. However, a Portfolio will
not change its investment policies without contemporaneous
written notice to shareholders.

U.S. GOVERNMENT SECURITIES. See Appendix A hereto for a
description of obligations issued or guaranteed by U.S.
Government agencies or instrumentalities.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
Each Portfolio may enter into futures contracts and options on
futures contracts. The successful use of such instruments draws
upon the Advisers special skills and experience with respect to
such instruments and usually depends on the Advisers ability to
forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an
unexpected manner, a Portfolio may not achieve the anticipated
benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if
such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities
and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses. The Fund's Custodian will
place cash not available for investment in U.S. Government
Securities or other liquid high-quality debt securities in a
separate account of the Fund having a value equal to the

<PAGE>

aggregate amount of, the Short-Term Multi-Market Portfolio's and
the Global Bond Portfolio's commitments in futures and options on
futures contracts.

The Board of Directors has adopted the requirement that
futures contracts and options on futures contracts only be used
as a hedge and not for speculation. In addition to this
requirement, the Board of Directors has also adopted two
percentage restrictions on the use of futures contracts. The
first restriction is that a Portfolio will not enter into any
futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures
contracts of the Portfolio and premiums paid on options on
futures contracts would exceed 5% of the market value of the
total assets of the Portfolio. The second restriction is that
the aggregate market value of the outstanding futures contracts
purchased by a Portfolio not exceed 50% of the market value of
the total assets of the Portfolio. Neither of these restrictions
will be changed by the Board of Directors without considering the
policies and concerns of the various applicable federal and state
regulatory agencies.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix B.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each
Portfolio may purchase or sell forward foreign currency exchange
contracts. While these contracts are not presently regulated by
the CFTC, the CFTC may in the future assert authority to regulate
forward contracts. In such event a Portfolio's ability to
utilize forward contracts in the manner set forth in the
Prospectus may be restricted. Forward contracts reduce the
potential gain from a positive change in the relationship between
the U.S. Dollar and foreign currencies. Unanticipated changes in
currency prices may result in poorer overall performance for a
Portfolio than if it had not entered into such contracts. The
use of foreign currency forward contracts will not eliminate
fluctuations in the underlying U.S. Dollar equivalent value of
the prices of or rates of return on a Portfolio's foreign
currency-denominated portfolio securities and the use of such
techniques will subject the Portfolio to certain risks.

<PAGE>

may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the
Portfolio's ability to use such contracts to hedge or cross-hedge
its assets. Also, with regard to a Portfolio's use of cross-
hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to
the U.S. Dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange rates of
the foreign currencies underlying the Portfolio's cross-hedges
and the movements in the exchange rates of the foreign currencies
in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.

PORTFOLIO TURNOVER. Since the Short-Term Multi-Market
Portfolio and the Global Bond Portfolio may engage in active
trading, their rates of portfolio turnover may be higher than
that of many other investment companies. The Portfolio's cannot
accurately predict their portfolio turnover rates, but it is
anticipated that the annual turnover rate generally will not
exceed 500% for the Short-Term Multi Market Portfolio and 400%
for the Global Bond Portfolio (excluding turnover of securities
having a maturity of one year of less). An annual turnover rate
of 400% or 500% occurs, for example, when all of the Portfolio's
securities are replaced four or five times, respectively, in a
period of one year. A 400% and 500% turnover rate are greater
than that of many other investment companies. A higher incidence
of short term capital gain taxable as ordinary income than might
be expected from investment companies which invest substantially
all their funds on a long term basis and correspondingly larger
mark up charges can be expected to be borne by the Portfolio's.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Short-Term Multi-Market Portfolio and
the Global Bond Portfolio, supplement those set forth above and
may not be changed without Shareholder Approval, as defined under
the caption "General Information," below.

A Portfolio may not:
1. Invest 25% or more of its total assets in securities
of companies engaged principally in any one industry (other than,
with respect to the Short-Term Multi-Market Portfolio only, the
banking industry) except that this restriction does not apply to
U.S. Government Securities;

<PAGE>

borrowed) less liabilities (not including the amount borrowed) at
the time the borrowing is made; securities will not be purchased
while borrowings in excess of 5% of the value of the Portfolio's
total assets are outstanding;

3. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;

4. 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;

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

6. Participate on a joint or joint and several basis
in any securities trading account;

7. Invest in companies for the purpose of exercising
control;

8. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short (short sales against the
box), and unless not more than 10% of the Portfolio's net assets
(taken at market value) is held as collateral for such sales at
any one time (it is the Portfolio's present intention to make
such sales only for the purpose of deferring realization of gain
or loss for Federal income tax purposes);

9. Purchase a security if, as a result (unless the
security is acquired pursuant to a plan of reorganization or an
offer of exchange), the Portfolio would own any securities of an
open-end investment company or more than 3% of the total
outstanding voting stock of any closed-end investment company or
more than 5% of the value of the Portfolio's total assets would
be invested in securities of any one or more closed-end
investment companies; or

<PAGE>

securities and related options, futures contracts and options on
futures contracts and other similar contracts); (c) invest in
interests in oil, gas, or other mineral exploration or
development programs; (d) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions; and (e) act as an underwriter of securities,
except that the Portfolio may acquire restricted securities under
circumstances in which, if such securities were sold, the
Portfolio might be deemed to be an underwriter for purposes of
the Securities Act.

In addition to the restrictions set forth above, in
connection with the qualification of its shares for sale in
certain states, a Portfolio may not invest in warrants if, such
warrants valued at the lower cost or market, would exceed 5% of
the value of the Portfolio's net assets.

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO

The objective of the North American Government Income
Portfolio is to seek the highest level of current income,
consistent with what the Adviser considers to be prudent
investment risk, that is available from a portfolio of debt
securities issued or guaranteed by the governments of the United
States, Canada and Mexico, their political subdivisions
(including Canadian Provinces but excluding States of the United
States), agencies, instrumentalities or authorities (Government
Securities). The Portfolio invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar
and the Mexican Peso and expects to maintain at least 25% of its
assets in securities 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 utilizes
certain other investment techniques, including options and
futures.

The Portfolio may invest its assets in Government
Securities considered investment grade or higher (i.e.,
securities rated at least BBB by S&P, Duff & Phelps or Fitch or
at least Baa by Moody's) or, if not so rated, of equivalent
investment quality as determined by the Portfolio's Adviser.
Securities rated BBB by S&P, Duff & Phelps or Fitch or Baa by
Moody's are considered to have speculative characteristics.
Sustained periods of deteriorating economic conditions or rising
interest rates are more likely to lead to a weakening in the
issuers capacity to pay interest and repay principal than in the
case of higher-rated securities. The Portfolio expects that it
will not retain a debt security which is downgraded below BBB or
Baa or, if unrated, determined by the Portfolio's Adviser to have

<PAGE>

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

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 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.

The Portfolio's Adviser actively manages the Portfolio's
assets in relation to market conditions and general economic
conditions in the United States, Canada and Mexico and elsewhere,
and adjusts the Portfolio's investments in Government Securities
based on its perception of which Government Securities will best
enable the Portfolio to achieve its investment objective of
seeking the highest level of current income, consistent with what
the Portfolio's Adviser considers to be prudent investment risk.
In this regard, subject to the limitations described above, the
percentage of assets invested in a particular country or
denominated in a particular currency varies in accordance with
the assessment of the Portfolio's Adviser of the relative yield
and appreciation potential of such securities and the
relationship of the country's currency to the U.S. Dollar.

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

INVESTMENT POLICIES.

U.S. GOVERNMENT SECURITIES. For a general description
of obligations issued or guaranteed by U.S. Government agencies
or instrumentalities, see Appendix B.

<PAGE>

U.S. GOVERNMENT GUARANTEED MORTGAGE-RELATED SECURITIES--
GENERAL. For information regarding U.S. Government guaranteed
mortgage-related securities, see "U.S. Government/High Grade
Securities Portfolio -- U.S. Government Guaranteed Mortgage-
Related Securities -- General," above.

GNMA CERTIFICATES. For information regarding GNMA
Certificates, see "U.S. Government/High Grade Securities
Portfolio -- GNMA Certificates," above.

FHLMC SECURITIES. For information regarding FHLMC
Securities, see "U.S. Government/High Grade Securities Portfolio
- -- FHLMC Securities," above.

FNMA SECURITIES. For information regarding FNMA
Securities, see "U.S. Government/High Grade Securities Portfolio
- -- FNMA Securities," above.

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

Zero coupon Treasury securities do not entitle the
holder to any periodic payments of interest prior to maturity.
Accordingly, such securities usually trade at a deep discount
from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest
rates than debt obligations of comparable maturities which make
current distributions of interest. Current federal tax law
requires that a holder (such as the Portfolio) of a zero coupon
security accrue a portion of the discount at which the security
was purchased as income each year even though the Portfolio

<PAGE>

receives no interest payment in cash on the security during the
year.

CANADIAN GOVERNMENT GUARANTEED MORTGAGE-RELATED
SECURITIES. Canadian mortgage-related securities may be issued
in several ways, the most common of which is a modified pass-
through vehicle issued pursuant to the program (the NHA MBS
Program) established under the National Housing Act of Canada
(NHA). Certificates issued pursuant to the NHA MBS Program (NHA
Mortgage-Related Securities) benefit from the guarantee of the
Canada Mortgage and Housing Corporation (CMHC), a federal Crown
corporation that is (except for certain limited purposes) an
agent of the Government of Canada whose guarantee (similar to
that of GNMA in the United States) is an unconditional obligation
of the Government of Canada except as described below. The NHA
currently provides that the aggregate principal amount of all
issues of NHA Mortgage-Related Securities in respect of which
CMHC may give a guarantee must not exceed $60 billion.

NHA Mortgage-Related Securities are backed by a pool of
insured mortgages that satisfy the requirements established by
the NHA. Issuers that wish to issue NHA Mortgage-Related
Securities must meet the status and other requirements of CMHC
and submit the necessary documentation to become an approved
issuer. When an approved issuer wishes to issue NHA Mortgage-
Related Securities in respect of a particular pool of mortgages,
it must seek the approval of CMHC. Such mortgages must, among
other things, be first mortgages that are insured under the NHA,
not be in default and provide for equal monthly payments
throughout their respective terms.

The mortgages in each NHA Mortgage-Related Securities
pool are assigned to CMHC which, in turn, issues a guarantee of
timely payment of principal and interest that is shown on the
face of the certificates representing the NHA Mortgage-Related
Securities (the NHA MBS Certificates). NHA Mortgage-Related
Securities do not constitute any liability of, nor evidence any
recourse against, the issuer of the NHA Mortgage-Related
Securities, but in the event of any failure, delay or default
under the terms of NHA MBS Certificates, the holder has recourse
to CMHC in respect of its guarantee set out on the NHA MBS
Certificates.

In any legal action or proceeding or otherwise, CMHC has
agreed not to contest or defend against a demand for the timely
payment of the amount set forth and provided for in, and unpaid
on, any duly and validly issued NHA MBS Certificate, provided
that such payment is sought and claimed by or on behalf of a bona
fide purchaser of and investor in such security, without actual
notice at the time of the purchase of the basis or grounds for
contesting or defending against that demand for timely payment.

<PAGE>

While most Canadian Mortgage-Related Securities are
subject to voluntary prepayments, some pools are not and function
more like a traditional bond. The typical maturity of Canadian
Mortgage-Related Securities is five years as most Canadian
residential mortgages provide for a five-year maturity with equal
monthly blended payments of interest and principal based on a
twenty-five year amortization schedule. Pursuant to recent
changes adopted by CMHC, maturities of NHA Mortgaged-Related
Securities may be as short as six months or as long as eighteen
years.

ILLIQUID SECURITIES. The Portfolio has adopted the
following investment policy which may be changed by the vote of
the Board of Directors.

The North American Government Income Portfolio will not
invest in illiquid securities if immediately after such
investment more than 15% of the Portfolio's net assets (taken at
market value) would be invested in such securities. For this
purpose, illiquid securities include, among others,
(a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restriction on
resale, (b) options purchased by the Portfolio over-the-counter
and the cover for options written by the Portfolio over-the-
counter and (c) repurchase agreements not terminable within seven
days.

See "Other Investment Policies -- Illiquid Securities,"
below, for a more detailed discussion of the Portfolio's
investment policy on restricted securities and securities with
legal or contractual restrictions on resale.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The
Portfolio may enter into futures contracts and options on futures
contracts. The successful use of such instruments draws upon the
Advisers special skills and experience with respect to such
instruments and usually depends on the Advisers ability to
forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an
unexpected manner, the Portfolio may not achieve the anticipated
benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if
such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on
futures and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.

The Board of Directors has adopted the requirement that
futures contracts and options on futures contracts only be used
as a hedge and not for speculation. In addition to this

<PAGE>

requirement, the Board of Directors has also restricted the
Portfolio's use of futures contracts so that the aggregate of the
market value of the outstanding futures contracts purchased by
the Portfolio not exceed 50% of the market value of the total
assets of the Portfolio. These restrictions will not be changed
by the Fund's Board of Directors without considering the policies
and concerns of the various applicable federal and state
regulatory agencies.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix B.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The
Portfolio may purchase or sell forward foreign currency exchange
contracts. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to lock
in the U.S. Dollar price of the security (transaction hedge).
Additionally, for example, when the Fund believes that a foreign
currency may suffer a substantial decline against the U.S.
Dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such
foreign currency, or, when the Fund believes that the U.S. Dollar
may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign
currency for a fixed U.S. Dollar amount (position hedge). In
this situation the Fund may, in the alternative, enter into a
forward contract to sell a different foreign currency for a fixed
U.S. Dollar amount where the Fund believes that the U.S. Dollar
value of the currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the U.S. Dollar value of
the currency in which portfolio securities of the Fund are
denominated (cross-hedge). The Fund's Custodian will place cash
not available for investment or liquid high-grade Government
Securities in a segregated account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under
forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the securities placed in the
segregated account declines, additional cash or liquid high-grade
Government Securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of
the Fund's commitments with respect to such contracts. As an
alternative to maintaining all or part of the segregated account,
the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward

<PAGE>

sale contract at a price no higher than the forward contract
price or the Fund may purchase a put option permitting the Fund
to sell the amount of foreign currency subject to a forward
purchase contract at a price as high or higher than the forward
contract price.

While these contracts are not presently regulated by the
Commodity Futures Trading Commission (CFTC), the CFTC may in the
future assert authority to regulate forward contracts. In such
event the Portfolio's ability to utilize forward contracts in the
manner set forth in the Prospectus may be restricted. Forward
contracts will reduce the potential gain from a positive change
in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result
in poorer overall performance for the Portfolio than if it had
not entered into such contracts. The use of foreign currency
forward contracts will not eliminate fluctuations in the
underlying U.S. Dollar equivalent value of the proceeds of or
rates of return on the Portfolio's foreign currency denominated
portfolio securities and the use of such techniques will subject
the Portfolio to certain risks.

The matching of the increase in value of a forward
contract and the decline in the U.S. Dollar equivalent value of
the foreign currency denominated asset that is the subject of the
hedge generally will not be precise. In addition, the Portfolio
may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the
Portfolio's ability to use such contracts to hedge its assets.
Also, with regard to the Portfolio's use of cross-hedges, there
can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S.
Dollar will continue. Thus, at any time poor correlation may
exist between movements in the exchange rates of the foreign
currencies underlying the Portfolio's cross-hedges and the
movements in the exchange rates of the foreign currencies in
which the Portfolio's assets that are the subject of such
cross-hedges are denominated.

OPTIONS ON U.S. GOVERNMENT SECURITIES AND FOREIGN
GOVERNMENT SECURITIES. For additional information on the use,
risks and costs of options in U.S. Government Securities and
foreign government securities, see Appendix C.

REPURCHASE AGREEMENTS. The Portfolio may invest in
repurchase agreements pertaining to the types of securities in
which it invests. For additional information regarding
repurchase agreements, see "Other Investment Policies --
Repurchase Agreement," below.

<PAGE>

PORTFOLIO TURNOVER. The Portfolio may engage in active
short-term trading to benefit from yield disparities among
different issues of securities, to seek short-term profits during
periods of fluctuating interest rates or for other reasons. Such
trading will increase the Portfolio's rate of turnover and the
incidence of short-term capital gain taxable as ordinary income.
Management anticipates that the annual turnover in the Portfolio
will not be in excess of 400%. An annual turnover rate of 400%
occurs, for example, when all of the securities in the
Portfolio's portfolio are replaced four times in a period of one
year. A high rate of portfolio turnover involves correspondingly
greater expenses than a lower rate, which expenses must be borne
by the Portfolio and its shareholders. High portfolio turnover
also may result in the realization of substantial net short-term
capital gains. See "Dividends, Distributions and Taxes" and
"Portfolio Transactions."

INVESTMENT RESTRICTIONS

The following restrictions, which are applicable to the
North American Government Income Portfolio, supplement those set
forth above and may not be changed without Shareholder Approval,
as defined under the caption "General Information," below.

The Portfolio may not:

1. Invest 25% or more of its total assets in securities
of companies engaged principally in any one industry except that
this restriction does not apply to U.S. Government Securities;

2. Borrow money, except (a) the Portfolio may, in
accordance with provisions of the Act, borrow money from banks
for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely 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) 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 Portfolio may enter into reverse
repurchase agreements and dollar rolls;

3. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;

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

<PAGE>

5. Participate on a joint or joint and several basis
in any securities trading account;

6. Invest in companies for the purpose of exercising
control;

7. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short (short sales against the
box), and unless not more than 10% of the Portfolio's net assets
(taken at market value) is held as collateral for such sales at
any one time (it is the Portfolio's present intention to make
such sales only for the purpose of deferring realization of gain
or loss for Federal income tax purposes);

8. Purchase a security if, as a result (unless the
security is acquired pursuant to a plan of reorganization or an
offer of exchange), the Portfolio would own any securities of an
open-end investment company or more than 3% of the total
outstanding voting stock of any closed-end investment company or
more than 5% of the value of the Portfolio's total assets would
be invested in securities of any one or more closed-end
investment companies; or

9. (a) Purchase or sell real estate, except that it
may purchase and sell securities of companies which deal in real
estate or purchase and sell securities of companies which deal in
real estate or interests therein; (b) purchase or sell
commodities or commodity contracts (except currencies, futures
contracts on currencies and related options, forward contracts or
contracts for the future acquisition or delivery of fixed-income
securities and related options, futures contracts and options on
futures contracts and other similar contracts); (c) invest in
interests in oil, gas, or other mineral exploration or
development programs; (d) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions; and (e) act as an underwriter of securities,
except that the Portfolio may acquire restricted securities under
circumstances in which, if such securities were sold, the
Portfolio might be deemed to be an underwriter for purposes of
the Securities Act.

<PAGE>

warrants which are not listed on the New York Stock Exchange or
the American Stock Exchange. Warrants acquired by the Portfolio
in units or attached to securities may be deemed to be without
value. The Portfolio will also not purchase puts, calls,
straddles, spreads and any combination thereof if by reason
thereof the value of its aggregate investment in such classes of
securities will exceed 5% of its total assets.

For additional information about Canada, Mexico and
Argentina, See Appendix D.

_______________________________________________________________

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

GENERAL. The primary objective of the Global Dollar
Government Portfolio is to seek a high level of current income
through investing substantially all of its assets in U.S. and
non-U.S. fixed-income securities denominated only in U.S.
Dollars. As a secondary objective, the Portfolio seeks capital
appreciation. In seeking to achieve these objectives, the
Portfolio invests at least 65% of its total assets in
fixed-income securities issued or guaranteed by foreign
governments, including participations in loans between foreign
governments and financial institutions, and interests in entities
organized and operated for the purpose of restructuring the
investment characteristics of instruments issued or guaranteed by
foreign governments (Sovereign Debt Obligations). The
Portfolio's investments in Sovereign Debt Obligations emphasize
obligations of a type customarily referred to as Brady Bonds,
that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero
coupon obligations issued by the U.S. Government, its agencies or
instrumentalities. The Portfolio may also invest up to 35% of
its total assets in U.S. corporate fixed-income securities and
non-U.S. corporate fixed-income securities. The Portfolio limits
its investments in Sovereign Debt Obligations, U.S. and non-U.S.
corporate fixed-income securities to U.S. Dollar denominated
securities.

The Portfolio may invest up to 30% of its total assets
in the Sovereign Debt Obligations and corporate fixed-income
securities of issuers in any one of Argentina, Brazil, Mexico,
Morocco, the Philippines, Russia or Venezuela, and the Portfolio
will limit investments in the Sovereign Debt Obligations of each
such country (or of any other single foreign country) to less
than 25% of its total assets. The Portfolio expects that it will
not invest more than 10% of its total assets in the Sovereign
Debt Obligations and corporate fixed-income securities of issuers

<PAGE>

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 develops a long-term view of those countries and analyzes
sovereign risk by focusing on factors such as a country's public
finances, monetary policy, external accounts, financial markets,
stability of exchange rate policy and labor conditions. In
selecting and allocating assets among corporate issuers within a
given country, the Adviser considers the relative financial
strength of issuers and expects to emphasize investments in
securities of issuers that, in the Advisers 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 issuers located in any
particular country.

Sovereign Debt Obligations held by the Portfolio 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 are not traded on a securities exchange. The
U.S. and non-U.S. corporate fixed-income securities held by the
Portfolio include debt securities, convertible securities and
preferred stocks of corporate issuers.

Substantially all of the Portfolio's assets are invested
in lower-rated securities, which may include securities having
the lowest rating for non-subordinated debt instruments (i.e.,
rated C by Moody's or CCC or lower by S&P, Duff & Phelps and
Fitch) and unrated securities 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. The Portfolio may also invest in
investment grade securities. Unrated securities will be
considered for investment by the Portfolio when the Adviser
believes that the financial condition of the issuers of such
obligations and the protection afforded by the terms of the
obligations themselves limit the risk to the Adviser to a degree
comparable to that of rated securities which are consistent with
the Fund's investment objectives and policies.

<PAGE>

INVESTMENT POLICIES

BRADY BONDS. As noted above, a significant portion of
the Portfolio's investment portfolio consists of debt obligations
customarily referred to as Brady Bonds which are created through
the exchange of existing commercial bank loans to foreign
entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary
of the Treasury, Nicholas F. Brady (the "Brady Plan").

Brady Bonds have been issued only recently, and,
accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various
currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market.

U.S. 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 that 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 interest payments based on the
applicable interest rate at that time and is adjusted at regular
intervals thereafter. Certain Brady Bonds are entitled to value
recovery payments in certain circumstances, which in effect
constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having up to
four valuation components: (i) collateralized repayment of
principal at final maturity; (ii) collateralized interest
payments; (iii) uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the residual risk). In the
event of a default with respect to Collateralized Brady Bonds as
a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed
to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent
to the scheduled maturity of the defaulted Brady Bonds which will
continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition,
in light of the residual risk of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as
speculative.

<PAGE>

Brady Plan debt restructurings totaling more than $120
billion have been implemented to date in Argentina, Bolivia,
Brazil, Costa Rica, the Dominican Republic, Ecuador, Mexico,
Nigeria, the Philippines, Uruguay and Venezuela with the largest
proportion of Brady Bonds having been issued to date by
Argentina, Brazil, Mexico and Venezuela.

Most Argentine, Brazilian, Dominican (Republic) and
Mexican Brady Bonds and a significant portion of the Venezuelan
Brady Bonds issued to date are Collateralized Brady Bonds with
interest coupon payments collateralized on a rolling-forward
basis by funds or securities held in escrow by an agent for the
bondholders. Of the other issuers of Brady Bonds, Bolivia,
Nigeria, the Philippines and Uruguay have to date issued
Collateralized Brady Bonds. Thus, at the present time Argentina,
Bolivia, Brazil, the Dominican Republic, Mexico, Nigeria, the
Philippines, Uruguay and Venezuela are the only countries which
have issued Collateralized Brady Bonds.

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

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

Certain issuers of Structured Securities may be deemed
to be investment companies as defined in the 1940 Act. As a
result, the Portfolio's investment in these Structured Securities
may be limited by the restrictions contained in the 1940 Act

<PAGE>

described in the Prospectus under "Investment in Other Investment
Companies."

LOAN PARTICIPATIONS AND ASSIGNMENTS. The Portfolio may
invest in fixed and floating rate loans (Loans) arranged through
private negotiations between an issuer of Sovereign Debt
Obligations and one or more financial institutions (Lenders).
The Portfolio's investments in Loans are expected in most
instances to be in the form of participations in Loans
(Participations) and assignments of all or a portion of Loans
(Assignments) from third parties. The Portfolio may invest up to
25% of its total assets in Participations and Assignments. The
government that is the borrower on the Loan will be considered by
the Portfolio to be the Issuer of a Participation or Assignment
for purposes of the Portfolio's fundamental investment policy
that it will not invest 25% or more of its total assets in
securities of issuers conducting their principal business
activities in the same industry (i.e., foreign government). The
Portfolio's investment in Participations typically will result in
the Portfolio having a contractual relationship only with the
Lender and not with the borrower. The Portfolio will have the
right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations,
the Portfolio generally will have no right to enforce compliance
by the borrower with the terms of the loan agreement relating to
the Loan, nor any rights of set-off against the borrower, and the
Portfolio may not directly benefit from any collateral supporting
the Loan in which it has purchased the Participation. As a
result, the Portfolio may be subject to the credit risk of both
the borrower and the Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a
Participation, the Portfolio may be treated as a general creditor
of the Lender and may not benefit from any set-off between the
Lender and the borrower. Certain Participations may be
structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender
with respect to the Participation, but even under such a
structure, in the event of the Lenders insolvency, the Lenders
servicing of the Participation may be delayed and the
assignability of the Participation impaired. The Portfolio will
acquire Participations only the Lender interpositioned between
the Portfolio and the borrower in a Lender having total assets of
more than $25 billion and whose senior unsecured debt is rated
investment grade or higher (i.e. Baa or higher by Moody's or BBB
or higher by S&P, Duff & Phelps or Fitch).

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

<PAGE>

between potential assignees and potential assignors, however, the
rights and obligations acquired by the Portfolio as the purchaser
of an assignment may differ from, and be more limited than, those
held by the assigning Lender. The assignability of certain
Sovereign Debt Obligations is restricted by the governing
documentation as to the nature of the assignee such that the only
way in which the Portfolio may acquire an interest in a Loan is
through a Participation and not an Assignment. The Portfolio may
have difficulty disposing of Assignments and Participations
because to do so it will have to assign such securities to a
third party. Because there is no liquid market for such
securities, the Portfolio anticipates that such securities could
be sold only to a limited number of institutional investors. The
lack of a liquid secondary market may have an adverse impact on
the value of such securities and the Portfolio's ability to
dispose of particular Assignments or Participations when
necessary to meet the Portfolio's liquidity needs in response to
a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary
market for Assignments and Participations also may make it more
difficult for the Portfolio to assign a value to these securities
for purposes of valuing the Portfolio's portfolio and calculating
its asset value.

U.S. AND NON-U.S. CORPORATE FIXED INCOME SECURITIES.
U.S. and non-U.S. corporate fixed-income securities include debt
securities, convertible securities and preferred stocks of
corporate issuers. Differing yields on fixed-income securities
of the same maturity are a function of several factors, including
the relative financial strength of the issuers. Higher yields
are generally available from securities in the lower rating
categories. When the spread between the yields of lower rated
obligations and those of more highly rated issues is relatively
narrow, the Portfolio may invest in the latter since they may
provide attractive returns with somewhat less risk. The
Portfolio expects to invest in investment grade securities (i.e.
securities rated Baa or better by Moody's or BBB or better by
S&P, Duff & Phelps or Fitch) and in high yield, high risk lower
rated securities (i.e., securities rated lower than Baa by
Moody's or BBB by S&P, Duff & Phelps or Fitch) and in unrated
securities of comparable credit quality. Unrated securities are
considered for investment by the Portfolio when the Adviser
believes that the financial condition of the issuers of such
obligations and the protection afforded by the terms of the
obligations themselves limit the risk to the Portfolio to a
degree comparable to that of rated securities which are
consistent with the Portfolio's investment objectives and
policies. 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

<PAGE>

issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
difference in credit risk of securities within each rating
category. See "Certain Risk Considerations" for a discussion of
the risks associated with the Portfolio's investments in U.S. and
non-U.S. corporate fixed-income securities.

INTEREST RATE TRANSACTIONS. The Portfolio may enter
into interest rate swaps and may purchase or sell interest rate
caps and floors. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its
forecasts of market values, interest rates and other applicable
factors, the investment performance of the Portfolio would
diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the
Adviser is correct in its forecasts, there is a risk that the
swap position may correlate imperfectly with the price of the
asset or liability being hedged.

There is no limit on the amount of interest rate swap
transactions that may be entered into by the Portfolio. These
transactions do not involve the delivery of securities or other
underlying assets of principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount
of interest payments that the Portfolio is contractually
obligated to make. If the other party to an interest rate swap
defaults, the Portfolio's risk of loss consists of the net amount
of interests payments that the Portfolio contractually is
entitled to receive. The Portfolio may purchase and sell (i.e.,
write) caps and floors without limitation, subject to the
segregated account requirement described in the Prospectus under
"-- Other Investment Policies and Techniques -- Interest Rate
Transactions".

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

<PAGE>

call options for cross-hedging purposes. There are no specific
limitations on the Fund's writing and purchasing of options.

The Portfolio may purchase or write options on
securities of the types in which it is permitted to invest in
privately negotiated (i.e., over-the-counter) transactions. The
Portfolio will effect such transactions only with investment
dealers and other financial institutions (such as commercial
banks or savings and loan institutions) deemed creditworthy by
the Adviser, and the Adviser has adopted procedures for
monitoring the creditworthiness of such entities. Options
purchased or written by the Portfolio in negotiated transactions
are illiquid and it may not be possible for the Portfolio to
effect a closing transaction at a time when the Adviser believes
it would be advantageous to do so. See "Description of the Fund
- -- Additional Investment Policies and Practices -- Illiquid
Securities in the Fund's Prospectus".

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

Through the purchase of listed index options, the
Portfolio could achieve many of the same objectives as through
the use of options on individual securities. Price movements in
the Portfolio's investment portfolio securities probably will not
correlate perfectly with movements in the level of the index and,
therefore, the Portfolio would bear a risk of loss on index
options purchased by it if favorable price movements of the
hedged portfolio securities do not equal or exceed losses on the
options or if adverse price movements of the hedged portfolio
securities are greater than gains realized from the options.

<PAGE>

Warrants. The Portfolio may invest in warrants, which
are option securities permitting their holder to subscribe for
other securities. The Portfolio may invest in warrants for debt
securities or warrants for equity securities that are acquired in
connection with debt instruments. Warrants do not carry with
them dividend or voting rights with respect to the securities
that they entitle their holder to purchase, and they do not
represent 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 investments. 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 investment portfolio any common
stock received upon the exercise 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 investment
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.

REPURCHASE AGREEMENTS. For information regarding
repurchase agreements, see "Other Investment Policies -
Repurchase Agreements," below.

ILLIQUID SECURITIES. The fund has adopted the following
investment policy which may be changed by the vote of the Board
of Directors.

The Portfolio will not invest in illiquid securities if
immediately after such investment more than 15% of the
Portfolio's net assets (taken at market value) would be invested
in such securities. For this purpose, illiquid securities
include, among others, securities that are illiquid by virtue of
the absence of a readily available market or legal or contractual
restriction on resale.

For additional information regarding illiquid
securities, see "Other Investment Policies -- Illiquid
Securities," below.

<PAGE>

any investment company. If the Portfolio acquires shares in
investment companies, shareholders would bear both their
proportionate share of expenses in the Portfolio (including
advisory fees) and, indirectly, the expenses of such investment
companies (including management and advisory fees).

PORTFOLIO TURNOVER. The Portfolio may engage in active
short-term trading to benefit from yield disparities among
different issues of securities, to seek short-term profits during
periods of fluctuating interest rates or for other reasons. Such
trading will increase the Portfolio's rate of turnover and the
incidence of short-term capital gain taxable as ordinary income.
Management anticipates that the annual turnover in the Fund will
not be in excess of 500%. An annual turnover rate of 500%
occurs, for example, when all of the securities in the
Portfolio's portfolio are replaced five times in a period of one
year. Such high rate of portfolio turnover involves
correspondingly greater expenses than a lower rate, which
expenses must be borne by the Fund and its shareholders. High
portfolio turnover also may result in the realization of
substantial net short-term capital gains. See "Dividends,
Distributions and Taxes" and "Portfolio Transactions."

CERTAIN RISK CONSIDERATIONS

RISKS OF FOREIGN INVESTMENTS. Foreign issuers are
subject to accounting and financial standards and requirements
that differ, in some cases significantly, from those applicable
to U.S. issuers. In particular, the assets and profits appearing
on the financial statements of a foreign issuer may not reflect
its financial position or results of operations in the way they
would be reflected had the financial statement been prepared in
accordance with U.S. generally accepted accounting principles.
In addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules in some of the countries in
which the Portfolio may invest require, for both tax and
accounting purposes, that certain assets and liabilities be
restated on the issuers balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits.
Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the
real condition of those issuers and securities markets.
Substantially less information is publicly available abut certain
non-U.S. issuers than is available about U.S. issuers.

Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar
developments, such as military coups, have occurred in the past
in countries in which the Portfolio invests and could adversely

<PAGE>

affect the Portfolio's assets should these conditions or events
recur.

Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities and increase the costs and expenses of
the Portfolio. Certain countries in which the Portfolio invest
require governmental approval prior to investments by foreign
persons, limit the amount of investment by foreign persons in a
particular issuer, limit the investment by foreign persons only
to a specific class of securities of an issuer that may have less
advantageous rights than the classes available for purchase by
domiciliaries of the countries and/or impose additional taxes on
foreign investors.

Certain countries other than those on which the
Portfolio focus its investments may require governmental approval
for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In
addition, if a deterioration occurs in a country's balance of
payments, the country could impose temporary restrictions on
foreign capital remittances. The Portfolio could be adversely
affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by
the application to the Portfolio of any restrictions on
investments. Investing in local markets may require the
portfolio to adopt special procedures, seek local governmental
approvals or take other actions, each of which may involve
additional costs to the Portfolio.

Income from certain investments held by the Portfolio
could be reduced by foreign income taxes, including withholding
taxes. It is impossible to determine the effective rate of
foreign tax in advance. The Portfolio's net asset value may also
be affected by changes in the rates or methods of taxation
applicable to the Portfolio or to entities in which the Portfolio
has invested. The Adviser generally considers the cost of any
taxes in determining whether to acquire any particular
investments, but can provide no assurance that the tax treatment
of investments held by the Portfolio will not be subject to
change.

<PAGE>

liquidity for certain Sovereign Debt Obligations may also make it
more difficult for the Portfolio to obtain accurate market
quotations for purpose of valuing its portfolio. Market
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 is exposed to the direct or indirect consequences of
political, social and economic changes in various countries.
Political changes in a country may affect the willingness of a
foreign government to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among
other things, in its inflation rate, the amount of its external
debt and its gross domestic product, also affects the governments
ability to honor its obligations.

Many countries providing investment opportunities for
the Portfolio have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue
to have adverse effects on the economies and securities markets
of certain of these countries. In an attempt to control
inflation, wage and price controls have been imposed in certain
countries.

Investing in Sovereign Debt Obligations involves
economic and political risks. The Sovereign Debt Obligations in
which the Portfolio will invest in most cases pertain to
countries that are among the worlds largest debtors to commercial
banks, foreign governments, international financial organizations
and other financial institutions. In recent years, the
governments of some of these countries have encountered
difficulties in servicing their external debt obligations, which
led to defaults on certain obligations and the restructuring of
certain indebtedness. Restructuring arrangements have included,
among other things, reducing and rescheduling interest and
principal payments by negotiating new or amended credit
agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance
interest payments. Certain governments have not been able to
make payments of interest on or principal of Sovereign Debt
Obligations as those payments have come due. Obligations arising
from past restructuring agreements may affect the economic
performance and political and social stability of those issuers.

<PAGE>

obligations. As a result, the issuers of Sovereign Debt
Obligations may default on their obligations. Defaults on
certain Sovereign Debt Obligations have occurred in the past.
Holders of certain Sovereign Debt Obligations may be requested to
participate in the restructuring and rescheduling of these
obligations and to extend further loans to the issuers. The
interests of holders of Sovereign Debt Obligations could be
adversely affected in the course of restructuring arrangements or
by certain other factors referred to below. Furthermore, some of
the participants in the secondary market for Sovereign Debt
Obligations may also be directly involved in negotiating the
terms of these arrangements and may therefore have access to
information not available to other market participants.

The ability of governments to make timely payments on
their obligations is likely to be influenced strongly by the
issuers balance of payments, and its access to international
credits and investments. A country whose exports are
concentrated in a few commodities could be vulnerable to a
decline in the international prices of one or more of those
commodities. Increased protectionism on the part of a country's
trading partners could also adversely affect the country's
exports and diminish its trade account surplus, if any. To the
extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected.

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

Another factor bearing on the ability of a country to
repay Sovereign Debt Obligations is the level of the country's
international reserves. Fluctuations in the level of these
reserves can affect the amount of foreign exchange readily
available for external debt payments and, thus, could have a
bearing on the capacity of the country to make payments in its
Sovereign Debt Obligations.

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

<PAGE>

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 example, remedies from defaults on certain Sovereign
Debt Obligations, unlike those on private debt, must, in some
cases, be pursued in the courts of the defaulting party itself.
Legal recourse therefore may be significantly diminished.
Bankruptcy, moratorium and other similar laws applicable to
issuers of Sovereign Debt Obligations may be substantially
different from those applicable to issuers of private debt
obligations. The political context, expressed as the willingness
of an issuer of Sovereign Debt Obligations to meet the terms of
the debt obligation, for example, is of considerable importance.
In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of
securities issued by foreign governments in the event of default
under commercial bank loan agreements.

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

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Global Dollar Government Portfolio,
supplement those set forth above and may not be changed without
Shareholder Approval, as defined under the caption "General
Information", below.

The Portfolio may not:

1. Invest 25% or more of its total assets in securities
of companies engaged principally in any one industry except that
this restriction does not apply to U.S. Government Securities;

2. Borrow money, except (a) the Portfolio may, in
accordance with provisions of the Act, borrow money from banks
for temporary or emergency purposes, including the meeting of

<PAGE>

redemption requests which might require the untimely disposition
of securities; borrowing in the aggregate may not exceed 15%, and
borrowing for purposes other than meeting redemptions may not
exceed 5% of the value of the Portfolio's total assets (including
the amount borrowed) 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 Portfolio may enter into reverse
repurchase agreements and dollar rolls;

3. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;

5. Invest in companies for the purpose of exercising
control;

6. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short (short sales against the
box), and unless not more than 10% of the Portfolio's net assets
(taken at market value) is held as collateral for such sales at
any one time (it being the Portfolio's present intention to make
such sales only for the purpose of deferring realization of gain
or loss for federal income tax purposes); or

7. (a) Purchase or sell real estate, except that it
may purchase and sell securities of companies which deal in real
estate or interests therein and securities that are secured by
real estate, provided such securities are securities of the type
in which the Portfolio may invest; (b) purchase or sell
commodities or commodity contracts, including futures contracts
(except forward commitment contracts or contracts for the future
acquisition or delivery of debt securities); (c) invest in
interests in oil, gas, or other mineral exploration or
development programs; (d) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions; and (e) act as an underwriter of securities,
except that the Portfolio may acquire restricted securities under
circumstances in which, if such securities were sold, the
Portfolio might be deemed to be an underwriter for purposes of
the Securities Act.

<PAGE>

UTILITY INCOME PORTFOLIO

GENERAL. The objective of the Utility Income Portfolio
is to seek current income and capital appreciation by investing
primarily in equity and fixed-income securities of companies in
the utilities industry. The Portfolio may invest in securities
of both United States and foreign issuers, although no more than
15% of the Portfolio's total assets will be invested in issuers
of any one foreign country. The utilities industry consists of
companies engaged in (i) the manufacture, production, generation,
provision, transmission, sale and distribution of gas and
electric energy, and communications equipment and services,
including telephone, telegraph, satellite, microwave and other
companies providing communication facilities for the public, or
(ii) the provision of other utility or utility related goods and
services, including, but not limited to, entities engaged in
water provision, cogeneration, waste disposal system provision,
solid waste electric generation, independent power producers and
non-utility generators. As a matter of fundamental policy, the
Portfolio, under normal circumstances, invests at least 65% of
the value of its total assets in securities of companies in the
utilities industry. The Portfolio considers a company to be in
the utilities industry if, during the most recent twelve month
period, at least 50% of the company's gross revenues, on a
consolidated basis, is derived from the utilities industry. At
least 65% of the Portfolio's total assets are to be invested in
income-producing securities.

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

<PAGE>

assets invested in any one type of security based upon the
Advisers evaluation as to the appropriate portfolio structure for
achieving the Portfolio's investment objective under prevailing
market, economic and financial conditions. Certain securities
(such as fixed-income securities) will be selected on the basis
of their current yield, while other securities may be purchased
for their growth potential.

INVESTMENT POLICIES

CONVERTIBLE SECURITIES. Convertible securities include
bonds, debentures, corporate notes and preferred stocks that are
convertible at a stated exchange rate into common stock. Prior
to their conversion, convertible securities have the same general
characteristics as non-convertible debt securities which provide
a stable stream of income with generally higher yields than those
of equity securities of the same or similar issuers. 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
convertible securities tends to decrease as interest rates rise
and, conversely, to increase as interest rates decline. While
convertible securities generally offer lower interest or dividend
yields than non-convertible debt securities of similar quality,
they offer investors the potential to benefit from increases in
the market price of the underlying common stock. When the market
price of the common stock underlying a convertible security
increases, the price of the convertible security increasingly
reflects the value of the underlying common stock and may rise
accordingly. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on
a yield basis, and thus may not depreciate to the same extent as
the underlying common stock. Convertible securities rank senior
to common stocks on an issuers capital structure. They are
consequently of higher quality and entail less risk than the
issuers common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed-income
security. The Portfolio may invest up to 30% of its net assets
in the convertible securities of companies whose common stocks
are eligible for purchase by the Portfolio under the investment
policies described above and in the Prospectus.

<PAGE>

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 warrant will
expire worthless. Moreover, a right or warrant ceases to have
value if it is not exercised prior to the expiration date.

U.S. GOVERNMENT SECURITIES. For a general description
of obligations issued or guaranteed by U.S. Government agencies
or instrumentalities, see Appendix A.

OPTIONS. For additional information on the use, risks
and costs of options, see Appendix C.

Through the purchase of listed index options, the
Portfolio could achieve many of the same objectives as through
the use of options on individual securities. Price movements in
the Portfolio's portfolio securities probably will not correlate
perfectly with movements in the level of the index and,
therefore, the Portfolio would bear a risk of loss on index
options purchased by it if favorable price movements of the
hedged portfolio securities do not equal or exceed losses on the
options or if adverse price movements of the hedged portfolio
securities are greater than gains realized from the options.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. For
a discussion regarding futures contracts and options on futures

<PAGE>

contracts, see "North American Government Income Portfolio --
Futures Contracts" and "Options on Futures Contracts", above.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix B.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The
Portfolio may purchase or sell forward foreign currency exchange
contracts (forward contracts). For a discussion regarding
forward foreign currency exchange contracts, see "North American
Government Income Portfolio" -- "Forward Foreign Currency
Exchange Contracts," above.

ILLIQUID SECURITIES. The Fund has adopted the following
investment policy on behalf of the Portfolio which may be changed
by the vote of the Board of Directors. The Portfolio will not
invest in illiquid securities if immediately after such
investment more than 15% of the Portfolio's net assets (taken at
market value) would be invested in such securities. For this
purpose, illiquid securities include, among others, securities
that are illiquid by virtue of the absence of a readily available
market or legal or contractual restriction on resale. See "Other
Investment Policies -- Illiquid Securities", below, for a more
detailed discussion of the Portfolio's investment policy on
restricted securities and securities with legal or contractual
restrictions on resale.

INVESTMENT IN CLOSED-END INVESTMENT COMPANIES. The
Portfolio may invest in closed-end companies whose investment
objectives and policies are consistent with those of the
Portfolio. The Portfolio may invest up to 5% of its net assets in
securities of closed-end investment companies. However, the
Portfolio may not own more than 3% of the total outstanding
voting stock of any closed-end investment company. If the
Portfolio acquires shares in closed-end investment companies,
shareholders would bear both their proportionate share of
expenses in the Portfolio (including advisory fees) and,
indirectly, the expenses of such investment companies (including
management and advisory fees).

<PAGE>

PORTFOLIO TURNOVER. The Portfolio may engage in active
short-term trading in connection with its investment in shorter-
term fixed-income securities in order to benefit from yield
disparities among different issues of securities, to seek short-
term profits during periods of fluctuating interest rates, or for
other reasons. Such trading will increase the Portfolio's rate
of turnover and the incidence of short-term capital gain taxable
as ordinary income. It is anticipated that the Portfolio's
annual turnover rate will not exceed 200%. An annual turnover
rate of 200% occurs, for example, when all of the securities in
the Portfolio's portfolio are replaced twice in a period of one
year. A portfolio turnover rate approximating 200% involves
correspondingly greater brokerage commissions than would a lower
rate, which expenses must be borne by the Portfolio and its
shareholders.

CERTAIN RISK CONSIDERATIONS

UTILITY COMPANY RISKS. Utility companies may be subject
to a variety of risks depending, in part, on such factors as the
type of utility involved and its geographic location. The
revenues of domestic and foreign utilities companies generally
reflect the economic growth and development in the geographic
areas in which they do business. The Adviser takes into account
anticipated economic growth rates and other economic developments
when selecting securities of utility companies. Some of the risks
involved in investing in the principal sectors of the utilities
industry are discussed below.

Telecommunications regulation typically limits rates
charged, returns earned, providers of services, types of
services, ownership, areas served and terms for dealing with
competitors and customers. Telecommunications regulation
generally has tended to be less stringent for newer services,
such as mobile services, than for traditional telephone service,
although there can be no assurances that such newer services will
not be heavily regulated in the future. Regulation may limit
rates based on an authorized level of earnings, a price index, or
some other formula. Telephone rate regulation may include
government-mandated cross-subsidies that limit the flexibility of
existing service providers to respond to competition. Telephone
utilities are still experiencing the effects of the break-up of
American Telephone & Telegraph Company, including increased
competition and rapidly developing technologies with which
traditional telephone companies now compete. Regulation may also
limit the use of new technologies and hamper efficient
depreciation of existing assets. If regulation limits the use of
new technologies by established carriers or forces cross-
subsidies, large private networks may emerge.

<PAGE>

Declines in the prices of alternative fuels have
adversely affected gas utilities. Many gas utilities generally
have been adversely affected by oversupply conditions, and by
increased competition from other providers of utility services.
In addition, some gas utilities entered into long-term contracts
with respect to the purchase or sale of gas at fixed prices,
which prices have since changed significantly in the open market.
In many cases, such price changes have been to the disadvantage
of the gas utility. Gas utilities are particularly susceptible
to supply and demand imbalances due to unpredictable climate
conditions and other factors and are subject to regulatory risks
as well.

Although there can be no assurance that increased
competition and other structural changes will not adversely
affect the profitability of gas and telephone utilities, or that
other negative factors will not develop in the future, in
Alliance's opinion, increased competition and change may provide
better positioned utility companies with opportunities for
enhanced profitability.

Electric utilities that utilize coal in connection with
the production of electric power are particularly susceptible to
environmental regulation, including the requirements of the
federal Clean Air Act and of similar state laws. Such regulation
may necessitate large capital expenditures in order for the
utility to achieve compliance. Due to the public, regulatory and
governmental concern with the cost and safety of nuclear power
facilities in general, certain electric utilities with
uncompleted nuclear power facilities may have problems completing
and licensing such facilities. Regulatory changes with respect
to nuclear and conventionally fueled generating facilities could
increase costs or impair the ability of such electric utilities
to operate such facilities, thus reducing their ability to
service dividend payments with respect to the securities they
issue. Furthermore, rates of return of utility companies
generally are subject to review and limitation by state public
utilities commissions and tend to fluctuate with marginal
financing costs. Electric utilities that utilize nuclear power
facilities must apply for recommissioning from the Nuclear
Regulatory Commission after 40 years. Failure to obtain
recommissioning could result in an interruption of service or the
need to purchase more expensive power from other entities and
could subject the utility to significant capital construction
costs in connection with building new nuclear or alternative-fuel
power facilities, upgrading existing facilities or converting
such facilities to alternative fuels.

INVESTMENTS IN LOWER-RATED FIXED-INCOME SECURITIES.
Adverse publicity and investor perceptions about lower-rated
securities, whether or not based on fundamental analysis, may

<PAGE>

tend to decrease the market value and liquidity of such lower-
rated securities. The Adviser tries to reduce the risk inherent
in investment in lower-rated securities through credit analysis,
diversification and attention to current developments and trends
in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities,
the Advisers research and credit analysis are a correspondingly
important aspect of its program for managing the Portfolio's
securities than would be the case if the Portfolio did not invest
in lower-rated securities. In considering investments for the
Portfolio, the Adviser attempts to identify those high-risk,
high-yield securities whose financial condition is adequate to
meet future obligations, has improved or is expected to improve
in the future. The Advisers analysis focuses on relative values
based on such factors as interest or dividend coverage, asset
coverage earnings prospects, and the experience and managerial
strength of the issuer.

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

In seeking to achieve the Portfolio's objective, there
will be times, such as during periods of rising interest rates,
when depreciation and realization of capital losses on securities
in the portfolio will be unavoidable. Moreover, medium- and
lower-rated securities and non-rated securities of comparable
quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do
not affect the cash income received from that security but are
reflected in the net asset value of the Portfolio.

INVESTMENT RESTRICTIONS. The following restrictions
which are applicable to the Utility Income Portfolio, supplement
those set forth above and may not be changed without Shareholder
Approval, as defined under the caption "General Information,"
below.

The Portfolio may not:

1. Invest more than 5% of its total assets in the
securities of any one issuer except the U.S. Government, although
with respect to 25% of its total assets it may invest in any
number of issuers;

<PAGE>

2. Invest 25% or more of its total assets in the
securities of issuers conducting their principal business
activities in any one industry, other than the utilities
industry, except that this restriction does not apply to U.S.
Government Securities;

3. Purchase more than 10% of any class of the voting
securities of any one issuer;

4. Borrow money except from banks or temporary or
emergency purposes, including the meeting of redemption requests
which might require the untimely disposition of securities;
borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the
value of the Portfolio's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at
the time the borrowing is made; outstanding borrowings in excess
of 5% of the value of the Portfolio's total assets will be repaid
before any subsequent investments are made; and

5. Purchase a security if, as a result (unless the
security is acquired pursuant to a plan of reorganization or an
offer of exchange), the Portfolio would own any securities of an
open-end investment company or more than 3% of the total
outstanding voting stock of any closed-end investment company or
more than 5% of the value of the Portfolio's net assets would be
invested in securities of any one or more closed-end investment
companies.

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

7. Participate on a joint or joint and several basis
in any securities trading account;

8. Invest in companies for the purpose of exercising
control;

9. Issue any senior security within the meaning of the
Act except that the Portfolio may write put and call options;

10. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible
into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short (short sales against the
box), and unless not more than 10% of the Portfolio's net assets
(taken at market value) is held as collateral for such sales at

<PAGE>

any one time (it is the Portfolio's present intention to make
such sales only for the purpose of deferring realization of gain
or loss for Federal income tax purposes); or

11.(a) Purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real
estate or interests therein; (b) purchase or sell commodities or
commodity contracts (except currencies, futures contracts on
currencies and related options, forward contracts or contracts
for the future acquisition or delivery of securities and related
options, futures contracts and options on futures contracts and
options on futures contracts and other similar contracts);
(c) invest in interests in oil, gas, or other mineral exploration
or development programs; (d) purchase securities on margin,
except for such short-term credits as may be necessary for the
clearance of transactions; and (e) act as an underwriter of
securities, except that the Portfolio may acquire restricted
securities under circumstances in which, if such securities were
sold, the Portfolio might be deemed to be an underwriter for
purposes of the Securities Act.

CONSERVATIVE INVESTORS PORTFOLIO
GROWTH INVESTORS PORTFOLIO
GROWTH PORTFOLIO

For a general description of the Portfolio's investment
policies, see the Fund's Prospectus.

REPURCHASE AGREEMENTS. Repurchase agreements are
agreements by which a Portfolio purchases a security and obtains
a simultaneous commitment from the seller to repurchase the
security at an agreed upon price and date. The resale price is
in excess of the purchase price and reflects an agreed upon
market rate unrelated to the coupon rate on the purchased
security. The purchased security serves as collateral for the
obligation of the seller to repurchase the security and the value
of the purchased security is initially greater than or equal to
the amount of the repurchase obligation and the seller is
required to furnish additional collateral on a daily basis in
order to maintain with the purchaser securities with a value
greater than or equal to the amount of the repurchase obligation.
Such transactions afford the Portfolios the opportunity to earn a
return on temporarily available cash. While at times the
underlying security may be a bill, certificate of indebtedness,
note, or bond issued by an agency, authority or instrumentality
of the United States Government, the obligation of the seller is
not guaranteed by the U.S. Government and there is a risk that
the seller may fail to repurchase the underlying security,
whether because of the sellers bankruptcy or otherwise. In such
event, the Portfolios would attempt to exercise their rights with
respect to the underlying security, including possible

<PAGE>

disposition in the market. However, the Portfolios may be
subject to various delays and risks of loss, including
(a) possible declines in the value of the underlying security
(b) possible reduced levels of income and lack of access to
income during this period and (c) possible inability to enforce
rights. The Portfolios have established standards for the
creditworthiness of parties with which they may enter into
repurchase agreements, and those standards, as modified from time
to time, will be implemented and monitored by the Adviser.

NON-PUBLICLY TRADED SECURITIES. Each of the Portfolios
may invest in securities which are not publicly traded, including
securities sold pursuant to Rule 144A under the Securities Act of
1933 (Rule 144A Securities). The sale of these securities is
usually restricted under Federal securities laws, and market
quotations may not be readily available. As a result, a
Portfolio may not be able to sell these securities (other than
Rule 144A Securities) unless they are registered under applicable
Federal and state securities laws, or may have to sell such
securities at less than fair market value. Investment in these
securities is restricted to 5% of a Portfolio's total assets
(excluding, to the extent permitted by applicable law, Rule 144A
Securities) and is also subject to the restriction against
investing more than 15% of total assets in illiquid securities.
To the extent permitted by applicable law, Rule 144A Securities
will not be treated as illiquid for purposes of the foregoing
restriction so long as such securities meet the liquidity
guidelines established by the Fund's Board of Directors.
Pursuant to these guidelines, the Adviser will monitor the
liquidity of a Portfolio's investment in Rule 144A Securities
and, in reaching liquidity decisions, will consider: (1) the
frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to
make a market in the security; and (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and
the mechanics of the transfer).

<PAGE>

dividend or interest payments, and possible difficulty in
obtaining and enforcing judgments against foreign entities.
Furthermore, issuers of foreign securities are subject to
different, often less comprehensive, accounting, reporting and
disclosure requirements than domestic issuers. The securities of
some foreign companies and foreign securities markets are less
liquid and at times more volatile than securities of comparable
U.S. companies and U.S. securities markets. Foreign brokerage
commissions and other fees are also generally higher than in the
United States. There are also special tax considerations which
apply to securities of foreign issuers and securities principally
traded overseas.

DESCRIPTION OF CERTAIN MONEY MARKET SECURITIES
IN WHICH THE PORTFOLIOS MAY INVEST

CERTIFICATES OF DEPOSIT, BANKERS ACCEPTANCES AND BANK
TIME DEPOSITS. Certificates of deposit are receipts issued by a
bank in exchange for the deposit of funds. The issuer agrees to
pay the amount deposited plus interest to the bearer of the
receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior
to maturity.

Bankers acceptances typically arise from short-term
credit arrangements designed to enable businesses to obtain funds
to finance commercial transactions. Generally, an acceptance is
a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise.
The draft is then accepted by another bank that, in effect,
unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held
by the accepting bank as an earning asset or it may be sold in
the secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as
270 days, most maturities are six months or less.

Bank time deposits are funds kept on deposit with a bank
for a stated period of time in an interest bearing account. At
present, bank time deposits maturing in more than seven days are
not considered by the Adviser to be readily marketable.

COMMERCIAL PAPER. Commercial paper consists of short-
term (usually from 1 to 270 days) unsecured promissory notes
issued by entities in order to finance their current operations.

<PAGE>

permit daily fluctuations in the interest rate while the interest
rate under variable amount floating rate notes fluctuate on a
weekly basis. These notes permit daily changes in the amounts
borrowed. The Portfolios have the right to increase the amount
under these notes at any time up to the full amount provided by
the note agreement, or to decrease the amount, and the borrower
may repay up to the full amount of the notes without penalty.
Because these types of notes are direct lending arrangements
between the lender and the borrower, it is not generally
contemplated that such instruments will be traded and there is no
secondary market for these notes. Master demand notes are
redeemable (and, thus, immediately repayable by the borrower) at
face value, plus accrued interest, at any time. Variable amount
floating rate notes are subject to next-day redemption for 14
days after the initial investment therein. With both types of
notes, therefore, the Portfolio's right to redeem depends on the
ability of the borrower to pay principal and interest on demand.
In connection with both types of note arrangements, the
Portfolios consider earning power, cash flow and other liquidity
ratios of the issuer. These notes, as such, are not typically
rated by credit rating agencies. Unless they are so rated, a
Portfolio may invest in them only if at the time of an investment
the issuer has an outstanding issue of unsecured debt rated Aa or
better by Moody's or AA or better by S&P, Duff & Phelps or Fitch

A description of Moody's, S&Ps, Duff & Phelps and Fitch
short-term note ratings is included as Appendix A to the
Prospectus.

ASSET-BACKED SECURITIES. The Conservative Investors
Portfolio and the Growth Investors Portfolio may invest in asset-
backed securities (unrelated to first mortgage loans) which
represent fractional interests in pools of retail installment
loans, leases or revolving credit receivables, both secured (such
as Certificates for Automobiles Receivables or CARS) and
unsecured (such as Credit Care Receivables Securities or CARDS).

<PAGE>

generally may not invest more than 10% of their total assets in
such securities without obtaining appropriate regulatory relief.

LENDING OF SECURITIES. Each Portfolio may seek to
increase its income by lending portfolio securities. Under
present regulatory policies, including those of the Board of
Governors of the Federal Reserve System and the Commission, such
loans may be made only to member firms of the New York Stock
Exchange and would be required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Treasury Bills
maintained on a current basis at an amount at least equal to the
market value of the securities loaned. A Portfolio would have
the right to call a loan and obtain the securities loaned at any
time on five days notice. During the existence of a loan, a
Portfolio would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned
and would also receive compensation based on investment of the
collateral. A Portfolio would not, however, have the right to
vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving
or withholding of their consent on a material matter affecting
the investment. As with other extensions of credit there are
risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the
judgment of the Adviser, the consideration which can be earned
currently from securities loans of this type justifies the
attendant risk. If the Adviser determines to make securities
loans, it is not intended that the value of the securities loaned
would exceed 25% of the value of a Portfolio's total assets.

FORWARD COMMITMENTS AND WHEN-ISSUED AND DELAYED DELIVERY
SECURITIES. Each of the Portfolios may enter into forward
commitments for the purchase of securities and may purchase
securities on a when-issued or delayed delivery basis.
Agreements for such purchases might be entered into, for example,
when a Portfolio anticipates a decline in interest rates and is
able to obtain a more advantageous yield by committing currently
to purchase securities to be issued later. When a Portfolio
purchases securities in this manner (i.e., on a forward
commitment, when-issued or delayed delivery basis), it does not
pay for the securities until they are received, and a Portfolio
is required to create a segregated account with the Portfolio's
custodian and to maintain in that account cash, U.S. Government
securities or other liquid high-grade debt obligations in an
amount equal to or greater than, on a daily basis, the amount of
the Portfolio's forward commitments and when-issued or-delayed
delivery commitments.

<PAGE>

A Portfolio enters into forward commitments and make
commitments to purchase securities on a when-issued or delayed
delivery basis only with the intention of actually acquiring the
securities. However, a Portfolio may sell these securities
before the settlement date if it is deemed advisable as a matter
of investment strategy.

Although none of the Portfolios intends to make such
purchases for speculative purposes and each Portfolio intends to
adhere to the provisions of policies of the Commission, purchases
of securities on such bases may involve more risk than other
types of purchases. For example, by committing to purchase
securities in the future, a Portfolio subjects itself to a risk
of loss on such commitments as well as on its portfolio
securities. Also, a Portfolio may have to sell assets which have
been set aside in order to meet redemptions. In addition, if a
Portfolio determines it is advisable as a matter of investment
strategy to sell the forward commitment or when-issued or delayed
delivery securities before delivery, that Portfolio may incur a
gain or loss because of market fluctuations since the time the
commitment to purchase such securities was made. Any such gain
or loss would be treated as a capital gain or loss and would be
treated for tax purposes as such. When the time comes to pay for
the securities to be purchased under a forward commitment or on a
when-issued or delayed delivery basis, a Portfolio will meet its
obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so,
from the sale of the forward commitment or when-issued or delayed
delivery securities themselves (which may have a value greater or
less than a Portfolio's payment obligation).

OPTIONS. As noted in the Prospectuses, each of the
Portfolios may write call and put options and may purchase call
and put options on securities. Each Portfolio intends to write
only covered options. This means that so long as a Portfolio is
obligated as the writer of a call option, it will own the
underlying securities subject to the option or securities
convertible into such securities without additional consideration
(or for additional cash consideration held in a segregated
account by the Custodian). In the case of call options on U.S.
Treasury Bills, a Portfolio might own U.S. Treasury Bills of a
different series from those underlying the call option, but with
a principal amount and value corresponding to the option contract
amount and a maturity date no later than that of the securities
deliverable under the call option. A Portfolio is considered
covered with respect to a put option it writes, if, so long as it
is obligated as the writer of a put option, it deposits and
maintains with its custodian in a segregated account cash, U.S.
Government securities or other liquid high-grade debt obligations
having a value equal to or greater than the exercise price of the
option.

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Effecting a closing transaction in the case of a written
call option will permit a Portfolio to write another call option
on the underlying security with either a different exercise price
or expiration date or both, or in the case of a written put
option will permit a Portfolio to write another put option to the
extent that the exercise price thereof is secured by deposited
cash or short-term securities. Such transactions permit a
Portfolio to generate additional premium income, which may
partially offset declines in the value of portfolio securities or
increases in the cost of securities to be acquired. Also,
effecting a closing transaction permits the cash or proceeds from
the concurrent sale of any securities subject to the option to be
used for other investments by a Portfolio, provided that another
option on such security is not written. If a Portfolio desires
to sell a particular security from its portfolio on which it has
written a call option, it will effect a closing transaction in
connection with the option prior to or concurrent with the sale
of the security.

A Portfolio will realize a profit from a closing
transaction if the premium paid in connection with the closing of
an option written by the Portfolio is less than the premium
received from writing the option, or if the premium received in
connection with the closing of an option purchased by the
Portfolio is more than the premium paid for the original
purchase. Conversely, a Portfolio will suffer a loss if the
premium paid or received in connection with a closing transaction
is more or less, respectively, than the premium received or paid
in establishing the option position. Because increases in the
market price of a call option will generally reflect increases in
the market price of the underlying security, any loss resulting
from the repurchase of a call option previously written by a
Portfolio is likely to be offset in whole or in part by
appreciation of the underlying security owned by the Portfolio

A Portfolio may purchase a security and then write a
call option against that security or may purchase a security and
concurrently write an option on it. The exercise price of the
call a Portfolio determines to write will depend upon the
expected price movement of the underlying security. The exercise
price of a call option may be below (in-the-money), equal to (at-
the-money) or above (out-of-the-money) the current value of the
underlying security at the time the option is written. In-the-
money call options may be used when it is expected that the price
of the underlying security will decline moderately during the
option period. Out-of-the-money call options may be written when
it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the
underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone.
If the call options are exercised in such transactions, a

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Portfolio's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the
difference between the Portfolio's purchase price of the security
and the exercise price. If the options are not exercised and the
price of the underlying security declines, the amount of such
decline will be offset in part, or entirely, by the premium
received.

The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and a Portfolio's gain will be limited to the premium received.
If the market price of the underlying security declines or
otherwise is below the exercise price, a Portfolio may elect to
close the position or retain the option until it is exercised, at
which time the Portfolio will be required to take delivery of the
security at the exercise price; the Portfolio's return will be
the premium received from the put option minus the amount by
which the market price of the security is below the exercise
price, which could result in a loss. Out-of-the-money put
options may be written when it is expected that the price of the
underlying security will decline moderately during the option
period. In-the-money put options may be used when it is expected
that the premiums received from writing the put option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone.

Each of the Portfolios may also write combinations of
put and call options on the same security, known as straddles,
with the same exercise and expiration date. By writing a
straddle, a Portfolio undertakes a simultaneous obligation to
sell and purchase the same security in the event that one of the
options is exercised. If the price of the security subsequently
rises above the exercise price, the call will likely be exercised
and the Portfolio will be required to sell the underlying
security at a below market price. This loss may be offset,
however, in whole or part, by the premiums received on the
writing of the two options. Conversely, if the price of the
security declines by a sufficient amount, the put will likely be
exercised. The writing of straddles will likely be effective,
therefore, only where the price of the security remains stable
and neither the call nor the put is exercised. In those
instances where one of the options is exercised, the loss on the
purchase or sale of the underlying security may exceed the amount
of the premiums received.

By writing a call option, a Portfolio limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option.

<PAGE>

By writing a put option, a Portfolio assumes the risk that it may
be required to purchase the underlying security for an exercise
price above its then current market value, resulting in a capital
loss unless the security subsequently appreciates in value.
Where options are written for hedging purposes, such transactions
constitute only a partial hedge against declines in the value of
portfolio securities or against increases in the value of
securities to be acquired, up to the amount of the premium.

Each of the above Portfolios may purchase put options to
hedge against a decline in the value of portfolio securities. If
such decline occurs, the put options will permit the Portfolio to
sell the securities at the exercise price, or to close out the
options at a profit. By using put options in this way, a
Portfolio will reduce any profit it might otherwise have realized
in the underlying security by the amount of the premium paid for
the put option and by transaction costs.

A Portfolio may purchase call options to hedge against
an increase in the price of securities that the Portfolio
anticipates purchasing in the future. If such increase occurs,
the call option will permit the Portfolio to purchase the
securities at the exercise price, or to close out the options at
a profit. The premium paid for the call option plus any
transaction costs will reduce the benefit, if any, realized by a
Portfolio upon exercise of the option, and, unless the price of
the underlying security rises sufficiently, the option may expire
worthless to the Portfolio and the Portfolio will suffer a loss
on the transaction to the extent of the premium paid.

OPTIONS ON SECURITIES INDEXES. Each of the Portfolios
may write (sell) covered call and put options on securities
indexes and purchase call and put options on securities indexes.
A call option on a securities index is considered covered if, so
long as a Portfolio is obligated as the writer of the call, the
Portfolio holds in its portfolio securities the price changes of
which are, in the option of the Adviser, expected to replicate
substantially the movement of the index or indexes upon which the
options written by the Portfolio are based. A put on a
securities index written by a Portfolio will be considered
covered if, so long as it is obligated as the writer of the put,
the Portfolio segregates with its custodian cash, U.S. Government
securities or other liquid high-grade debt obligations having a
value equal to or greater than the exercise price of the option.

<PAGE>

the option does not increase, the Portfolio's loss will be
limited to the premium paid for the option. The success of this
strategy will largely depend on the accuracy of the correlation
between the changes in value of the index and the changes in
value of a Portfolio's security holdings.

The purchase of call options on securities indexes may
be used by a Portfolio to attempt to reduce the risk of missing a
broad market advance, or an advance in an industry or market
segment, at a time when the Portfolio holds uninvested cash or
short-term debt securities awaiting investment. When purchasing
call options for this purpose, a Portfolio also bears the risk of
losing all or a portion of the premium paid if the value of the
index does not rise. The purchase of call options on stock
indexes when a Portfolio is substantially fully invested is a
form of leverage, up to the amount of the premium and related
transaction costs, and involves risks of loss and of increased
volatility similar to those involved in purchasing calls on
securities the Portfolio owns.

FUTURES AND RELATED OPTIONS. Each of the Conservative
Investors Portfolio and the Growth Investors Portfolio may enter
into interest rate futures contracts. In addition, each of the
Conservative Investors Portfolio, the Growth Investors Portfolio
and the Growth Portfolio may enter into stock futures contracts,
and each of these Portfolios may enter into foreign currency
futures contracts. (Unless otherwise specified, interest rate
futures contracts, stock index futures contracts and foreign
currency futures contracts are collectively referred to as
Futures Contracts.) Such investment strategies will be used as a
hedge and not for speculation.

Purchases or sales of stock or bond index futures
contracts are used for hedging purposes to attempt to protect a
Portfolio's current or intended investments from broad
fluctuations in stock or bond prices. For example, a Portfolio
may sell stock or bond index futures contracts in anticipation of
or during a market decline to attempt to offset the decrease in
market value of the Portfolio's securities portfolio that might
otherwise result. If such decline occurs, the loss in value of
portfolio securities may be offset, in whole or part, by gains on
the futures position. When a Portfolio is not fully invested in
the securities market and anticipates a significant market
advance, it may purchase stock or bond index futures contracts in
order to gain rapid market exposure that may, in part or
entirely, offset increases in the cost of securities that the
Portfolio intends to purchase. As such purchases are made, the
corresponding positions in stock or bond index futures contracts
will be closed out. Each of the Conservative Investors
Portfolio, the Growth Investors Portfolio and the Growth
Portfolio generally intends to purchase such securities upon

<PAGE>

termination of the futures position, but under unusual market
conditions a long futures position may be terminated without a
related purchase of securities.

Interest rate futures contracts are purchased or sold
for hedging purposes to attempt to protect against the effects of
interest rate changes on a Portfolio's current or intended
investments in fixed-income securities. For example, if a
Portfolio owned long-term bonds and interest rates were expected
to increase, that Portfolio might sell interest rate futures
contracts. Such a sale would have much the same effect as
selling some of the long-term bonds in that Portfolio's
portfolio. However, since the futures market is more liquid than
the cash market, the use of interest rate futures contracts as a
hedging technique allows a Portfolio to hedge its interest rate
risk without having to sell its portfolio securities. If
interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of that Portfolio's
interest rate futures contracts would be expected to increase at
approximately the same rate, thereby keeping the net asset value
of that Portfolio from declining as much as it otherwise would
have. On the other hand, if interest rates were expected to
decline, interest rate futures contracts could be purchased to
hedge in anticipation of subsequent purchases of long-term bonds
at higher prices. Because the fluctuations in the value of the
interest rate futures contracts should be similar to those of
long-term bonds, a Portfolio could protect itself against the
effects of the anticipated rise in the value of long-term bonds
without actually buying them until the necessary cash became
available or the market had stabilized. At that time, the
interest rate futures contracts could be liquidated and that
Portfolio's cash reserves could then be used to buy long-term
bonds on the cash market.

Each of the Growth Portfolio, the Conservative Investors
Portfolio and the Growth Investors Portfolio may purchase and
sell foreign currency futures contracts for hedging purposes to
attempt to protect its current or intended investments from
fluctuations in currency exchange rates. Such fluctuations could
reduce the dollar value of portfolio securities denominated in
foreign currencies, or increase the cost of foreign-denominated
securities to be acquired, even if the value of such securities
in the currencies in which they are denominated remains constant.
Each of the Growth Portfolio, the Conservative Investors
Portfolio and the Growth Investors Portfolio may sell futures
contracts on a foreign currency, for example, when it holds
securities denominated in such currency and it anticipates a
decline in the value of such currency relative to the dollar. In
the event such decline occurs, the resulting adverse effect on
the value of foreign-denominated securities may be offset, in
whole or in part, by gains on the futures contracts. However, if

<PAGE>

the value of the foreign currency increases relative to the
dollar, the Portfolio's loss on the foreign currency futures
contract may or may not be offset by an increase in the value of
the securities because a decline in the price of the security
stated in terms of the foreign currency may be greater than the
increase in value as a result of the change in exchange rates.

Conversely, these Portfolios could protect against a
rise in the dollar cost of foreign-denominated securities to be
acquired by purchasing futures contracts on the relevant
currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value
of the underlying currencies. When a Portfolio purchases futures
contracts under such circumstances, however, and the price of
securities to be acquired instead declines as a result of
appreciation of the dollar, the Portfolio sustains losses on its
futures position which could reduce or eliminate the benefits of
the reduced cost of portfolio securities to be acquired.

The Portfolios may also engage in currency cross hedging
when, in the opinion of the Adviser, the historical relationship
among foreign currencies suggests that a Portfolio may achieve
protection against fluctuations in currency exchange rates
similar to that described above at a reduced cost through the use
of a futures contract relating to a currency other than the U.S.
Dollar or the currency in which the foreign security is
denominated. Such cross hedging is subject to the same risk as
those described above with respect to an unanticipated increase
or decline in the value of the subject currency relative to the
dollar.

Each of the Conservative Investors Portfolio and the
Growth Investors Portfolio may purchase and write options on
interest rate futures contracts. In addition, each of the
Growth Portfolio, the Conservative Investors Portfolio and the
Growth Investors Portfolio may purchase and write options on
stock index futures contracts. The Growth Portfolio, the
Conservative Investors Portfolio and the Growth Investors
Portfolio may purchase and write options on foreign currency
futures contracts. (Unless otherwise specified, options on
interest rate futures contracts, options on securities index
futures contracts and options on foreign currency futures
contracts are collectively referred to as Options on Futures
Contracts.)

<PAGE>

Portfolio's portfolio holdings. The writing of a put option on a
Futures Contract constitutes a partial hedge against increasing
prices of the securities or other instruments required to be
delivered under the terms of the Futures Contract. If the
futures price at expiration of the put option is higher than the
exercise price, a Portfolio will retain the full amount of the
option premium, which provides a partial hedge against any
increase in the price of securities which the Portfolio intends
to purchase. If a put or call option a Portfolio has written is
exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options on
futures positions, a Portfolio's losses from exercised options on
futures may to some extent be reduced or increased by changes in
the value of portfolio securities.

The Portfolios may purchase Options on Futures Contracts
for hedging purposes instead of purchasing or selling the
underlying Futures Contracts. For example, where a decrease in
the value of portfolio securities is anticipated as a result of a
projected market-wide decline or changes in interest or exchange
rates, a Portfolio could, in lieu of selling Futures Contracts,
purchase put options thereon. In the event that such decrease
occurs, it may be offset, in whole or part, by a profit on the
option. If the market decline does not occur, the Portfolio will
suffer a loss equal to the price of the put. Where it is
projected that the value of securities to be acquired by a
Portfolio will increase prior to acquisition, due to a market
advance or changes in interest or exchange rates, a Portfolio
could purchase call Options on Futures Contracts, rather than
purchasing the underlying Futures Contracts. If the market
advances, the increased cost of securities to be purchased may be
offset by a profit on the call. However, if the market declines,
the Portfolio will suffer a loss equal to the price of the call,
but the securities which the Portfolio intends to purchase may be
less expensive.

<PAGE>

denominated in such currency. Conversely, a Portfolio may enter
into a Forward Contract to purchase a given currency to protect
against a projected increase in the dollar value of securities
denominated in such currency which the Portfolio intends to
acquire. A Portfolio also may enter into a Forward Contract in
order to assure itself of a predetermined exchange rate in
connection with a fixed-income security denominated in a foreign
currency. The Portfolios may engage in currency cross hedging
when, in the opinion of the Adviser, the historical relationship
among foreign currencies suggests that a Portfolio may achieve
the same protection for a foreign security at a reduced cost
through the use of a Forward Contract relating to a currency
other than the U.S. Dollar or the foreign currency in which the
security is denominated.

If a hedging transaction in Forward Contracts is
successful, the decline in the value of portfolio securities or
the increase in the cost of securities to be acquired may be
offset, at least in part, by profits on the Forward Contract.
Nevertheless, by entering into such Forward Contracts, a
Portfolio may be required to forego all or a portion of the
benefits which otherwise could have been obtained from favorable
movements in exchange rates. The Portfolios do not presently
intend to hold Forward Contracts entered into until maturity, at
which time they would be required to deliver or accept delivery
of the underlying currency, but will seek in most instances to
close out positions in such contracts by entering into offsetting
transactions, which will serve to fix a Portfolio's profit or
loss based upon the value of the Contracts at the time the
offsetting transaction is executed.

Each Portfolio has established procedures consistent
with Commission policies concerning purchases of foreign currency
through Forward Contracts. Accordingly, a Portfolio will
segregate liquid assets in an amount least equal to the
Portfolio's obligations under any Forward Contract.

OPTIONS ON FOREIGN CURRENCIES. Each of the Portfolios
may purchase and write options on foreign currencies for hedging
purposes. For example, a decline in the dollar value of a
foreign currency in which portfolio securities are denominated
will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to
protect against such diminutions in the value of portfolio
securities, these Portfolios may purchase put options on the
foreign currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed
amount in dollars and could thereby offset, in whole or in part,
the adverse effect on its portfolio which otherwise would have
resulted.

100

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Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, these
Portfolios may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to a Portfolio deriving
from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, a Portfolio could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.

Each of the Portfolios may write options on foreign
currencies for the same types of hedging purposes or to increase
return. For example, where the Portfolio anticipates a decline
in the dollar value of foreign-denominated securities due to
adverse fluctuations in exchange rates it could, instead of
purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio
securities could be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, a Portfolio could write a put option on the
relevant currency, which, if rates move in the manner projected,
will expire unexercised and allow the Portfolio to hedge such
increased cost up to the amount of the premium. As in the case
of other types of options, however, the writing of a foreign
currency option will constitute only a partial hedge up to the
amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised
and the Portfolio will be required to purchase or sell the
underlying currency at a loss which may not be offset by the
amount of the premium. Through the writing of options on foreign
currencies, a Portfolio also may be required to forego all or a
portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.

101

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the portfolio will not duplicate the components of the index, and
in the case of futures and options on fixed-income securities,
the portfolio securities which are being hedged may not be the
same type of obligation underlying such contract. As a result,
the correlation probably will not be exact. Consequently, the
Portfolios bear the risk that the price of the portfolio
securities being hedged will not move by the same amount or in
the same direction as the underlying index or obligation.

For example, if a Portfolio purchases a put option on an
index and the index decreases less than the value of the hedged
securities, the Portfolio will experience a loss that is not
completely offset by the put option. It is also possible that
there may be a negative correlation between the index or
obligation underlying an option or Futures Contract in which the
Portfolio has a position and the portfolio securities the
Portfolio is attempting to hedge, which could result in a loss on
both the portfolio and the hedging instrument.

It should be noted that stock index futures contracts or
options based upon a narrower index of securities, such as those
of a particular industry group, may present greater risk than
options or futures based on a broad market index. This is due to
the fact that a narrower index is more susceptible to rapid and
extreme fluctuations as a result of changes in the value of a
small number of securities.

The trading of futures and options entails the
additional risk of imperfect correlation between movements in the
futures or option price and the price of the underlying index or
obligation. The anticipated spread between the prices may be
distorted due to the differences in the nature of the markets,
such as differences in margin requirements, the liquidity of such
markets and the participation of speculators in the futures
market. In this regard, trading by speculators in futures and
options has in the past occasionally resulted in market
distortions, which may be difficult or impossible to predict,
particularly near the expiration of such contracts.

The trading of Options on Futures Contracts also entails
the risk that changes in the value of the underlying Futures
Contract will not be fully reflected in the value of the option.
The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the Futures Contract or
expiration date of the option approaches.

Further, with respect to options on securities, options
on foreign currencies, options on stock indexes and Options on
Futures Contracts, the Portfolios are subject to the risk of
market movements between the time that the option is exercised
and the time of performance thereunder. This could increase the

102

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extent of any loss suffered by a Portfolio in connection with
such transactions.

If a Portfolio purchases futures or options in order to
hedge against a possible increase in the price of securities
before the Portfolio is able to invest its cash in such
securities, the Portfolio faces the risk that the market may
instead decline. If the Portfolio does not then invest in such
securities because of concern as to possible further market
declines or for other reasons, the Portfolio may realize a loss
on the futures or option contract that is not offset by a
reduction in the price of securities purchased.

In writing a call option on a security, foreign
currency, index or futures contract, a Portfolio also incurs the
risk that changes in the value of the assets used to cover the
position will not correlate closely with changes in the value of
the option or underlying index or instrument. For example, when
a Portfolio writes a call option on a stock index, the securities
used as cover may not match the composition of the index, and the
Portfolio may not be fully covered. As a result, the Portfolio
could suffer a loss on the call which is not entirely offset or
offset at all by an increase in the value of the Portfolio's
portfolio securities.

The writing of options on securities, options on stock
indexes or Options on Futures Contracts constitutes only a
partial hedge against fluctuations in the value of a Portfolio's
portfolio. When a Portfolio writes an option, it will receive
premium income in return for the holders purchase of the right to
acquire or dispose of the underlying security or future or, in
the case of index options, cash. In the event that the price of
such obligation does not rise sufficiently above the exercise
price of the option, in the case of a call, or fall below the
exercise price, in the case of a put, the option will not be
exercised and the Portfolio will retain the amount of the
premium, which will constitute a partial hedge against any
decline that may have occurred in the Portfolio's portfolio
holdings, or against the increase in the cost of the instruments
to be acquired.

When the price of the underlying obligation moves
sufficiently in favor of the holder to warrant exercise of the
option, however, and the option is exercised, the Portfolio will
incur a loss which may only be partially offset by the amount of
the premium it received. Moreover, by writing an option, a
Portfolio may be required to forego the benefits which might
otherwise have been obtained from an increase in the value of
portfolio securities or a decline in the value of securities to
be acquired.

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In the event of the occurrence of any of the foregoing
adverse market events, a Portfolio's overall return may be lower
than if it had not engaged in the transactions described above.

With respect to the writing of straddles on securities,
a Portfolio incurs the risk that the price of the underlying
security will not remain stable, that one of the options written
will be exercised and that the resulting loss will not be offset
by the amount of the premiums received. Such transactions,
therefore, while creating an opportunity for increased return by
providing a Portfolio with two simultaneous premiums on the same
security, nonetheless involve additional risk, because the
Portfolio may have an option exercised against it regardless of
whether the price of the security increases or decreases.

Prior to exercise or expiration, a futures or option
position can be terminated only by entering into a closing
purchase or sale transaction. This requires a secondary market
for such instruments on the exchange on which the initial
transaction was entered into. While the Portfolios enter into
options or futures positions only if there appears to be a liquid
secondary market therefor, there can be no assurance that such a
market will exist for any particular contracts at any specific
time. In that event, it may not be possible to close out a
position held by a Portfolio, and the Portfolio could be required
to purchase or sell the instrument underlying an option, make or
receive a cash settlement or meet ongoing variation margin
requirements. Under such circumstances, if the Portfolio has
insufficient cash available to meet margin requirements, it may
be necessary to liquidate portfolio securities at a time when it
is disadvantageous to do so. The inability to close out options
and futures positions, therefore, could have an adverse impact on
the Portfolio's ability to effectively hedge their portfolios,
and could result in trading losses.

The liquidity of a secondary market in a Futures
Contract or option thereon may be adversely affected by daily
price fluctuation limits, established by exchanges, which limit
the amount of fluctuation in the price of a contract during a
single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open futures or option
positions and requiring traders to make additional margin
deposits. Prices have in the past moved to the daily limit on a
number of consecutive trading days.

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activity, which could at times make it difficult or impossible to
liquidate existing positions or to recover excess variation
margin payments.

The staff of the Commission had taken the position that
over-the-counter options and the assets used as cover for over-
the-counter options are illiquid securities, unless certain
arrangements are made with the other party to the option contract
permitting the prompt liquidation of the option position. The
Portfolios will enter into those special arrangements only with
primary U.S. Government securities dealers recognized by the
Federal Reserve Bank of New York (primary dealers). In
connection with these special arrangements, the Fund will
establish standards for the creditworthiness of the primary
dealers with which it may enter into over-the-counter option
contracts and those standards, as modified from time to time,
will be implemented and monitored by the Adviser. Under these
special arrangements, the Fund will enter into contracts with
primary dealers which provide that each Portfolio has the
absolute right to repurchase an option it writes at any time at a
repurchase price which represents fair market value, as
determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to
a formula contained in the contract. Although the specific
details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a
multiple of the premium received by the Portfolio for writing the
option, plus the amount, if any, by which the option is in-the-
money. The formula will also include a factor to account for the
difference between the price of the security and the strike price
of the option if the option is written out-of-the-money. Under
such circumstances the Portfolio will treat as illiquid the
securities used as cover for over-the-counter options it has
written only to the extent described in the Prospectuses.
Although each agreement will provide that the Portfolio's
repurchase price shall be determined in good faith (and that it
shall not exceed the maximum determined pursuant to the formula),
the formula price will not necessarily reflect the market value
of the option written; therefore, the Portfolio might pay more to
repurchase the option contract than the Portfolio would pay to
close out a similar exchange-traded option.

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strategy is successful, be offset, in whole or in part, by
increases in the value of securities held by the Portfolio or
decreases in the prices of securities the Portfolio intends to
acquire. When a Portfolio writes options on securities or
options on stock indexes for other than hedging purposes, the
margin requirements associated with such transactions could
expose the Portfolio to greater risk.

The exchanges on which futures and options are traded
may impose limitations governing the maximum number of positions
on the same side of the market and involving the same underlying
instrument which may be held by a single investor, whether acting
alone or in concert with others (regardless of whether such
contracts are held on the same or different exchanges or held or
written in one or more accounts or through one or more brokers).
In addition, the CFTC and the various contract markets have
established limits referred to as speculative position limits on
the maximum net long or net short position which any person may
hold or control in a particular futures or option contract. An
exchange may order the liquidation of positions found to be in
violation of these limits and may impose other sanctions or
restrictions. The Adviser does not believe that these trading
and position limits will have any adverse impact on the
strategies for hedging the portfolios of the Portfolios.

The amount of risk a Portfolio assumes when it purchases
an option on a Futures Contract is the premium paid for the
option, plus related transaction costs. In order to profit from
an option purchased, however, it may be necessary to exercise the
option and to liquidate the underlying Futures Contract, subject
to the risks of the availability of a liquid offset market
described herein. The writer of an option on a Futures Contract
is subject to the risks of commodity futures trading, including
the requirement of initial and variation margin payments, as well
as the additional risk that movements in the price of the option
may not correlate with movements in the price of the underlying
security, index, currency or Futures Contract.

Transactions in Forward Contracts, as well as futures
and options on foreign currencies, are subject to all of the
correlation, liquidity and other risks outlined above. In
addition, however, such transactions are subject to the risk of
governmental actions affecting trading in or the prices of
currencies underlying such contracts, which could restrict or
eliminate trading and could have a substantial adverse effect on
the value of positions held by a Portfolio. In addition, the
value of such positions could be adversely affected by a number
of other complex political and economic factors applicable to the
countries issuing the underlying currencies.

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Further, unlike trading in most other types of
instruments, there is no systematic reporting of last sale
information with respect to the foreign currencies underlying
contracts thereon. As a result, the available information on
which trading decisions will be based may not be as complete as
the comparable data on which a Portfolio makes investment and
trading decisions in connection with other transactions.
Moreover, because the foreign currency market is a global,
twenty-four hour market, events could occur on that market which
will not be reflected in the forward, futures or options markets
until the following day, thereby preventing the Portfolios from
responding to such events in a timely manner.

Settlements of exercises of over-the-counter Forward
Contracts or foreign currency options generally must occur within
the country issuing the underlying currency, which in turn
requires traders to accept or make delivery of such currencies in
conformity with any United Sates or foreign restrictions and
regulations regarding the maintenance of foreign banking
relationships and fees, taxes or other charges.

Unlike transactions entered into by the Portfolios in
Futures Contracts and exchange-traded options, options on foreign
currencies, Forward Contracts and over-the-counter options on
securities are not traded on contract markets regulated by the
CFTC or (with the exception of certain foreign currency options)
the Commission. Such instruments are instead traded through
financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to regulation by the
Commission. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer could lose amounts
substantially in excess of the initial investment, due to the
margin and collateral requirements associated with such
positions.

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contracts, and a Portfolio could be required to retain options
purchased or written, or Forward Contracts entered into, until
exercise, expiration or maturity. This in turn could limit the
Portfolio's ability to profit from open positions or to reduce
losses experienced, and could result in greater losses.

Further, over-the-counter transactions are not subject
to the guarantee of an exchange clearing house, and a Portfolio
will therefore be subject to the risk of default by, or the
bankruptcy of, the financial institution serving as its
counterparty. One or more such institutions also may decide to
discontinue their role as market-makers in a particular currency
or security, thereby restricting the Portfolio's ability to enter
into desired hedging transactions. A Portfolio will enter into
an over-the-counter transaction only with parties whose
creditworthiness has been reviewed and found satisfactory by the
Adviser.

Transactions in over-the-counter options on foreign
currencies are subject to a number of conditions regarding the
commercial purpose of the purchaser of such option. The
Portfolios are not able to determine at this time whether or to
what extent additional restrictions on the trading of over-the-
counter options on foreign currencies may be imposed at some
point in the future, or the effect that any such restrictions may
have on the hedging strategies to be implemented by them.

As discussed below, CFTC regulations require that a
Portfolio not enter into transactions in commodity futures
contracts or commodity option contracts for which the aggregate
initial margin and premiums exceed 5% of the fair market value of
the Portfolio's assets. Premiums paid to purchase over-the-
counter options on foreign currencies, and margins paid in
connection with the writing of such options, are required to be
included in determining compliance with this requirement, which
could, depending upon the existing positions in Futures Contracts
and Options on Futures Contracts already entered into by a
Portfolio, limit the Portfolio's ability to purchase or write
options on foreign currencies. Conversely, the existence of open
positions in options on foreign currencies could limit the
ability of the Portfolio to enter into desired transactions in
other options or futures contracts.

While Forward Contracts are not presently subject to
regulation by the CFTC, the CFTC may in the future assert or be
granted authority to regulate such instruments. In such event,
the Portfolio's ability to utilize Forward Contracts in the
manner set forth above could be restricted.

Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the

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Commission, as are other securities traded on such exchanges. As
a result, many of the protections provided to traders on
organized exchanges will be available with respect to such
transactions. In particular, all foreign currency option
positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (OCC),
thereby reducing the risk of counterparty default. Further, a
liquid secondary market in options traded on a national
securities exchange may be more readily available than in the
over-the-counter market, potentially permitting a Portfolio to
liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market
movements.

The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, the
margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the
effects of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain
risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, if
it determines that foreign governmental restrictions or taxes
would prevent the orderly settlement of foreign currency option
exercises, or would result in undue burdens on the OCC or its
clearing member, the OCC may impose special procedures on
exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.

RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS.
Under applicable regulations of the CFTC, when a Portfolio enters
into transactions in Futures Contracts and Options on Futures
Contracts other than for bona fide hedging purposes, that
Portfolio maintains with its custodian a segregated liquid assets
account which, together with any initial margin deposits, are
equal to the aggregate market value of the Futures Contracts and
Options on Futures Contracts that it purchases. In addition, a
Portfolio may not purchase or sell such instruments if,
immediately thereafter, the sum of the amount of initial margin
deposits on the Portfolio's existing futures and options
positions and premiums paid for options purchased would exceed 5%
of the market value of the Portfolio's total assets.

Each Portfolio has adopted the additional restriction
that it will not enter into a Futures Contract if, immediately
thereafter, the value of securities and other obligations

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underlying all such Futures Contracts would exceed 50% of the
value of such Portfolio's total assets. Moreover, a Portfolio
will not purchase put and call options if as a result more than
10% of its total assets would be invested in such options.

When a Portfolio purchases a Futures Contract, an amount
of cash and cash equivalents will be deposited in a segregated
account with the Fund's Custodian so that the amount so
segregated will at all times equal the value of the Futures
Contract, thereby insuring that the use of such futures is
unleveraged.

ECONOMIC EFFECTS AND LIMITATIONS. Income earned by a
Portfolio from its hedging activities is treated as capital gain
and, if not offset by net realized capital losses incurred by a
Portfolio, is distributed to shareholders in taxable
distributions. Although gain from futures and options
transactions may hedge against a decline in the value of a
Portfolio's portfolio securities, that gain, to the extent not
offset by losses, is distributed in light of certain tax
considerations and constitutes a distribution of that portion of
the value preserved against decline.

No Portfolio will over-hedge, that is, a Portfolio will
not maintain open short positions in futures or options contracts
if, in the aggregate, the market value of its open positions
exceeds the current market value of its securities portfolio plus
or minus the unrealized gain or loss on such open positions,
adjusted for the historical volatility relationship between the
portfolio and futures and options contracts

Each Portfolio's ability to employ the options and
futures strategies described above depends on the availability of
liquid markets in such instruments. Markets in financial futures
and related options are still developing. It is impossible to
predict the amount of trading interest that may hereafter exist
in various types of options or futures. Therefore no assurance
can be given that a Portfolio will be able to use these
instruments effectively for the purposes set forth above. In
addition, a Portfolio's ability to engage in options and futures
transactions may be materially limited by tax considerations.

The Portfolio's ability to use options, futures and
forward contracts may be limited by tax considerations. In
particular, tax rules might affect the length of time for which
the Portfolios can hold such contracts and the character of the
income earned on such contracts. In addition, differences
between each Portfolio's book income (upon the basis of which
distributions are generally made) and taxable income arising from
its hedging activities may result in return of capital
distributions, and in some circumstances, distributions in excess

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of the Portfolio's book income may be required in order to meet
tax requirements.

FUTURE DEVELOPMENTS. The above discussion relates to
each Portfolio's proposed use of futures contracts, options and
options on futures contracts currently available. As noted
above, the relevant markets and related regulations are still in
the developing stage. In the event of future regulatory or
market developments, each Portfolio may also use additional types
of futures contracts or options and other investment techniques
for the purposes set forth above.

PORTFOLIO TURNOVER. The Adviser manages each
Portfolio's portfolio by buying and selling securities to help
attain its investment objective. A high portfolio turnover rate
will involve greater costs to a Portfolio (including brokerage
commissions and transaction costs) and may also result in the
realization of taxable capital gains, including short-term
capital gains taxable at ordinary income rates. See "Dividends,
Distributions and Taxes and Portfolio Transactions" below.

INVESTMENT RESTRICTIONS. Except as described below and
except as otherwise specifically stated in the Prospectus or this
Statement of Additional Information, the investment policies of
each Portfolio set forth in the Prospectus and in this Statement
of Additional Information are not fundamental and may be changed
without shareholder approval.

The following restrictions, which are applicable to the
Conservative Investors Portfolio, the Growth Investors Portfolio
and the Growth Portfolio, supplement those set for the above and
may not be changed without Shareholder Approval, as defined under
the caption "General Information," below.

None of the Portfolios will:

1. 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;

2. Invest 25% or more of its total assets in the
securities of any one industry. (Obligations of a foreign
government and its agencies or instrumentalities constitute a
separate "industry" from those of another foreign government);

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meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or pending settlement of securities transactions or
for extraordinary or emergency purposes;

4. Underwrite securities issued by other persons
except to the extent that, in connection with the disposition of
its portfolio investments, it may be deemed to be an underwriter
under certain federal securities laws;

5. Purchase or retain real estate or interests in real
estate, although each Portfolio may purchase securities which are
secured by real estate and securities of companies which invest
in or deal in real estate;

6. Make loans to other persons except by the purchase
of obligations in which such Portfolio may invest consistent with
its investment policies and by entering into repurchase
agreements, or by lending its portfolio securities representing
not more than 25% of its total assets; or

7. Issue any senior security (as that term is defined
in the 1940 Act), if such issuance is specifically prohibited by
the 1940 Act or the rules and regulations promulgated thereunder.
For the purposes of this restriction, collateral arrangements
with respect to options, Futures Contracts and Options on Futures
Contracts and collateral arrangements with respect to initial and
variation margins are not deemed to be the issuance of a senior
security. (There is no intention to issue senior securities
except as set forth in paragraph 3 above.)

It is also a fundamental policy of each Portfolio that
it may purchase and sell futures contracts and related options.

In addition, the following is a description of operating
policies which the Fund has adopted on behalf of the Portfolios
but which are not fundamental and are subject to change without
shareholder approval.

None of the Portfolios will:

(a) Pledge, mortgage, hypothecate or otherwise encumber
an amount of its assets taken at current value in excess of 15%
of its total assets (taken at the lower of cost or current value)
and then only to secure borrowings permitted by restriction (1)
above. For the purpose of this restriction, the deposit of
securities and other collateral arrangements with respect to
reverse repurchase agreements, options, Futures Contracts,
Forward Contracts and options on foreign currencies, and payments
of initial and variation margin in connection therewith are not
considered pledges or other encumbrances.

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(b) Purchase securities on margin, except that each
Portfolio may obtain such short-term credits as may be necessary
for the clearance of purchases and sales of securities, and
except that each Portfolio may make margin payments in connection
with Futures Contracts, Options on Futures Contracts, options,
Forward Contracts or options on foreign currencies.

(c) Make short sales of securities or maintain a short
position for the account of such Portfolio unless at all times
when a short position is open it owns an equal amount of such
securities or unless by virtue of its ownership of other
securities it has at all such times a right to obtain securities
(without payment of further consideration) equivalent in kind and
amount to the securities sold, provided that if such right is
conditional the sale is made upon equivalent conditions and
further provided that no Portfolio will make such short sales
with respect to securities having a value in excess of 5% of its
total assets.

(d) Write, purchase or sell any put or call option or
any combination thereof, provided that this shall not prevent a
Portfolio from writing, purchasing and selling puts, calls or
combinations thereof with respect to securities, indexes of
securities or foreign currencies, and with respect to Futures
Contracts.

(e) Purchase voting securities of any issuer if such
purchase, at the time thereof, would cause more than 10% of the
outstanding voting securities of such issuer to be held by such
Portfolio; or purchase securities of any issuer if such purchase
at the time thereof would cause more than 10% of any class of
securities of such issuer to be held by such Portfolio. For this
purpose all indebtedness of an issuer shall be deemed a single
class and all preferred stock of an issuer shall be deemed a
single class.

(f) Invest in securities of any issuer if, to the
knowledge of the Fund, officers and Directors of such Fund and
officers and directors of the Adviser who beneficially own more
than 0.5% of the shares of securities of that issuer together own
more than 5%.

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brokers commission, or (B) where no commission or profit to a
sponsor or dealer results from such purchase, or (C) when such
purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that the Portfolio
will not purchase such securities if such purchase at the time
thereof would cause more than 5% of its total assets (taken at
market value) to be invested in the securities of such issuers;
and, provided further, that the Portfolio's purchases of
securities issued by an open-end investment company will be
consistent with the provisions of the 1940 Act.

(h) Make investments for the purpose of exercising
control or management.

(i) Participate on a joint or joint and several basis
in any trading account in securities.

(j) Invest in interests in oil, gas, or other mineral
exploration or development programs, although each Portfolio may
purchase securities which are secured by such interests and may
purchase securities of issuers which invest in or deal in oil,
gas or other mineral exploration or development programs.

(k) Purchase warrants, if, as a result, a Portfolio
would have more than 5% of its total assets invested in warrants
or more than 28 of its total assets invested in warrants which
are not listed on the New York Stock Exchange or the American
Stock Exchange.

(l) Purchase commodities or commodity contracts,
provided that this shall not prevent a Portfolio from entering
into interest rate futures contracts, securities index futures
contracts, foreign currency futures contracts, forward foreign
currency exchange contracts and options (including options on any
of the foregoing) to the extent such action is consistent with
such Portfolio's investment objective and policies.

(m) Purchase additional securities in excess of 5% of
the value of its total assets until all of a Portfolio's
outstanding borrowings (as permitted and described in Restriction
No. 1 above) have been repaid.

Whenever any investment restriction-states a maximum
percentage of a Portfolio's assets which may be invested in any
security or other asset, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of such Portfolio's acquisition of such securities or
other assets. Accordingly, any later increase or decrease beyond
the specified limitation resulting from a change in value or net
asset value will not be considered a violation of such percentage
limitation.

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WORLDWIDE PRIVATIZATION PORTFOLIO

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

The Portfolio is designed for individual investors
desiring to take advantage of investment opportunities,
historically inaccessible to U.S. investors, that are created by
privatizations of state enterprises in both established and
developing economies, including those in Western Europe and
Scandinavia, Australia, New Zealand, Latin America, Asia and
Eastern and Central Europe and, to a lesser degree, Canada and
the United States. In the opinion of the Adviser, substantial
potential for appreciation in the value of equity securities of
an enterprise undergoing or following privatization exists as the
enterprise rationalizes its management structure, operations and
business strategy to position itself to compete efficiently in a
market economy, and the Portfolio will seek to emphasize
investments in the equity securities of such enterprises.

A major premise of the Portfolio's investment approach
is that, because of the particular characteristics of privatized
companies, their equity securities offer investors opportunities
for significant capital appreciation. In particular, because
privatization programs are an important part of a country's
economic restructuring, equity securities that are brought to the
market by means of initial equity offerings frequently are priced
to attract investment in order to secure the issuers successful
transition to private sector ownership. In addition, these
enterprises generally tend to enjoy dominant market positions in
their local markets. Because of the relaxation of government
controls upon privatization, these enterprises typically have the
potential for significant managerial and operational efficiency
gains, which, among other factors, can increase their earnings
due to the restructuring that accompanies privatization and the
incentives management frequently receives.

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The following investment policies and restrictions
supplement, and should be read in conjunction with the
information set forth in the Prospectus of the Portfolio under
the heading Description of the Portfolio. Except as otherwise
noted, the Portfolio's investment policies described below are
not designated fundamental policies within the meaning of the
1940 Act and, therefore, may be changed by the Directors of the
Portfolio without a shareholder vote. However, the Portfolio
will not change its investment policies without contemporaneous
written notice to shareholders.

INVESTMENT POLICIES

DEBT SECURITIES AND CONVERTIBLE DEBT SECURITIES. The
Portfolio may invest up to 35% of its total assets in debt
securities and convertible debt securities of issuers whose
common stocks are eligible for purchase by the Portfolio under
the investment policies described above. Debt securities include
bonds, debentures, corporate notes and preferred stocks.
Convertible debt securities are such instruments that are
convertible at a stated exchange rate into common stock. Prior
to their conversion, convertible securities have the same general
characteristics as non-convertible debt securities which provide
a stable stream of income with generally higher yields than those
of equity securities of the same or similar issuers. The market
value of debt securities and convertible debt securities tends to
decline as interest rates increase and, conversely, to increase
as interest rates decline. While convertible securities
generally offer lower interest yields than non-convertible debt
securities of similar quality, they do enable the investor to
benefit from increases in the market price of the underlying
common stock.

When the market price of the common stock underlying a
convertible security increases, the price of the convertible
security increasingly reflects the value of the underlying common
stock and may rise accordingly. As the market price of the
underlying common stock declines, the convertible security tends
to trade increasingly on a yield basis, and thus may not
depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuers
capital structure. They are consequently of higher quality and
entail less risk than the issuers common stock, although the
extent to which such risk is reduced depends in large measure
upon the degree to which the convertible security sells above its
value as a fixed-income security.

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purchase a debt security that, at the time of purchase, is rated
below B by Moody's, Duff & Phelps, Fitch and S&P, or determined
by the Adviser to be of equivalent quality, but may retain a debt
security the rating of which drops below B. See "Special Risk
Considerations" below.

OPTIONS. The Portfolio may write covered put and call
options and purchase put and call options on securities of the
types in which it is permitted to invest that are traded on U.S.
and foreign securities exchanges and over-the-counter, including
options on market indices. The Portfolio will only write covered
put and call options, unless such options are written for cross-
hedging purposes. There are no specific limitations on the
Portfolio's writing and purchasing of options.

The Portfolio may purchase or write options on
securities of the types in which it is permitted to invest in
privately negotiated (i.e., over-the-counter) transactions. The
Portfolio will effect such transactions only with investment
dealers and other financial institutions (such as commercial
banks or savings and loan institutions) deemed creditworthy by
the Adviser, and the Adviser has adopted procedures for
monitoring the creditworthiness of such entities. Options
purchased or written by the Portfolio in negotiated transactions
are illiquid and it may not be possible for the Portfolio to
effect a closing transaction at a time when the Adviser believes
it would be advantageous to do so. See "Description of the
Portfolio -- Additional Investment Policies and Practices --
Illiquid Securities" in the Portfolio's Prospectus.

FUTURES AND RELATED OPTIONS. For a discussion regarding
futures contracts and options on futures contracts, see "North
American Government Income Portfolio -- Futures Contracts and
Options on Futures Contracts," above.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix B.

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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. For a
discussion regarding forward foreign currency exchange contracts,
see "North American Government Income Portfolio -- Forward
Foreign Currency Exchange Contracts," above.

FORWARD COMMITMENTS. No forward commitments will be
made by the Portfolio if, as a result, the Portfolio's aggregate
commitments under such transactions would be more than 30% of the
then current value of the Portfolio's total assets. For a
discussion regarding forward commitments, see "Other Investment
Policies -- Forward Commitments," below.

SECURITIES NOT READILY MARKETABLE. The Portfolio may
invest up to 15% of its net assets in illiquid securities which
include, among others, securities for which there is no readily
available market. The Portfolio may therefore not be able to
readily sell such securities. Such securities are unlike
securities which are traded in the open market and which can be
expected to be sold immediately if the market is adequate. The
sale price of securities not readily marketable may be lower or
higher than the Advisers most recent estimate of their fair
value. Generally, less public information is available with
respect to the issuers of such securities than with respect to
companies whose securities are traded on an exchange. Securities
not readily marketable are more likely to be issued by small
businesses and therefore subject to greater economic, business
and market risks than the listed securities of more well-
established companies. Adverse conditions in the public
securities markets may at certain times preclude a public
offering of an issuers securities. To the extent that the
Portfolio makes any privately negotiated investments in state
enterprises, such investments are likely to be in securities that
are not readily marketable. It is the intention of the Portfolio
to make such investments when the Adviser believes there is a
reasonable expectation that the Portfolio would be able to
dispose of its investment within three years. There is no law in
a number of the countries in which the Portfolio may invest
similar to the U.S. Securities Act of 1933 (the 1933 Act)
requiring an issuer to register the public sale of securities
with a governmental agency or imposing legal restrictions on
resales of securities, either as to length of time the securities
may be held or manner of resale. However, there may be
contractual restrictions on resale of securities. In addition,
many countries do not have informational disclosure requirements
similar in scope to those required under the U.S. Securities
Exchange Act of 1934 (the "1934 Act").

REPURCHASE AGREEMENTS. The Portfolio may invest in
repurchase agreements pertaining to U.S. Government Securities.
For additional information regarding repurchase agreements, see
"Other Investment Policies -- Repurchase Agreements", below.

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PORTFOLIO TURNOVER. Generally, the Portfolio's policy
with respect to portfolio turnover is to hold its securities for
six months or longer. However, it is also the Portfolio's policy
to sell any security whenever, in the judgment of the Adviser,
its appreciation possibilities have been substantially realized
or the business or market prospects for such security have
deteriorated, irrespective of the length of time that such
security has been held. The Adviser anticipates that the
Portfolio's annual rate of portfolio turnover will not exceed
200%. A 200% annual turnover rate would occur if all the
securities in the Portfolio's portfolio were replaced twice
within a period of one year. The turnover rate has a direct
effect on the transaction costs to be borne by the Portfolio, and
as portfolio turnover increases it is more likely that the
Portfolio will realize short-term capital gains.

SPECIAL RISK CONSIDERATIONS

Investment in the Portfolio involves the special risk
considerations described below.

RISKS OF FOREIGN INVESTMENT

Participation in Privatizations. The governments of
certain foreign countries have, to varying degrees, embarked on
privatization programs contemplating the sale of all or part of
their interests in state enterprises. In certain jurisdictions,
the ability of foreign entities, such as the Portfolio, to
participate in privatizations may be limited by local law, or the
price or terms on which the Portfolio may be able to participate
may be less advantageous than for local investors. Moreover,
there can be no assurance that governments that have embarked on
privatization programs will continue to divest their ownership of
state enterprises, that proposed privatizations will be
successful or that governments will not re-nationalize
enterprises that have been privatized.

RISK OF SALE OR CONTROL BY MAJOR STOCKHOLDERS. In the
case of the enterprises in which the Portfolio may invest, large
blocks of the stock of those enterprises may be held by a small
group of stockholders, even after the initial equity offerings by
those enterprises. The sale of some portion or all of those
blocks could have an adverse effect on the price of the stock of
any such enterprise.

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does not function as well as the enterprises prior management and
may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a
number of years, with the government continuing to hold a
controlling position in the enterprise even after the initial
equity offering for the enterprise.

LOSS OF GOVERNMENT SUPPORT. Prior to privatization,
most of the state enterprises in which the Portfolio may invest
enjoy the protection of and receive preferential treatment from
the respective sovereigns that own or control them. After making
an initial equity offering these enterprises may no longer have
such protection or receive such preferential treatment and may
become subject to market competition from which they were
previously protected. Some of these enterprises may not be able
to effectively operate in a competitive market and may suffer
losses or experience bankruptcy due to such competition.

CURRENCY CONSIDERATIONS. Because substantially all of
the Portfolio's assets will be invested in securities denominated
in foreign currencies and a corresponding portion of the
Portfolio's revenues will be received in such currencies, the
dollar equivalent of the Portfolio's net assets and distributions
will be adversely affected by reductions in the value of certain
foreign currencies relative to the U.S. Dollar. Such changes
will also affect the Portfolio's income. The Portfolio however,
has the ability to protect itself against adverse changes in the
values of foreign currencies by engaging in certain of the
investment practices listed above. If the value of the foreign
currencies in which the Portfolio receives its income falls
relative to the U.S. Dollar between receipt of the income and the
making of Portfolio distributions, the Portfolio may be required
to liquidate securities in order to make distributions if the
Portfolio has insufficient cash in U.S. Dollars to meet
distribution requirements. Similarly, if an exchange rate
declines between the time the Portfolio incurs expenses in U.S.
Dollars and the time cash expenses are paid, the amount of the
currency required to be converted into U.S. Dollars in order to
pay expenses in U.S. Dollars could be greater than the equivalent
amount of such expenses in the currency at the time they were
incurred.

MARKET CHARACTERISTICS. The securities markets of many
foreign countries are relatively small, with the majority of
market capitalization and trading volume concentrated in a
limited number of companies representing a small number of
industries. Consequently, the Portfolio's investment portfolio
may experience greater price volatility and significantly lower
liquidity than a portfolio invested in equity securities of U.S.
companies. These markets may be subject to greater influence by
adverse events generally affecting the market, and by large

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investors trading significant blocks of securities, than is usual
in the United States. Securities settlements may in some
instances be subject to delays and related administrative
uncertainties.

INVESTMENT AND REPATRIATION RESTRICTIONS. Foreign
investment in the securities markets of certain foreign countries
is restricted or controlled to varying degrees. These
restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and
expenses of the Portfolio. As illustrations, certain countries
require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in
a particular company, or limit the investment by foreign persons
to only a specific class of securities of a company which may
have less advantageous terms than securities of the company
available for purchase by nationals or impose additional taxes on
foreign investors. The national policies of certain countries
may restrict investment opportunities in issuers deemed sensitive
to national interests. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities
from certain of the countries is controlled under regulations,
including in some cases the need for certain advance government
notification or authority. In addition, if a deterioration
occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
The Portfolio could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investment. The liquidity of the Portfolio's
investments in any country in which any of these factors exist
could be affected and the Adviser will monitor the affect of any
such factor or factors on the Portfolio's investments. Investing
in local markets may require the Portfolio to adopt special
procedures, seek local governmental approvals or other actions,
any of which may involve additional costs to the Portfolio.

CORPORATE DISCLOSURE STANDARDS. Issues of securities in
foreign jurisdictions are generally not subject to the same
degree of regulation as are U.S. issuers with respect to such
matters as insider trading rules, restrictions on market
manipulation, shareholder proxy requirements and timely
disclosure of information. The reporting, accounting and
auditing standards of foreign countries may differ from U.S.
standards in important respects and less information may be
available to investors in foreign securities than to investors in
U.S. securities.

Foreign issuers are subject to accounting, auditing and
financial standards and requirements that differ, in some cases
significantly, from those applicable to U.S. issuers. In

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particular, the assets and profits appearing on the financial
statements of a foreign issuer may not reflect its financial
position or results of operations in the way they would be
reflected had the financial statements been prepared in
accordance with U.S. generally accepted accounting principles.
In addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules in some of the countries in
which the Portfolio will invest require, for both tax and
accounting purposes, that certain assets and liabilities be
restated on the issuers balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits.
Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the
real condition of those issuers and securities markets.
Substantially less information is publicly available about
certain non-U.S. issuers than is available about U.S. issuers.

TRANSACTION COSTS. Transaction costs including
brokerage commissions for transactions both on and off the
securities exchanges in many foreign countries are generally
higher than in the United States.

U.S. AND FOREIGN TAXES. Foreign taxes paid by the
Portfolio may be creditable or deductible by U.S. shareholders
for U.S. income tax purposes. No assurance can be given that
applicable tax laws and interpretations will not change in the
future. Moreover, non-U.S. investors may not be able to credit
or deduct such foreign taxes. Investors should review carefully
the information discussed under the heading "Dividends,
Distributions and Taxes" and should discuss with their tax
advisers the specific tax consequences of investing in the
Portfolio.

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of countries and, under normal market conditions, will invest in
the equity securities of issuers based in at least four, and
normally considerably more, countries. There is no restriction,
however, on the percentage of the Portfolio's assets that may be
invested in countries within any one region of the world. To the
extent that the Portfolio's assets are invested within any one
region, the Portfolio may be subject to any special risks that
may be associated with that region.

NON-DIVERSIFIED STATUS. The Portfolio is a non-
diversified investment company, which means the Portfolio is not
limited in the proportion of its assets that may be invested in
the securities of a single issuer. However, the Portfolio
intends to conduct its operations so as to qualify to be taxed as
a regulated investment company for purposes of the Internal
Revenue Code of 1986, as amended, which will relieve the
Portfolio of any liability for federal income tax to the extent
its earnings are distributed to shareholders. See "Dividends,
Distribution and Taxes--United States Federal Income Taxes-
- -General." To so qualify, among other requirements, the
Portfolio limits its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market
value of the Portfolio's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the
securities of a single issuer and the Portfolio will not own more
than 10% of the outstanding voting securities of a single issuer.
Investments in U.S. Government Securities are not subject to
these limitations. Because the Portfolio, as a non-diversified
investment company, may invest in a smaller number of individual
issuers than a diversified investment company, an investment in
the Portfolio may, under certain circumstances, present greater
risk to an investor than an investment in a diversified
investment company.

Securities issued or guaranteed by foreign governments
are not treated like U.S. Government Securities for purposes of
the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the
securities of non-governmental issuers.

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economic conditions or rising interest rates. They are also
generally considered to be subject to greater market risk than
higher-rated securities in times of deteriorating economic
conditions. In addition, lower-rated securities may be more
susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities, although
the market values of securities rated below investment grade and
comparable unrated securities tend to react less to fluctuations
in interest rate levels than do those of higher-rated securities.
Debt securities rated Ba by Moody's or BB by S&P, Duff & Phelps
and Fitch are judged to have speculative characteristics or to be
predominantly speculative with respect to the issuers ability to
pay interest and repay principal. Debt securities rated B by
Moody's, S&P, Duff & Phelps and Fitch are judged to have highly
speculative characteristics or to be predominantly speculative.
Such securities may have small assurance of interest and
principal payments. Debt securities having the lowest ratings
for non-subordinated debt instruments assigned by Moody's, S&P,
Duff & Phelps or Fitch (i.e., rated C by Moody's or CCC and
lower by S&P, Duff & Phelps or Fitch) are considered to have
extremely poor prospects of ever attaining any real investment
standing, to have a current identifiable vulnerability to
default, to be unlikely to have the capacity to pay interest and
repay principal when due in the event of adverse business,
financial or economic conditions, and/or to be in default or not
current in the payment of interest or principal.

Ratings of fixed-income securities by Moody's, S&P, Duff
& Phelps or Fitch are a generally accepted barometer of credit
risk. They are, however, subject to certain limitations from an
investors standpoint. the rating of a security is heavily
weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between
the time a rating is assigned and the time it is updated. In
addition, there may be varying degrees of difference in the
credit risk of securities within each rating category. See
Appendix A in the Prospectus for a description of Moody's, S&P,
Duff & Phelps and Fitch bond and commercial paper ratings.

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did not invest in lower-rated securities. In considering
investments for the Portfolio, the Adviser attempts to identify
those high-risk, high-yield securities whose financial condition
is adequate to meet future obligations, has improved or is
expected to improve in the future. The Advisers analysis focuses
on relative values based on such factors as interest or dividend
coverage, asset coverage earnings prospects, and the experience
and managerial strength of the issuer.

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

INVESTMENT RESTRICTIONS

The following restrictions, which are applicable to the
Worldwide Privatization Portfolio, supplement those set forth
above and may not be changed without Shareholder Approval, as
defined under the caption "General Information," below.

The Portfolio may not:

1. Invest 25% or more of its total assets in securities
of issuers conducting their principal business activities in the
same industry, except that this restriction does not apply to (a)
U.S. Government Securities; or (b) the purchase of securities of
issuers whose 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 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, 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 discussion of any increased
investment risks to which the Portfolio may be subjected as a
result of the Board's determination;

2. Borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests
which might require the untimely disposition of securities;
borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the
value of the Portfolio's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at

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the time the borrowing is made; outstanding borrowings in excess
of 5% of the value of the Portfolio's total assets will be repaid
before any investments are made; or

3. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings.

5. Participate on a joint or joint and several basis
in any securities trading account;

6. Invest in companies for the purpose of exercising
control;

7. Issue any senior security within the meaning of the
Act except that the Portfolio may write put and call options;

8. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it on
an equal amount of such securities or securities convertible into
or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short (short sales against the
box), and unless not more than 10% of the Portfolio's net assets
(taken at market value) is held as collateral for such sales at
any one time (it is the Portfolio's present intention to make
such sales only for the purpose of deferring realization of gain
or loss for Federal income tax purposes); or

9.(a) Purchase or sell real estate, except that it may purchase
and sell securities of companies which deal in real estate or
interests therein; (b) purchase or sell commodities or commodity
contracts including futures contracts (except foreign currencies,
foreign currency options and futures, options and futures on
securities and securities indices and forward contracts or
contracts for the future acquisition or delivery of securities
and foreign currencies and related options on futures contracts
and similar contracts); (c) invest in interests in oil, gas, or
other mineral exploration or development programs; (d) purchase
securities on margin, except for such short-term credits as may
be necessary for the clearance of transactions; and (e) act as an
underwriter of securities, except that the Portfolio may acquire
restricted securities under circumstances in which, if such
securities were sold, the Portfolio might be deemed to be an
underwriter for purposes of the Securities Act.

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TECHNOLOGY PORTFOLIO

General

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

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

The Portfolio expects under normal circumstances to have
substantially all of its assets invested in equity securities
(common stocks or securities convertible into common stocks or
rights or warrants to subscribe for or purchase common stocks).
When business or financial conditions warrant, the Portfolio may
take a defensive position and invest without limit in investment
grade debt securities or preferred stocks or hold its assets in
cash. The Portfolio at times may also invest in debt securities
and preferred stocks offering an opportunity for price
appreciation (e.g., convertible debt securities).

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of its securities, (ii) increases in the price level of the
security or of securities generally which the Portfolio believes
are not fully warranted by the issuers earning power, and
(iii) changes in the relative opportunities offered by various
securities.

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

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

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

INVESTMENT POLICIES

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that security without additional cash consideration (or for
additional cash, U.S. Government Securities or other liquid high
grade debt obligation held in a segregated account by the Fund's
Custodian) upon conversion or exchange of other securities held
in its portfolio. A call option is also covered if the Portfolio
holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash
in a segregated account with the Fund's Custodian. The premium
paid by the purchaser of an option will reflect, among other
things, the relationship of the exercise price to the market
price and volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.

The writing of call options, therefore, involves a
potential loss of opportunity to sell securities at high prices.
In exchange for the premium received by it, the writer of a fully
collateralized call option assumes the full downside risk of the
securities subject to such option. In addition, the writer of the
call gives up the gain possibility of the stock protecting the
call. Generally, the opportunity for profit from the writing of
options occurs when the stocks involved are lower priced or
volatile, or both. While an option that has been written is in
force, the maximum profit that may be derived from the optioned
stock is the premium less brokerage commissions and fees.

It is the Portfolio's policy not to write a call option
if the premium to be received by the Portfolio in connection with
such options would not produce an annualized return of at least
15% of the then market value of the securities subject to the
option. Commissions, stock transfer taxes and other expenses of
the Portfolio must be deducted from such premium receipts.
Option premiums vary widely depending primarily on supply and
demand. Calls written by the Portfolio are ordinarily sold
either on a national securities exchange or through put and call
dealers, most, if not all, of which are members of a national
securities exchange on which options are traded, and in such case
are endorsed or guaranteed by a member of a national securities
exchange or qualified broker-dealer, which may be Donaldson,
Lufkin & Jenrette Securities Corporation, an affiliate of the
Adviser. The endorsing or guaranteeing firm requires that the
option writer (in this case the Portfolio) maintain a margin
account containing either corresponding stock or other equity as
required by the endorsing or guaranteeing firm.

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securities) would exceed 15% of the Portfolio's total assets.
The Portfolio will not sell any call option if such sale would
result in more than 10% of the Portfolio's assets being committed
to call options written by the Portfolio which, at the time of
sale by the Portfolio, have a remaining term of more than 100
days.

OPTIONS ON MARKET INDICES. Options on securities
indices are similar to options on a security except that, rather
than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in
the case of a call) or less than (in the case of a put) the
exercise price of the option.

RIGHTS AND WARRANTS. The Portfolio may invest up to 10%
of its total assets in rights and warrants which entitle the
holder to buy equity securities at a specific price for a
specific period of time. Rights and warrants may be considered
more speculative than certain other types of investments in that
they do not entitle a holder to dividends or voting rights with
respect to the securities which may be purchased nor do they
represent any rights in the assets of the issuing company. Also,
the value of a right or warrant does not necessarily change with
the value of the underlying securities and a right or warrant
ceases to have value if it is not exercised prior to the
expiration date.

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In addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules in some of the countries in
which the Portfolio invests require, for both tax and accounting
purposes, that certain assets and liabilities be restated on the
issuers balance sheet in order to express items in terms of
currency of constant purchasing power. Inflation accounting may
indirectly generate losses or profits. Consequently, financial
data may be materially affected by restatements for inflation and
may not accurately reflect the real condition of those issuers
and securities markets. Substantially less information is
publicly available about certain non-U.S. issuers than is
available about U.S. issuers.

Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities and increase the costs and expenses of
the Portfolio. Certain countries in which the Portfolio may
invest require governmental approval prior to investments by
foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign
persons only to a specific class of securities of an issuer that
may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors.

ILLIQUID SECURITIES. The Portfolio will not maintain
more than 15% of its total assets (taken at market value) in
illiquid securities. For this purpose, illiquid securities
include, among others, (a) securities that are illiquid by virtue
of the absence of a readily available market or legal or
contractual restriction or resale, (b) options purchased by the
Portfolio over-the-counter and the cover for options written by
the Portfolio over-the-counter and (c) repurchase agreements not
terminable within seven days.

Securities that have legal or contractual restrictions
on resale but have a readily available market are not deemed
illiquid for purposes of this limitation. The Adviser monitors
the liquidity of such restricted securities under the supervision
of the Board of Directors.

Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale

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because they have not been registered under the Securities Act of
1933, as amended (the Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might
also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.

In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuers ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.

Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a safe harbor from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Portfolio, however, could affect adversely
the marketability of such portfolio securities and the Portfolio
might be unable to dispose of such securities promptly or at
reasonable prices. Rule 144A has already produced enhanced
liquidity for many restricted securities, and market liquidity
for such securities may continue to expand as a result of this
regulation and the consequent inception of the PORTAL System
sponsored by the National Association of Securities Dealers,
Inc., an automated system for the trading, clearance and
settlement of unregistered securities of domestic and foreign
issuers.

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LENDING OF PORTFOLIO SECURITIES. In order to increase
income, the Portfolio may from time to time lend its securities
to brokers, dealers and financial institutions and receive
collateral in the form of cash or U.S. Government Securities.
Under the Portfolio's procedures, collateral for such loans must
be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities (including
interest accrued on the loaned securities). The interest
accruing on the loaned securities will be paid to the Portfolio
and the Portfolio has the right, on demand, to call back the
loaned securities. The Portfolio may pay fees to arrange the
loans. The Portfolio will not lend its securities in excess of
30% of the value of its total assets, nor will the Portfolio lend
its securities to any officer, director, employee or affiliate of
the Fund or the Adviser.

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

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

INVESTMENT RESTRICTIONS

The following restrictions, which are applicable to the
Technology Portfolio, supplement those set forth above and may
not be changed without Shareholder Approval, as defined under the
caption "General Information," below.

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

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

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

3. Concentrate its investments in any one industry,
but the Portfolio has reserved the right to invest up to 25% of
its total assets in a particular industry;

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

5. Make short sales of securities or maintain a short
position or write put options;

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

7. Purchase the securities of any other investment
company or investment trust, except when such purchase is part of
a merger, consolidation or acquisition of assets;

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

9. Purchase participations or other direct interests
in oil, gas, or other mineral exploration or development
programs;

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10. Participate on a joint or joint and several basis
in any securities trading account;

11. Invest in companies for the purpose of exercising
control;

12. Purchase securities on margin, but it may obtain
such short-term credits from banks as may be necessary for the
clearance of purchases and sales of securities;

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

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

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

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

QUASAR PORTFOLIO

General

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capital growth. Because of the market risks inherent in any
investment, the selection of securities on the basis of their
appreciation possibilities cannot ensure against possible loss in
value. Moreover, to the extent the Portfolio seeks to achieve its
objective through the more aggressive investment policies
described below, risk of loss increases. The Portfolio is
therefore not intended for investors whose principal objective is
assured income or preservation of capital.

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

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

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expense, and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted
to sell a security under an effective registration statement.
If, during such a period adverse market conditions were to
develop, the Portfolio might obtain a less favorable price than
that which prevailed when it decided to sell. Restricted
securities and other not readily marketable assets will be valued
in such manner as the Board of Directors of the Fund in good
faith deems appropriate to reflect their fair market value.

The Portfolio intends to invest in special situations
from time to time. A special situation arises when, in the
opinion of the Fund's management, the securities of a particular
company will, within a reasonably estimable period of time, be
accorded market recognition at an appreciated value solely by
reason of a development particularly or uniquely applicable to
that company and regardless of general business conditions or
movements of the market as a whole. Developments creating
special situations might include, among others, the following:
liquidations, reorganizations, recapitalizations or mergers,
material litigation, technological breakthroughs and new
management or management policies. Although large and well-known
companies may be involved, special situations often involve much
greater risk than is inherent in ordinary investment securities.
The Portfolio will not, however, purchase securities of any
company with a record of less than three years continuous
operation (including that of predecessors) if such purchase would
cause the Portfolio's investments in such companies, taken at
cost, to exceed 25% of the value of the Portfolio's total assets.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

The following additional investment policies supplement
those set forth above.

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an individual, including professional management and continuous
supervision of investments. The Portfolio is subject to the
overall limitation (in addition to the specific restrictions
referred to below) that the aggregate value of all restricted and
not readily marketable securities of the Portfolio, and of all
cash and securities covering outstanding call options written or
guaranteed by the Portfolio, shall at no time exceed 15% of the
value of the total assets of the Portfolio.

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

SHORT SALES. The Portfolio may only make short sales of
securities against the box. A short sale is effected by selling
a security which the Portfolio does not own, or if the Portfolio
does own such security, it is not to be delivered upon
consummation of the sale. A short sale is against the box to the
extent that the Portfolio contemporaneously owns or has the right
to obtain securities identical to those sold short without
payment. Short sales may be used in some cases by the Portfolio
to defer the realization of gain or loss for Federal income tax
purposes on securities then owned by the Portfolio. However, if
the Portfolio has unrealized gain with respect to a security and
enters into a short sale with respect to such security, the
Portfolio generally will be deemed to have sold the appreciated
security and thus will recognize gain for tax purposes.

PUTS AND CALLS. The Portfolio may write call options
and may purchase and sell put and call options written by others,
combinations thereof, or similar options. The Portfolio may not
write put options. A put option gives the buyer of such option,
upon payment of a premium, the right to deliver a specified
number of shares of a stock to the writer of the option on or
before a fixed date at a predetermined price. A call option
gives the purchaser of the option, upon payment of a premium, the
right to call upon the writer to deliver a specified number of
shares of a specified stock on or before a fixed date, at a
predetermined price, usually the market price at the time the
contract is negotiated. When calls written by the Portfolio are
exercised, the Portfolio will be obligated to sell stocks below
the current market price.

The writing of call options will, therefore, involve a
potential loss of opportunity to sell securities at higher
prices. In exchange for the premium received, the writer of a

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fully collateralized call option assumes the full downside risk
of the securities subject to such option. In addition, the
writer of the call gives up the gain possibility of the stock
protecting the call. Generally, the opportunity for profit from
the writing of options is higher, and consequently the risks are
greater when the stocks involved are lower priced or volatile, or
both. While an option that has been written is in force, the
maximum profit that may be derived from the optioned stock is the
premium less brokerage commissions and fees. (For a discussion
regarding certain tax consequences of the writing of call options
by the Fund, see "Dividends, Distributions and Taxes.")

Writing, purchasing and selling call options are highly
specialized activities and entail greater than ordinary
investment risks. It is the Portfolio's policy not to write a
call option if the premium to be received by the Portfolio in
connection with such option would not produce an annualized
return of at least 15% of the then market value of the securities
subject to option. Commissions, stock transfer taxes and other
expenses of the Fund must be deducted from such premium receipts.
Option premiums vary widely depending primarily on supply and
demand. Calls written by the Portfolio will ordinarily be sold
either on a national securities exchange or through put and call
dealers, most, if not all, of whom are members of a national
securities exchange on which options are traded, and will in such
cases be endorsed or guaranteed by a member of a national
securities exchange or qualified broker-dealer, which may be
Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), an
affiliate of the Adviser. The endorsing or guaranteeing firm
requires that the option writer (in this case the Portfolio)
maintain a margin account containing either corresponding stock
or other equity as required by the endorsing or guaranteeing
firm. A call written by the Portfolio will not be sold unless
the Portfolio at all times during the option period owns either
(a) the optioned securities, or securities convertible into or
carrying rights to acquire the optioned securities or (b) an
offsetting call option on the same securities.

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

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In buying a call, the Portfolio would be in a position
to realize a gain if, during the option period, the price of the
shares increased by an amount in excess of the premium paid and
commissions payable on exercise. It would realize a loss if the
price of the security declined or remained the same or did not
increase during the period by more than the amount of the premium
and commissions payable on exercise. By buying a put, the
Portfolio would be in a position to realize a gain if, during the
option period, the price of the shares declined by an amount in
excess of the premium paid and commissions payable on exercise.
It would realize a loss if the price of the security increased or
remained the same or did not decrease during that period by more
than the amount of the premium and commissions payable on
exercise. In addition, the Portfolio could realize a gain or
loss on such options by selling them.

As noted above, the Portfolio may purchase and sell put
and call options written by others, combinations thereof, or
similar options. There are markets for put and call options
written by others and the Portfolio may from time to time sell or
purchase such options in such markets. If an option is not so
sold and is permitted to expire without being exercised, its
premium would be lost by the Portfolio.

PORTFOLIO TURNOVER. Generally, the Portfolio's policy
with respect to portfolio turnover is to purchase securities with
a view to holding them for periods of time sufficient to assure
long-term capital gains treatment upon their sale and not for
trading purposes. However, it is also the Portfolio's policy to
sell any security whenever, in the judgment of the Adviser, its
appreciation possibilities have been substantially realized or
the business or market prospects for such security have
deteriorated, irrespective of the length of time that such
security has been held. This policy may result in the Portfolio
realizing short-term capital gains or losses on the sale of
certain securities. See "Dividends, Distributions and Taxes". It
is anticipated that the Portfolio's rate of portfolio turnover
will not exceed 200% during the current fiscal year. A 200%
annual turnover rate would occur, for example, if all the stocks
in the Portfolio's portfolio were replaced twice within a period
of one year. A portfolio turnover rate approximating 200%
involves correspondingly greater brokerage commission expenses
than would a lower rate, which expenses must be borne by the
Portfolio and its shareholders.

INVESTMENT RESTRICTIONS

The following restrictions, which are applicable to
Quasar Portfolio, supplement those set forth above and may not be
changed without Shareholder Approval, as defined under the
caption "General Information," below.

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

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

2. Invest more than 25% of the value of its total
assets in any particular industry;

3. Borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its total assets at the
time the borrowing is made;

4. Purchase or sell real estate;

5. Participate on a joint or joint and several basis
in any securities trading account;

6. Invest in companies for the purpose of exercising
control;

7. Purchase or sell commodities or commodity
contracts;

8. Except as permitted in connection with short sales
of securities against the box described under the heading Short
Sales above, make short sales of securities;

9. Make loans of its funds or assets to any other
person, which shall not be considered as including the purchase
of a portion of an issue of publicly distributed bonds,
debentures, or other securities, whether or not the purchase was
made upon the original issuance of the securities; except that
the Portfolio may not purchase non-publicly distributed
securities subject to the limitations applicable to restricted
securities;

10. Except as permitted in connection with short sales
of securities or writing of call options, described under the
headings Short Sales and Puts and Calls above, pledge, mortgage
or hypothecate any of its assets;

11. Except as permitted in connection with short sales
of securities against the box described under the heading

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Additional Investment Policies and Practices above, make short
sales of securities; or

12. Purchase securities on margin, but it may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities.

REAL ESTATE INVESTMENT PORTFOLIO

GENERAL

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

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

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

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Factors Associated with the Real Estate Industry" below for a
description of these and other risks.

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

The Portfolio may invest without limitation in shares of
REITs. REITs are pooled investment vehicles which invest
primarily in income producing real estate or real estate related
loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage
REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection
of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to
investment companies such as the Portfolio, REITs are not taxed
on income distributed to shareholders provided they comply with
several requirements of the Code. The Portfolio indirectly bears
its proportionate share of expenses incurred by REITs in which
the Portfolio invests in addition to the expenses incurred
directly by the Portfolio. The Portfolio may invest up to 5% of
its total assets in Real Estate Equity Securities of non-U.S.
issuers.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

To the extent not described in the Portfolio's
Prospectus, set forth below is additional information regarding
the Portfolio's investment policies and practices. Except as

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otherwise noted, the Portfolio's investment policies are not
designated fundamental policies within the meaning of the 1940
Act and, therefore, may be changed by the Directors of the Fund
without a shareholder vote. However, the Portfolio will not
change its investment policies without contemporaneous written
notice to shareholders.

CONVERTIBLE SECURITIES. The Portfolio may invest up to
15% of its net assets in convertible securities of issuers whose
common stocks are eligible for purchase by the Portfolio under
the investment policies described above. Convertible securities
include bonds, debentures, corporate notes and preferred stocks.
Convertible securities are instruments that are convertible at a
stated exchange rate into common stock. Prior to their
conversion, convertible securities have the same general
characteristics as non-convertible securities which provide a
stable stream of income with generally higher yields than those
of equity securities of the same or similar issuers. The market
value of convertible securities tends to decrease as interest
rates rise and, conversely, to increase as interest rates
decline. While convertible securities generally offer lower
interest yields than non-convertible debt securities of similar
quality, they offer investors the potential from increases in the
market price of the underlying common stock. Convertible debt
securities that are rated Baa or lower by Moody's or BBB or lower
by S&P, Duff & Phelps or Fitch and comparable unrated securities
as determined by the Adviser may share some or all of the risk of
non-convertible debt securities with those rating.

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the case may be. To facilitate such transactions, the Fund's
custodian maintains, in a segregated account of the Fund, cash
and/or securities having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis
and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If
the Fund, however, chooses to dispose of the right to receive or
deliver a security subject to a forward commitment prior to the
settlement date of the transaction, it may incur a gain or loss.
In the event the other party to a forward commitment transaction
were to default, the Fund might lose the opportunity to invest
money at favorable rates or to dispose of securities at favorable
prices.

STANDBY COMMITMENT AGREEMENTS. The purchase of a
security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued and the value of
the security will thereafter be reflected in the calculation of
the Portfolio's net asset value. The cost basis of the security
will be adjusted by the amount of the commitment fee. In the
event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby
commitment. The Portfolio will at all times maintain a
segregated account with its custodian of cash and/or securities
in an aggregate amount equal to the purchase price of the
securities underlying the commitment.

There can be no assurance that the securities subject to
a standby commitment will be issued and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Portfolio will bear the risk of capital loss in the event the
value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment
period if the issuer decides not to issue and sell the security
to the Portfolio.

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agreed-upon interest rate which is effective for the period of
time the buyers money is invested in the security and which is
related to the current market rate rather than the coupon rate on
the purchased security. This results in a fixed rate of return
insulated from market fluctuations during such period. Such
agreements permit the Portfolio to keep all of its assets at work
while retaining overnight flexibility in pursuit of investments
of a longer-term nature. The Portfolio requires continual
maintenance by its Custodian for its account in the Federal
Reserve/Treasury Book Entry System of collateral in an amount
equal to, or in excess of, the resale price. In the event a
vendor defaulted on its repurchase obligation, the Portfolio
might suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. In the
event of a vendors bankruptcy, the Portfolio might be delayed in,
or prevented from, selling the collateral for its benefit. The
Fund's Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Adviser
monitors the creditworthiness of the dealers with which the
Portfolio enters into repurchase agreement transactions.

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

ILLIQUID SECURITIES. Historically, illiquid securities
have included securities subject to contractual or legal
restrictions on resale because they have not been registered
under the Securities Act, securities which are otherwise not
readily marketable and repurchase agreements having a maturity of
longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale
and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.

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In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act, including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuers ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.

The Portfolio may invest in restricted securities issued
under Section 4(2) of the Securities Act, which exempts from
registration transactions by an issuer not involving any public
offering. Section 4(2) instruments are restricted in the sense
that they can only be resold through the issuing dealer to
institutional investors and in private transactions; they cannot
be resold to the general public without registration.

Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a safe harbor from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Portfolio, however, could affect adversely
the marketability of such portfolio securities and the Portfolio
might be unable to dispose of such securities promptly or at
reasonable prices. Rule 144A has already produced enhanced
liquidity for many restricted securities, and market liquidity
for such securities may continue to expand as a result of this
regulation and the consequent inception of the PORTAL System, an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers sponsored
by the National Association of Securities Dealers, Inc. The
Portfolio's investment in Rule 144A eligible securities are not
subject to the limitations described above on securities issued
under Section 4(2).

The Adviser, under the supervision of the Fund's Board
of Directors, monitors the liquidity of restricted securities in
the Portfolio's portfolio. In reaching liquidity decisions, the
Adviser considers, among other factors, the following: (1) the
frequency of trades and quotes for the security; (2) the number
of dealers making quotations to purchase or sell the security;
(3) the number of other potential purchasers of the security;
(4) the number of dealers undertaking to make a market in the
security; (5) the nature of the security (including its
unregistered nature) and the nature of the marketplace for the

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security (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer);
and (6) any applicable Commission interpretation or position with
respect to such type of security.

DEFENSIVE POSITION. For temporary defensive purposes,
the Portfolio may vary from its investment objectives during
periods in which conditions in securities markets or other
economic or political conditions warrant. During such periods,
the Portfolio may increase without limit its position in short-
term, liquid, high-grade debt securities, which may include
securities issued by the U.S. government, its agencies and,
instrumentalities (U.S. Government Securities), bank deposit,
money market instruments, short-term (for this purpose,
securities with a remaining maturity of one year or less) debt
securities, including notes and bonds, and short-term foreign
currency denominated debt securities rated A or higher by
Moody's, S&P, Duff & Phelps or Fitch or, if not so rated, of
equivalent investment quality as determined by the Adviser.

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

PORTFOLIO TURNOVER. Generally, the Portfolio's policy
with respect to portfolio turnover is to hold its securities for
six months or longer. However, it is also the Portfolio's policy
to sell any security whenever, in the judgment of the Adviser,
its appreciation possibilities have been substantially realized
or the business or market prospects for such security have
deteriorated, irrespective of the length of time that such
security has been held. The Adviser anticipates that the
Portfolio's annual rate of portfolio turnover will not exceed
100%. A 100% annual turnover rate would occur if all the
securities in the Portfolio's portfolio were replaced once within
a period of one year. The turnover rate has a direct effect on
the transaction costs to be borne by the Portfolio, and as
portfolio turnover increases it is more likely that the Portfolio
will realize short-term capital gains.
RISK FACTORS ASSOCIATED WITH THE REAL ESTATE INDUSTRY

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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 1940 Act.

REITs (especially mortgage REITs) also are 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
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 investments 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.
Historically, small capitalization stocks, such as REITs, have
been more volatile in price than the larger capitalization stocks
included in the S&P 500.

MORTGAGED-BACKED SECURITIES. 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 adjustable rate mortgage loans are reset periodically,
yields on investments in such loans will gradually align
themselves to reflect changes in market interest rates, causing
the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in
fixed rate obligations.

Further, the yield characteristics of Mortgage-Backed
Securities, such as those in 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
interest rates, and the possibility that prepayments of principal

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may be made substantially earlier than their final distribution
dates.

Prepayment rates are influenced by changes in current
interest rates and a variety of economic, geographic, social and
other factors, and cannot be predicted 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 prepayments in an increasing interest rate environment.
Early payment associated with Mortgage-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 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, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular,
may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.

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
"residual" interest shares of beneficial interest in REMIC
trusts, although the Portfolio does not intend to invest in
residual interests.

The Portfolio may invest in guaranteed mortgage pass-
through securities which represent participation interests in
pools of residential mortgage loans and are issued by U.S.
governmental or private lenders and guaranteed by the U.S.
Government or one of its agencies or instrumentalities, including
Ginnie Mae.

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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 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 a greater extent.

In addition, if the Portfolio receives rental income or
income from the disposition 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.
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.

INVESTMENT RESTRICTIONS

The following restrictions, which are applicable to the
Real Estate Investment Portfolio, supplement the set forth above
and may not be changed without Shareholder Approval, as defined
under the caption "General Information," below.

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

1. 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;

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

3. Invest 25% or more of its total assets in the
securities of issuers conducting their principal business
activities in any one industry, other than the real estate
industry, in which the Portfolio will invest at least 25% or more
of its total assets, except that this restriction does not apply
to U.S. Government securities;

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4. Purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real
estate or interests therein, including Real Estate Equity
Securities;

5. Borrow money except for temporary or emergency
purposes or to meet redemption requests, in an amount not
exceeding 5% of the value of its total assets at the time the
borrowing is made;

6. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;

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

8. Participate on a joint or joint and several basis
in any securities trading account;

9. Invest in companies for the purpose of exercising
control;

10. Issue any senior security within the meaning of the
1940 Act;

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

12. (a) Purchase or sell commodities or commodity
contracts including futures contracts; (b) invest in interests in
oil, gas, or other mineral exploration or development programs;
(c) purchase securities on margin, except for such short-term
credits as may be necessary for the clearance of transactions;
and (d) act as an underwriter of securities, except that the
Portfolio may acquire restricted securities under circumstances
in which, if such securities were sold, the Portfolio might be
deemed to be an underwriter for purposes of the Securities
Act.

OTHER INVESTMENT POLICIES

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few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon market rate which is effective
for the period of time the buyers money is invested in the
security and which is not related to the coupon rate on the
purchased security. Such agreements permit a Portfolio to keep
all of its assets at work while retaining overnight flexibility
in pursuit of investments of a longer-term nature. Each
Portfolio requires continual maintenance of collateral held by
the Fund's Custodian in an amount equal to, or in excess of, the
market value of the securities which are the subject of the
agreement. In the event that a vendor defaulted on its
repurchase obligation, the Portfolio might suffer a loss to the
extent that the proceeds from the sale of the collateral were
less than the repurchase price. If the vendor became bankrupt,
the Portfolio might be delayed in, or prevented from, selling the
collateral. Repurchase agreements may be entered into with
member banks of the Federal Reserve System or primary dealers (as
designated by the Federal Reserve Bank of New York) in U.S.
Government securities. Repurchase agreements often are for short
periods such as one day or a week, but may be longer.

ILLIQUID SECURITIES. The following investment policy,
which is not fundamental and may be changed by the vote of the
Board of Directors, is applicable to each of the Fund's
Portfolios.

A Portfolio will not invest in illiquid securities if
immediately after such investment more than 10% or, in the case
of the North American Government Income Portfolio, Global Dollar
Government Portfolio, Utility Income Portfolio, Technology
Portfolio, Quasar Portfolio and the Real Estate Investment
Portfolio, 15%, of the Portfolio's total assets (taken at market
value) would be invested in such securities. For this purpose,
illiquid securities include, among others, (a) securities that
are illiquid by virtue of the absence of a readily available
market or legal or contractual restriction or resale, (b) options
purchased by the Portfolio over-the-counter and the cover for
options written by the Portfolio over-the-counter and
(c) repurchase agreements not terminable within seven days.

Securities that have legal or contractual restrictions
on resale but have a readily available market are not deemed
illiquid for purposes of this limitation. The Adviser will
monitor the liquidity of such restricted securities under the
supervision of the Board of Directors.

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days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.

During the coming year, each Portfolio may invest up to
5% of its total assets in restricted securities issued under
Section 4(2) of the Securities Act, which exempts from
registration transactions by an issuer not involving any public
offering. Section 4(2) instruments are restricted in the sense
that they can only be resold through the issuing dealer and only
to institutional investors; they cannot be resold to the general
public without registration.

Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a safe harbor from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by a Portfolio, however, could affect adversely
the marketability of such portfolio securities and the Portfolio
might be unable to dispose of such securities promptly or at
reasonable prices. Rule 144A has already produced enhanced
liquidity for many restricted securities, and market liquidity
for such securities may continue to expand as a result of this
regulation and the consequent inception of the PORTAL System

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sponsored by the National Association of Securities Dealers,
Inc., an automated system for the trading, clearance and
settlement of unregistered securities of domestic and foreign
issuers. The Portfolio's investments in Rule 144A eligible
securities are not subject to the limitations described above
under Section 4(2).

The Adviser, acting under the supervision of the Board
of Directors, will monitor the liquidity of restricted securities
in each of the Fund's Portfolios that are eligible for resale
pursuant to Rule 144A. In reaching liquidity decisions, the
Adviser will consider, among others, the following factors:
(i) the frequency of trades and quotes for the security; (ii) the
number of dealers making quotations to purchase or sell the
security; (iii) the number of other potential purchasers of the
security; (iv) the number of dealers undertaking to make a market
in the security; (v) the nature of the security and the nature of
the marketplace for the security (e.g., the time needed to
dispose of the security, the method of soliciting offers and the
mechanics of the transfer); and (vi) any applicable Commission
interpretation or position with respect to such type of
securities.

FORWARD COMMITMENTS. The use of forward commitments
enables the Fund's Portfolios to protect against anticipated
changes in interest rates and prices. For instance, in periods
of rising interest rates and falling bond prices, the Portfolio
might sell securities in its portfolio on a forward commitment
basis to limit its exposure to falling prices. In periods of
falling interest rates and rising bond prices, the Portfolio
might sell a security in its portfolio and purchase the same or a
similar security on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields.
However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Portfolio might be
required to complete such when-issued or forward transactions at
prices inferior to then current market values.

The Portfolio's right to receive or deliver a security
under a forward commitment may be sold prior to the settlement
date, but the Portfolio will enter into forward commitments only
with the intention of actually receiving or delivering the
securities, as the case may be. To facilitate such transactions,
the Portfolio's Custodian will maintain, in the separate account
of the Portfolio, cash or liquid high-grade Government Securities
having value equal to, or greater than, any commitments to
purchase securities on a forward commitment basis and, with
respect to forward commitments to sell portfolio securities of
the Portfolio, the portfolio securities themselves.

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GENERAL. Whenever any investment policy or restriction
states a minimum or maximum percentage of a Portfolio's assets
which may be invested in any security or other asset, it is
intended that such minimum or maximum percentage limitation be
determined immediately after and as a result of the Portfolio's
acquisition of such security or other asset. Accordingly, any
later increase or decrease in percentage beyond the specified
limitations resulting from a change in values or net assets will
not be considered a violation.

The Fund has voluntarily agreed that each Portfolio with
the ability to invest in foreign issuers will adhere to the
foreign security diversification guidelines promulgated by
certain State Insurance Departments. Pursuant to these
guidelines, each such Portfolio will invest in issuers from a
minimum of five different foreign countries. This minimum will
be reduced to four different foreign countries when foreign
securities comprise less than 80% of the Portfolio's net asset
value, three different foreign countries when foreign securities
comprise less than 60% of the Portfolio's net asset value, two
different foreign countries when foreign securities comprise less
than 40% of the Portfolio's net asset value and one foreign
country when foreign securities comprise less than 20% of the
Portfolio's net asset value. The Fund has also voluntarily
agreed that each Portfolio which may invest in foreign securities
will limit its investment in the securities of issuers located in
any one country to 20% of the Portfolio's net asset value, except
that the Portfolio may have an additional 15% of its net asset
value invested in securities of issuers located in Australia,
Canada, France, Japan, the United Kingdom or West Germany.

In addition, the Fund has adopted an investment policy,
which is not designated 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 AND OFFICERS

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companies sponsored by the Adviser. Unless otherwise specified,
the address of each of the following persons is 1345 Avenue of
the Americas, New York, New York 10105.

DIRECTORS

JOHN D. CARIFA,* 54, s the President, Chief Operating
Officer and a Director of Alliance Capital Management Corporation
(ACMC),** with which he has been associated since prior to 1994.

RUTH BLOCK, 68, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and BP Amoco Corporation (oil
and gas). Her address is P.O. Box 4623, Stamford, Connecticut
06903.

DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until 1994. He is
currently an independent consultant. His address is P.O. Box
167, Spring Lake, New Jersey 07762.

JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1994.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York
10591.

WILLIAM H. FOULK, JR., 66, is an investment adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1994. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.

DR. JAMES M. HESTER, 75, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1994. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.

____________________

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

** For purposes of this Statement of Additional Information,
ACMC refers to Alliance Capital Management Corporation,
the sole general partner of the Adviser, and the
predecessor general partner of the Adviser, and the
predecessor general partner of the same name.

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<PAGE>

CLIFFORD L. MICHEL, 59, is a member in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1994. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.

DONALD J. ROBINSON, 64, is Senior Counsel of the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161..

OFFICERS

KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.

ALFRED L. HARRISON, SENIOR VICE PRESIDENT, 61, is a Vice
Chairman of ACMC, with which he has been associated since prior
to 1994.

NELSON R. JANTZEN, SENIOR VICE PRESIDENT, 54, is a
Senior Vice President of ACMC, with which he has been associated
since prior to 1994.

WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 57, is an
Executive Vice President of ACMC, with which he has been
associated with since prior to 1994.

RAYMOND J. PAPERA, SENIOR VICE PRESIDENT, 43, is a
Senior Vice President of ACMC, with which he has been associated
since prior to 1994.

ALDEN M. STEWART, SENIOR VICE PRESIDENT, 53, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1994.

PETER ANASTOS, SENIOR VICE PRESIDENT, 56, is a Senior
Vice President of ACMC, with which he has been associated since
prior to 1994.

EDWARD BAKER, VICE PRESIDENT, 48, is a Senior Vice
President and Chief Investment Officer - Emerging Markets of
ACMC, with which he has been associated since May 1995. Prior
thereto, he was a Senior Vice President of BARRA, Inc. since
prior to 1994.

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<PAGE>

THOMAS BARDONG, VICE PRESIDENT, 54, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.

STEPHEN BEINHACKER, VICE PRESIDENT, 34, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.

MARK H. BREEDON, SENIOR VICE PRESIDENT, 46, has been a
Vice President of ACMC and a Director and Vice President of
Alliance Capital Limited since prior to 1994.

RUSSEL BRODY, VICE PRESIDENT, 31, is a Vice President of
ACMC, with which he has been associated since April 1997. Prior
thereto, he was the head of European Equity Dealing of Lambard
Odier et Cie since prior to 1994.

NICHOLAS D.P. CARN, VICE PRESIDENT, 41, is a Senior Vice
President of ACMC, with which he has been associated since 1997.
Prior thereto, he was a Chief Investment Officer and Portfolio
Manager at Draycott Partners.

PAUL J. DENOON, VICE PRESIDENT, 37, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.

DAVID EDGERLY, VICE PRESIDENT, 56, is the General
Manager of Alliance Capital Management (Turkey) Ltd., with which
he has associated since prior to 1994.

VICKI FULLER, VICE PRESIDENT, 42, has been a Senior Vice
President of ACMC since 1994. Previously she was Managing
Director of High Yield of Equitable Capital Management
Corporation since prior to 1994.

RANDALL E. HAASE, SENIOR VICE PRESIDENT, 35, has been a
Vice President of ACMC since 1994. Prior thereto he was
associated with ECMC.

GERALD T. MALONE, VICE PRESIDENT, 45, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.

DOUGLAS J. PEEBLES, VICE PRESIDENT, 33, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.

DANIEL G. PINE, SENIOR VICE PRESIDENT, 47, has been
associated with the Adviser since 1996. Previously, he was a
Senior Vice President of Desai Capital Management since prior to
1994.

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PAUL RISSMAN, VICE PRESIDENT, 42, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.

TYLER SMITH, VICE PRESIDENT, 60, is a Senior Vice
President of ACMC, with which he has been associated since July
1994.

WAYNE C. TAPPE, VICE PRESIDENT, 36, of ACMC, is a Senior
Vice President of ACMC, with which he has been associated since
1994.

JEAN VAN DE WALLE, VICE PRESIDENT, 40, has been Vice
President of ACMC since prior to 1994.

EDMUND P. BERGAN, JR., SECRETARY, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. (AFD) and Alliance Fund Services Inc. ("AFS"), with which he
has been associated since prior to 1994.

MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER,
48, is a Senior Vice President of AFS, with which he has been
associated since prior to 1994.

ANDREW GANGOLF, ASSISTANT SECRETARY, 44, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was a
Vice President and Assistant Secretary of Delaware Management
Company, Inc. since prior to 1994.

THOMAS R. MANLEY, CONTROLLER, 45, has been a Vice
President of ACMC since July 1993. Previously he was associated
with ECMC since prior to 1994.

The Fund does not pay any fees to, or reimburse expenses
of, its Directors who are considered interested persons of the
Fund. The aggregate compensation paid by the Fund to each of the
Directors during its fiscal year ended December 31, 1998 and the
aggregate compensation paid to each of the Directors during
calendar year 1998 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the Alliance Fund Complex) and the total number of
registered investment companies (and separate investment
portfolios within those companies) in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee, are set forth below. Neither the Fund nor any other
registered investment company in the Alliance Fund Complex
provides compensation in the form of pension or retirement
benefits to any of its directors or trustees. Each of the
Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.

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Total Number
of Registered
Investment Total Number
Companies in of Investment
the Alliance Portfolios
Total Fund Complex, in the,
Compensation Including the Alliance Fund
from the Fund, as to Complex, Including
Alliance Fund which the the Fund, as to
Aggregate Complex, Director is which the Director
Compensation Including a Director is a Director
Name of Director From the Fund the Fund or Trustee or Trustee

John D. Carifa $-0- $-0- 40 114
Ruth Block $ 3,617 $180,763 36 77
David H. Dievler $ 3,617 $216,288 42 80
John H. Dobkin $ 3,617 $185,363 40 91
William H. Foulk, Jr. $ 3,617 $241,003 44 109
Dr. James M. Hester $ 3,617 $172,913 36 74
Clifford L. Michel $ 3,617 $187,763 37 90
Donald J. Robinson $ 3,617 $193,709 40 103

As of April 12, 1999 the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund.

ADVISER

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

The Adviser is a leading international investment
manager supervising client accounts with assets as of December
31, 1998, totaling more than $286 billion (of which more than
$118 billion represented the assets of investment companies).
The Adviser's clients are primarily major corporate employee
benefit funds, public employee retirement systems, investment
companies, foundations and endowment funds. The 54 registered
investment companies managed by the Adviser, comprising 118
separate investment portfolios, currently have more than 3.6
million shareholder accounts. As of December 31, 1998, the
Adviser and its subsidiaries employed approximately 2,000
employees who operate out of domestic offices and the offices of
subsidiaries in Bahrain, Bangalore, Cairo, Chennai, Hong Kong,

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Istanbul, Johannesburg, London, Luxembourg, Madrid, Moscow,
Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore,
Sydney, Tokyo, Toronto, Vienna and Warsaw. As of December 31,
1998, the Adviser was retained as an investment manager for
employee benefit plan assets of 35 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 Equitable Life Assurance Society
of the United States ("Equitable"), one of the largest life
insurance companies in the United States and a wholly-owned
subsidiary of the Equitable Companies Incorporated ("ECI"). ECI
is a holding company controlled by AXA a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.

AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.

Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.

The Investment Advisory Agreement became effective on
July 22, 1992. The Investment Advisory Agreement was approved by
the unanimous vote, cast in person, of the Fund's Directors
including the Directors who are not parties to the Investment
Advisory Agreement or interested persons as defined in the Act,
of any such party, at a meeting called for the purpose and held
on September 10, 1991. At a meeting held on June 11, 1992, a

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majority of the outstanding voting securities of the Fund
approved the Investment Advisory Agreement. The Investment
Advisory Agreement was amended as of June 2, 1994 to provide for
the addition of the North American Government Income Portfolio,
the Global Dollar Government Portfolio and the Utility Income
Portfolio. The amendment to the Investment Advisory Agreement
was approved by the unanimous vote, cast in person, of the
disinterested Directors at a meeting called for that purpose and
held on December 7, 1993. The Investment Advisory Agreement was
amended as of October 24, 1994 to provide for the addition of the
Growth Portfolio, Worldwide Privatization Portfolio, Conservative
Investors Portfolio and Growth Investors Portfolio. The
amendment to the Investment Advisory Agreement was approved by
the unanimous vote, cast in person of the disinterested Directors
at a meeting called for that purpose and held on June 14, 1994.
The Investment Advisory Agreement was amended as of February 1,
1996 to provide for the addition of the Technology Portfolio.
The amendment to the Investment Advisory Agreement was approved
by the unanimous vote, cast in person, of the disinterested
Directors at a meeting called for that purpose and held on
November 28, 1995. The Investment Advisory Agreement was amended
as of July 22, 1996 to provide for the addition of the Quasar
Portfolio. The amendment to the Investment Advisory Agreement
was approved by the unanimous vote, cast in person, of the
disinterested Directors at a meeting called for that purpose and
held on June 4, 1996. The Investment Advisory Agreement was
amended as of December 31, 1996 to provide for the addition of
the Real Estate Investment Portfolio. The amendment to the
Investment Advisory Agreement was approved by the unanimous vote,
cast in person, of the disinterested Directors at a meeting
called for that purpose and held on September 10, 1996. The
Investment Advisory Agreement was amended as of May 1, 1997 to
provide for the addition of the High-Yield Portfolio. The
amendment to the Investment Advisory Agreement was approved by
the unanimous vote, cast in person, of the disinterested
Directors at a meeting called for that purpose and held on
April 12, 1997.

The Adviser provides investment advisory services and
order placement facilities for each of the Fund's Portfolios and
pays all compensation of Directors and officers of the Fund who
are affiliated persons of the Adviser. The Adviser or its
affiliates also furnish the Fund, without charge, management
supervision and assistance and office facilities and provide
persons satisfactory to the Fund's Board of Directors to serve as
the Fund's officers.

The Fund has, under the Advisory Agreement, assumed
obligation to pay for all other expenses. As to the obtaining of
services other than those specifically provided to the Fund by
the Adviser, the Fund may employ its own personnel. For such

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services, the Fund may also utilize personnel employed by the
Adviser or its affiliates and, in such event, the services will
be provided to the Fund at cost and the payments therefore must
be specifically approved by the Fund's Board of Directors. The
Adviser voluntarily waives fees with respect to and or reimburses
expenses of the U/S Government/High Grade Securities Portfolio,
High Yield Portfolio, Total Return Portfolio, International
Portfolio, Short-Term Multi-Market Portfolio, Global Bond
Portfolio, North American Government Income Portfolio, Global
Dollar Government Portfolio, Utility Income Portfolio,
Conservative Investors Portfolio, Growth Investors Portfolio,
Worldwide Privatization Portfolio, Technology Portfolio, Quasar
Portfolio and Real Estate Investment Portfolio.

Each of the Portfolios pays the Adviser at the following
annual percentage rate of its average daily net asset value:

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%
Short-Term Multi-Market Portfolio .550%
Global Bond Portfolio .650%
North American Government
Income Portfolio .650%
Global Dollar Government
Portfolio .750%
Utility Income Portfolio .750%
Conservative Investors
Portfolio .750%
Growth Investors Portfolio .750%
Growth Portfolio .750%
Worldwide Privatization
Portfolio 1.000%
Technology Portfolio 1.000%
Quasar Portfolio 1.000%
Real Estate Investment Portfolio .900%

The following table shows, for each Portfolio, the
amounts the Adviser received for such services for the last three
fiscal years (or since commencement of operations).

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Fiscal Year End Amount
Portfolio December 31 Received
-------- -------------- ---------

Money Market Portfolio 1996 $250,603
1997 $345,31
1998 $471,768

Premier Growth Portfolio 1996 $445,415
1997 $2,398,742
1998 $7,594,041

Growth and Income Portfolio 1996 $504,313
1997 $1,180,305
1998 $1,937,421

U.S. Government/High Grade 1996 $132,023
Securities Portfolio 1997 $189,543
1998 $267,850

High Yield Portfolio 1997* $-0-
1998 $48,893

Total Return Portfolio 1996 $78,063
1997 $208,618
1998 $314,393

International Portfolio 1996 $12,587
1997 $293,261
1998 $375,891

Short-Term Multi-Market Portfolio 1996 $-0-
1997 $5,553
1998 $-0-

Global Bond Portfolio 1996 $66,976
1997 $108,709
1998 $164,523

North American Government Income 1996 $21,264
Portfolio 1997 $139,842
1998 $173,271

Global Dollar Government Portfolio 1996 $-0-
1997 $52,644
1998 $53,253

Utility Income Portfolio 1996 $21,431
1997 $100,662
1998 $90,683

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Conservative Investors Portfolio 1996 $46,778
1997 $94,774
1998 $159,340

Growth Investors Portfolio 1996 $-0-
1997 $-0-
1998 $1,957

Growth Portfolio 1996 $656,813
1997 $1,393,231
1998 $2,045,409

Worldwide Privatization Portfolio 1996 $11,158
1997 $129,108
1998 $113,224

Technology Portfolio 1996* $40,218
1997 $392,622
1998 $664,006

Quasar Portfolio 1996* $-0-
1997 $199,096
1998 $489,330

Real Estate Investment Portfolio 1997* $-0-
1998 $12,111

* Date of commencement of operations:

High Yield Portfolio October 27, 1997
Technology Portfolio January 11, 1996
Quasar Portfolio August 15, 1996
Real Estate Investment Portfolio January 9, 1997

Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of the particular security by its other
clients simultaneously with the Fund. If transactions on behalf
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price. It is the
policy of the Adviser to allocate advisory recommendations and
the placing of orders in a manner which is deemed equitable by
the Adviser to the accounts involved, including the Fund. When
two or more of the clients of the Adviser (including the Fund)
are purchasing or selling the same security on a given day from
the same broker or dealer, such transactions may be averaged as
to price.

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As to the obtaining of services other than those
specifically provided to the Fund by the Adviser, the Fund may
employ its own personnel. For such services, it also may utilize
personnel employed by the Adviser or by other subsidiaries of
Equitable. In such event, the services will be provided to the
Fund at cost and the payments specifically approved by the Fund's
Board of Directors.

The Investment Advisory Agreement is terminable with
respect to any Portfolio without penalty on 60 days written
notice by a vote of a majority of the outstanding voting
securities of such Portfolio or by a vote of a majority of the
Fund's Directors, or by the Adviser on 60 days written notice,
and will automatically terminate in the event of its assignment.
The Investment Advisory Agreement provides that in the absence of
willful misfeasance, bad faith or gross negligence on the part of
the Adviser, or of reckless disregard of its obligations
thereunder, the Adviser shall not be liable for any action or
failure to act in accordance with its duties thereunder.

The Investment Advisory Agreement continues in effect
until each December 31, and thereafter for successive twelve
month periods computed from each January 1, provided that such
continuance is specifically approved at least annually by a vote
of a majority of the Fund's outstanding voting securities or by
the Fund's Board of Directors, including in either case approval
by a majority of the Directors who are not parties to the
Investment Advisory Agreement or interested persons of such
parties as defined by the 1940 Act. Most recently, continuance of
the Agreement was approved for the period ending December 31,
1999 by the Board of Directors, including a majority of the
Directors who are not parties to the Advisory Agreement or
interested persons of any such party, at their Regular Meeting
held on October 15, 1998.

The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to AFD Exchange Reserves, Alliance All-
Asia Investment Fund, Inc., Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Capital Reserves, Alliance
Global Dollar Government Fund, Inc., Alliance Global Environment
Fund, Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Government Reserves,
Alliance Greater China '97 Fund, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance
Institutional Funds, Inc., Alliance Institutional Reserves, Inc.,
Alliance International Fund, Alliance International Premier
Growth Fund, Inc., Alliance Limited Maturity Government Fund,
Inc., Alliance Money Market Fund, Alliance Mortgage Securities
Income Fund, Inc., Alliance Multi-Market Strategy Trust, Inc.,
Alliance Municipal Income Fund, Inc., Alliance Municipal Income

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Fund II, Inc., Alliance Municipal Trust, Alliance New Europe
Fund, Inc., Alliance North American Government Income Trust,
Inc., Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc., Alliance Select
Investors Series, Inc., Alliance Technology Fund, Inc., Alliance
Utility Income Fund, Inc., Alliance Worldwide Privatization Fund,
The Alliance Fund, Inc., The Alliance Portfolios, and The Hudson
River Trust, all registered open-end investment companies; ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM
Managed Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance All-Market Advantage Fund, Inc., Alliance World
Dollar Government Fund, Inc., Alliance World Dollar Government
Fund II, Inc., The Austria Fund, Inc., The Korean Investment
Fund, Inc., The Southern Africa Fund, Inc. and The Spain Fund,
Inc., all registered closed-end investment companies.

SUB-ADVISER TO THE GLOBAL BOND PORTFOLIO

The Adviser has retained under a sub-advisory agreement
(the Sub-Advisory Agreement) a sub-adviser, AIGAM International
Limited (the Sub-Adviser), an indirect, majority owned subsidiary
of American International Group, Inc., a major international
financial service company, to provide research and management
services to the Global Bond Portfolio. The Sub-Adviser may, from
time to time, direct transactions for its investment accounts
which result in the purchase or sale of a particular security by
its investment accounts simultaneously with the recommendation by
the Sub-Adviser to the Global Bond Portfolio to purchase or sell
such security. If transactions on behalf of such investment
accounts increase the demand for securities being purchased or
the supply of securities being sold, there may be an adverse
effect on price for the Portfolio. In 1994 the Sub-Advisor
changed its name from Dempsey & Company International Limited,
which was founded in 1988. For its services as Sub-Adviser to
the Global Bond Portfolio, the Sub-Adviser receives from the
Adviser a monthly fee at the annual rate of .40 of 1% of the
Portfolio's average daily net asset value. The fee is accrued
daily and payable in arrears for services performed during each
calendar month within fifteen days following the end of such
month.

The Sub-Advisory Agreement is terminable without penalty
on 60 days written notice to the Sub-Adviser by a vote of the
holders of a majority of the Global Bond Portfolios outstanding
voting securities or by the Directors or by the Adviser, or by
the Sub-Adviser on 60 days written notice to the Adviser and the
Portfolio, and will automatically terminate in the event of its
assignment or of the assignment of the Investment Advisory
Agreement. The Sub-Advisory Agreement provides that in the

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absence of willful misfeasance, bad faith or gross negligence on
the part of the Sub-Adviser, or reckless disregard of the Sub-
Advisers obligations thereunder, the Sub-Adviser shall not be
liable for any action or failure to act in accordance with its
duties thereunder.

The Sub-Advisory Agreement became effective on July 22,
1992. At a meeting held on June 11, 1992, a majority of the
outstanding voting securities of the Portfolio approved the Sub-
Advisory Agreement.

The Sub-Advisory Agreement provides that it shall remain
in effect from year to year provided that such continuance is
specifically approved at least annually by the Board of Directors
of the Fund, or by vote of a majority of the outstanding voting
securities of the Global Bond Portfolio, and, in either case, by
a majority of the Directors who are not parties to the Investment
Advisory Agreement or Sub-Advisory Agreement or interested
persons as defined by the 1940 Act. Most recently, continuance of
the Sub-Advisory Agreement was approved for the period ending
December 31, 1999 by the Board of Directors, including a majority
of the Directors who are not parties to the Sub-Advisory
Agreement or interested persons of any such party, at their
Regular Meeting held on October 15, 1998.

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

CBRE is a publicly held company and the largest real
estate services company in the United States, comprised of real
estate brokerage, property and facilities management, and real
estate finance and investment advisory activities (CBRE in August
of 1997 acquired Koll Management Services, which previously
provided these consulting services to Alliance). In 1997, CBRE
completed 22,100 sale and lease transactions, managed over 6,600
client properties, created over $5 billion in mortgage
originations, and completed over 3,600 appraisal and consulting
assignments. In addition, they advised and managed for
institutions over $4 billion in real estate investments. As
consultant to Alliance, CBRE provides access to its proprietary

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model, REIT-Score, that analyzes the approximately 18,000
individual properties owned by these 142 companies. Using
proprietary databases and algorithms, CBRE 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 650 asset-
type specific geographic markets are analyzed and ranked on a
relative scale by CBRE 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. CBRE has previously provided access to its
REIT-Score model results primarily to the institutional market
through subscriptions. The model is no longer provided to any
research publications and the Fund is currently the only mutual
fund available to retail investors that has access to CBREs REIT-
Score model.

_________________________________________________________________

PURCHASE AND REDEMPTION OF SHARES
_________________________________________________________________

The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares".

Shares of each Portfolio are offered at net asset value
on a continuous basis to the separate accounts of certain life
insurance companies without any sales or other charge. The
separate accounts of insurance companies place orders to purchase
shares based on, among other things, the amount of premium
payments to be invested and surrendered and transfer requests to
be effected pursuant to variable contracts funded by shares of
the Portfolio. The Fund reserves the right to suspend the sale
of its shares in response to conditions in the securities markets
or for other reasons. See the prospectus of the separate account
of the participating insurance company for more information on
the purchase of shares.

REDEMPTION OF SHARES

An insurance company separate account may redeem all or
any portion of the shares in its account at any time at the net
asset value next determined after a redemption request in the
proper form is furnished to the Fund. Any certificates
representing shares being redeemed must be submitted with the
redemption request. Shares do not earn dividends on the day they
are redeemed, regardless of whether the redemption request is
received before or after the time of computation of net asset
value that day. There is no redemption charge. The redemption
proceeds will normally be sent within seven days.

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The right of redemption may be suspended or the date or
payment may be postponed 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 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 security
holders of the Fund. For information regarding how to redeem
shares in the Fund please see your insurance company separate
account prospectus.

The value of a shareholder's shares on redemption or
repurchase may be more or less than the cost of such shares to
the shareholder, depending upon the market value of the
Portfolio's securities at the time of such redemption or
repurchase. Payment either in cash or in portfolio securities
received by a shareholder upon redemption or repurchase of his
shares, assuming the shares constitute capital assets in his
hands, will result in long-term or short-term capital gains (or
loss) depending upon the shareholder's holding period and basis
in respect of the shares redeemed.

_________________________________________________________________

NET ASSET VALUE
_________________________________________________________________

A. With respect to the Premier Growth Portfolio and the
Real Estate Investment Portfolio, the per share net asset value
is computed in accordance with the Portfolio's Articles of
Incorporation and By-Laws at the next close of regular trading on
the Exchange (ordinarily 4:00 p.m. Eastern time) following
receipt of a purchase or redemption order by the Portfolio on
each Portfolio business day on which such an order is received
and on such other days as the Board of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Portfolio's per share net asset value is
calculated by dividing the value of the Portfolio's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Portfolio business day is any weekday on which
the Exchange is open for trading.

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Readily marketable securities listed on the Exchange are valued,
except as indicated below, at the last sale price reflected on
the consolidated tape at the close of the Exchange on the
business day as of which such value is being determined. If
there has been no sale on such day, the securities are valued at
the mean of the closing bid and asked prices on such day. If no
bid or asked prices are quoted on such day, then the security is
valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange but listed on
other national securities exchanges or traded on The Nasdaq Stock
Market, Inc. are valued in like manner. Securities traded on the
Exchange and on one or more other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more other national securities exchanges are valued in
accordance with these procedures by reference to the principal
exchange on which the securities are traded.

Readily marketable securities traded in the over-the-
counter market, including securities listed on a national
securities exchange whose primary market is believed to be over-
the-counter but excluding securities traded on The Nasdaq Stock
Market, Inc., are valued at the mean of the current bid and asked
prices as reported by Nasdaq or, in the case of securities not
quoted by Nasdaq, the National Quotation Bureau or another
comparable sources.

Listed put or call options purchased by the Portfolio
are valued at the last sale price. If there has been no sale on
that day, such securities will be valued at the closing bid
prices on that day.

Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.

U.S. Government securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).

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of securities and any developments related to specific
securities. Mortgage-backed and asset-backed securities may be
valued at prices obtained from a bond pricing service or at a
price obtained from one or more of the major broker/dealers in
such securities. In cases where broker/dealer quotes are
obtained, the Adviser may establish procedures whereby changes in
market yields or spreads are used to adjust, on a daily basis, a
recently obtained quoted bid price on a security.

All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.

The Board of Directors may suspend the determination of
the Portfolio's net asset value (and the offering and sale of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the New
York Stock Exchange ("the Exchange") is closed, other than
customary weekend and holiday closings, (2) an emergency exists
as a result of which it is not reasonably practicable for the
Portfolio to dispose of securities owned by it or to determine
fairly the value of its net assets, or (3) for the protection of
shareholders, the Commission by order permits a suspension of the
right of redemption or a postponement of the date of payment on
redemption.

For purposes of determining the Portfolio's net asset
value per share, all assets and liabilities initially expressed
in a foreign currency will be converted into U.S. Dollars at the
mean of the current bid and asked prices of such currency against
the U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.

The assets attributable to the Class A shares and Class
B shares of each Portfolio, will be invested together in a single
portfolio. The net asset value of each class will be determined
separately by subtracting the liabilities allocated to that class
from the assets belonging to that class in conformance with the
provisions of a plan adopted by the Fund in accordance with Rule
18f-3 under the 1940 Act.

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computed in accordance with the Portfolio's Articles of
Incorporation and By-Laws at the next close of regular trading on
the Exchange (ordinarily 4:00 p.m. Eastern time) following
receipt of a purchase or redemption order by the Portfolio on
each Portfolio business day on which such an order is received
and on such other days as the Board of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Portfolio's per share net asset value is
calculated by dividing the value of the Fund's total assets, less
its liabilities, by the total number of its shares then
outstanding. A Portfolio business day is any weekday on which
the Exchange is open for trading.

In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the mean of the closing bid and asked prices on such day. If
no bid or asked prices are quoted on such day, then the security
is valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
are valued in like manner. Portfolio securities traded on the
Exchange and on one or more foreign or other national securities
exchanges, and portfolio securities not traded on the Exchange
but traded on one or more foreign or other national securities
exchanges are valued in accordance with these procedures by
reference to the principal exchange on which the securities are
traded.

Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), are valued at the mean of the current
bid and asked prices as reported by Nasdaq or, in the case of

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securities not quoted by Nasdaq, the National Quotation Bureau or
another comparable sources.

Listed put or call options purchased by the Portfolio
are valued at the last sale price. If there has been no sale on
that day, such securities will be valued at the closing bid
prices on that day.

Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities. Mortgage-backed and asset-backed securities may be
valued at prices obtained from a bond pricing service or at a
price obtained from one or more of the major broker/dealers in
such securities. In cases where broker/dealer quotes are
obtained, the Adviser may establish procedures whereby changes in
market yields or spreads are used to adjust, on a daily basis, a
recently obtained quoted bid price on a security.

All other assets of the Portfolio are valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.

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between the time their prices are determined in accordance with
the above procedures and the close of the Exchange will not be
reflected in the Fund's calculation of net asset value unless it
is believed that these prices do not reflect current market
value, in which case the securities will be valued in good faith
by, or in accordance with procedures established by, the Board of
Directors at fair value.

The Board of Directors may suspend the determination of
the Portfolio's net asset value (and the offering and sale of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Portfolio to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.

C. With respect to the U.S. Government/High Grade
Securities Portfolio and the Total Return Portfolio, the per
share net asset value is computed in accordance with the
Portfolio's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Portfolio on each Portfolio business day on which such an
order is received and on such other days as the Board of
Directors deems appropriate or necessary in order to comply with
Rule 22c-1 under the 1940 Act. The Portfolio's per share net
asset value is calculated by dividing the value of the

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Portfolio's total assets, less its liabilities, by the total
number of its shares then outstanding. A Portfolio business day
is any weekday on which the Exchange is open for trading.

In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange are valued,
except as indicated below, at the last sale price reflected on
the consolidated tape at the close of the Exchange on the
business day as of which such value is being determined. If
there has been no sale on such day, the securities are valued at
the quoted bid prices on such day. If no bid prices are quoted
on such day, then the security is valued at the mean of the bid
and asked prices at the close of the Exchange on such day as
obtained from one or more dealers regularly making a market in
such securities. Where a bid and asked price can be obtained
from only one such dealer, the security is valued at the mean of
the bid and asked price obtained from such dealer, unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors. Securities for which no bid and
asked price quotations are readily available are valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors. Readily marketable
securities not listed on the Exchange but listed on other
national securities exchanges are valued in like manner.
Portfolio securities traded on the Exchange and on one or more
other national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more other national
securities exchanges are valued in accordance with these
procedures by reference to the principal exchange on which the
securities are traded.

Readily marketable securities traded only in the over-
the-counter market, and debt securities listed on a national
securities exchange whose primary market is believed to be over-
the-counter, are valued at the mean of the bid and asked prices
at the close of the Exchange on such day as obtained from two or
more dealers regularly making a market in such securities. Where
a bid and asked price can be obtained from only one such dealer,
such security is valued at the mean of the bid and asked prices
obtained from such dealer unless it is determined that such price
does not represent current market value, in which case the
security shall be valued in good faith at fair value by, or in
accordance with procedures established by, the Board of
Directors.

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Listed put and call options purchased by the Portfolio
are valued at the last sale price. If there has been no sale on
that day, such securities will be valued at the closing bid
prices on that day.

All other assets of the Portfolio are valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.

The Board of Directors may suspend the determination of
the Portfolio's net asset value (and the offering and sales of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Portfolio to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.

For purposes of determining the Portfolio's net asset
value per share, all assets and liabilities initially expressed

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in a foreign currency will be converted into U.S. Dollars at the
mean of the current bid and asked prices of such currency against
the U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.

D. With respect to the High-Yield Portfolio, Short-Term
Multi-Market Portfolio, Global Bond Portfolio, North American
Government Income Portfolio and Global Dollar Government
Portfolio, the per share net asset value is computed in
accordance with the Portfolio's Articles of Incorporation and
By-Laws at the next close of regular trading on the Exchange
(ordinarily 4:00 p.m. Eastern time) following receipt of a
purchase or redemption order by the Portfolio on each Portfolio
business day on which such an order is received and on such other
days as the Board of Directors of the Portfolio deems appropriate
or necessary in order to comply with Rule 22c-1 under the 1940
Act. The Portfolio's per share net asset value is calculated by
dividing the value of the Portfolio's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Portfolio business day is any weekday on which the Exchange is
open for trading.

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the bid and asked prices at the close of the Exchange on such day
as obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.

Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.

Listed put and call options purchased by the Portfolio
are valued at the last sale price. If there has been no sale on
that day, such securities will be valued at the closing bid
prices on that day.

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maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).

All other assets of the Portfolio are valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.

Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Portfolio
business day. In addition, trading in foreign markets may not
take place on all Portfolio business days. Furthermore, trading
may take place in various foreign markets on days that are not
Portfolio business days. The Portfolio's calculation of the net
asset value per share, therefore, does not always take place
contemporaneously with the most recent determination of the
prices of portfolio securities in these markets. Events
affecting the values of these portfolio securities that occur
between the time their prices are determined in accordance with
the above procedures and the close of the Exchange will not be
reflected in the Portfolio's calculation of net asset value
unless these prices do not reflect current market value, in which
case the securities will be valued in good faith at fair value
by, or in accordance with procedures established by, the Board of
Directors.

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<PAGE>

order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.

E. The Money Market Portfolio utilizes the amortized
cost method of valuation of portfolio securities in accordance
with the provisions of Rule 2a-7 under the Act. The amortized
cost method involves valuing an instrument at its cost and
thereafter applying a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. The Fund
maintains procedures designed to stabilize, to the extent
reasonably possible, the price per share of the Portfolio as
computed for the purpose of sales and redemptions at $1.00. Such
procedures include review of the Portfolio's investment portfolio
holdings by the Directors at such intervals as they deem
appropriate to determine whether and to what extent the net asset
value of the Portfolio calculated by using available market
quotations or market equivalents deviates from net asset value
based on amortized cost. If such deviation as to the Portfolio
exceeds 1/2 of 1%, the Directors will promptly consider what
action, if any, should be initiated. In the event the Directors
determine that such a deviation may result in material dilution
or other unfair results to new investors or existing
shareholders, they will consider corrective action which might
include (1) selling instruments held by the Portfolio prior to
maturity to realize capital gains or losses or to shorten average
portfolio maturity; (2) withholding dividends of net income on
shares of the Portfolio; or (3) establishing a net asset value
per share of the Portfolio by using available market quotations
or equivalents. The net asset value of the shares of the

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Portfolio is determined as of the close of business each Fund
business day (generally 4:00 p.m. Eastern time).

The assets attributable to the Class A shares and Class
B shares of the Portfolio, will be invested together in a single
portfolio. The net asset value of each class will be determined
separately by subtracting the liabilities allocated to that class
from the assets belonging to that class in conformance with the
provisions of a plan adopted by the Fund in accordance with Rule
18f-3 under the 1940 Act.

_________________________________________________________________

PORTFOLIO TRANSACTIONS
_________________________________________________________________

Neither the Fund nor the Adviser has entered into
agreements or understandings with any brokers or dealers
regarding the placement of securities transactions because of
research or statistical services they provide. To the extent
that such persons or firms supply investment information to the
Adviser for use in rendering investment advice to the Fund, such
information may be supplied at no cost to the Adviser and,
therefore, may have the effect of reducing the expenses of the
Adviser in rendering advice to the Fund. While it is impossible
to place an actual dollar value on such investment information,
its receipt by the Adviser probably does not reduce the overall
expenses of the Adviser to any material extent.

The investment information provided to the Adviser is of
the types described in Section 28(e)(3) of the Securities
Exchange Act of 1934 and is designed to augment the Advisers own
internal research and investment strategy capabilities. Research
and statistical services furnished by brokers through which the
Fund effects securities transactions are used by the Adviser in
carrying out its investment management responsibilities with
respect to all its client accounts but not all such services may
be utilized by the Adviser in connection with the Fund.

The Fund will deal in some instances in equity
securities which are not listed on a national stock exchange but
are traded in the over-the-counter market. In addition, most
transactions for the U.S. Government/High-Grade Securities
Portfolio and the Money Market Portfolio are executed in the
over-the-counter market. Where transactions are executed in the
over-the-counter market, the Fund will seek to deal with the
primary market makers, but when necessary in order to obtain the
best price and execution, it will utilize the services of others.
In all cases, the Fund will attempt to negotiate best execution.

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The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation (DLJ),
an affiliate of the Adviser, the Fund's distributor, and with
brokers which may have their transactions cleared or settled, or
both, by the Pershing Division of DLJ for which DLJ may receive a
portion of the brokerage commission. With respect to orders
placed with DLJ for execution on a national securities exchange,
commissions received must conform to Section 17(e)(2)(A) of the
1940 Act and Rule 17e-1 thereunder, which permit an affiliated
person of a registered investment company (such as the Fund), or
any affiliated person of such person, to receive a brokerage
commission from such registered investment company provided that
such commission is reasonable and fair compared to the
commissions received by other brokers in connection with
comparable transactions involving similar securities during a
comparable period of time.

Brokerage commission paid for the fiscal year ended
December 31, 1996 on securities transactions amounted to $90,253,
$255,607, $260,435, $30,275, $31,907,$287,449, $41,894, $23,162,
$28,063, $10,847 and $12,207 with respect to the Premier Growth
Portfolio, the Growth and Income Portfolio, the International
Portfolio, the Total Return Portfolio, the Utility Income
Portfolio, the Growth Portfolio, the Worldwide Privatization
Portfolio, the Conservative Investors Portfolio, the Growth
Investors Portfolio, the Technology Portfolio and the Quasar
Portfolio, respectively. The Global Bond Portfolio, the Short-
Term Multi-Market Portfolio, the U.S. Government/High Grade
Securities Portfolio, the Money Market Portfolio, the Global
Dollar Government Portfolio, and the North American Government
Income Portfolio did not incur and brokerage commission for the
fiscal year ended December 31, 1996. Brokerage commission paid
for the fiscal year ended December 31, 1997 on securities
transactions amounted to $377,288, $409,972, $355,055, $48,588,
$14,332, $272,666, $110,817, $33,041, $43,551, $35,250, $231,416
and $26,891 with respect to the Premier Growth Portfolio, the
Growth and Income Portfolio, the International Portfolio, the
Total Return Portfolio, the Utility Income Portfolio, the Growth
Portfolio, the Worldwide Privatization Portfolio, the
Conservative Investors Portfolio, the Growth Investors Portfolio,
the Technology Portfolio, and the Quasar Portfolio, the Real
Estate Investment Portfolio and the High Yield Portfolio,
respectively. The Global Bond Portfolio, the Short-Term Multi-
Market Portfolio, the U.S. Government/High Grade Securities
Portfolio, the Money Market Portfolio, the Global Dollar
Government Portfolio, and the North American Government Income
Portfolio did not incur and brokerage commission for the fiscal
year ended December 31, 1997. Brokerage commissions paid for the
fiscal year ended December 31, 1998 on securities transactions
amounted to $28,738, $33,108, $58,946, $569,205, $390,366,

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$331,720, $669,538, $216,969, $37,237, $77,542, $17,833 and
$203,374 with respect to the Conservative Investors Portfolio,
the Growth Investors Portfolio, the Total Return Portfolio, the
Growth and Income Portfolio, the International Portfolio, the
Premier Growth Portfolio, the Quasar Portfolio, the Real Estate
Investment Portfolio, the Technology Portfolio, the Utility
Income Portfolio and the Worldwide Privatization Portfolio,
respectively. During the fiscal years ended December 31, 1996,
1997 and 1998 $-0-, $820*** and $12,800**** in brokerage
commissions were paid to Donaldson, Lufkin & Jenrette Securities
Corporation and no brokerage commissions were paid to brokers
utilizing the Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corporation.

_________________________________________________________________

DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________

Each Portfolio of the Fund qualified and intends to
continue to qualify to be taxed as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code").
If so qualified, each Portfolio will not be subject to federal
income and excise taxes on its investment company taxable income
and net capital gain to the extent such investment company
taxable income and net capital gain 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 to the holder of a variable
annuity or variable life insurance contract when left to
accumulate within such variable annuity or variable life
insurance contract. Distributions of net investment income and
net short-term capital gains will be treated as ordinary income
and distributions of net long-term capital gains will be treated
as long-term capital gain in the hands of the insurance
companies.

*** Paid by the Growth Portfolio.

**** $250 paid by the Growth Portfolio, $11,950 paid by the
Premier Growth Portfolio, $600 paid by the Quasar
Portfolio.

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with the Internal Revenue Service to pass through to its
shareholders the amount of foreign taxes paid by the Portfolio.
If eligible, each such Portfolio intends to file such an
election, although there can be no assurance that such Portfolio
will be able to do so.

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

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

_________________________________________________________________

GENERAL INFORMATION
_________________________________________________________________

CAPITALIZATION

The Fund's shares have non-cumulative voting rights,
which means that the holders of more than 50% of the shares
voting for the election of Directors can elect 100% of the
Directors if they choose to do so, and in such election of
Directors will not be able to elect any person or persons to the
Board of Directors.

All shares of the Fund when duly issued will be fully
paid and nonassessable. The Board of Directors is authorized to
reclassify any unissued shares into any number of additional

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series and classes without shareholder approval. Accordingly,
the Board of Directors in the future, for reasons such as the
desire to establish one or more additional Portfolio's with
different investment objectives, policies or restrictions or to
establish additional channels of distribution, may create
additional series and classes of shares. Any issuance of shares
of such additional series and classes would be governed by the
1940 Act and the law of the State of Maryland.

If shares of another series were issued in connection
with the creation of the new portfolio, each share of any of the
Fund's Portfolio's would normally be entitled to one vote for all
purposes. Generally, shares of each Portfolio would vote as a
single series for the election of directors and on any other
matter that affected each portfolios in substantially the same
manner. As to matters affecting each Portfolio differently, such
as approval of the Investment Advisory Agreement and changes in
investment policy, shares of each Portfolio would vote as
separate series. Moreover, the Class B shares of each Portfolio
will vote separately with respect to matters relating to the
12b-1 Plan(s) adopted in accordance with Rule 18-1 under the 1940
Act.

Procedures for calling shareholders meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholder of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders.

The outstanding voting shares of each outstanding
Portfolio of the Fund as of April 12, 1999 consisted of the
following numbers of Class A common stock: Money Market
Portfolio, 138,410,250; Premier Growth Portfolio, 46,749,463;
Growth and Income Portfolio, 18,345,012; U.S. Government/High
Grade Securities Portfolio, 5,239,105; International Portfolio,
3,870,966; Total Return Portfolio, 3,467,221; Short-Term Multi-
Market Portfolio, 690,282; Global Bond Portfolio, 3,334,807;
North American Government Income Portfolio, 2,322,947; Global
Dollar Government Portfolio, 849,584; Utility Income Portfolio,
1,877,041; Conservative Investors Portfolio, 2,585,908; Growth
Investors Portfolio, 1,196,970; Growth Portfolio, 12,131,533;
Worldwide Privatization Portfolio, 2,779,723; Technology
Portfolio, 7,619,757; Quasar Portfolio, 7,830,544; Real Estate
Investment Portfolio, 1,765,602; and High-Yield Portfolio,
1,940,459. To the knowledge of the Fund, the following persons
owned of record or beneficially 5% or more of the outstanding
Class A shares of the Fund's Portfolios as of April 12, 1999.

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NUMBER OF % OF
CLASS A CLASS A
PORTFOLIO NAME AND ADDRESS SHARES SHARES

Money Market AIG Life Insurance 101,084,844 73%
Company ("AIG")
One ALICO Plaza
600 N. King Street
Wilmington, DE 19801

American International 18,576,306 13%
Life Assurance Company
of New York ("American")
80 Pine Street
New York, NY 10005

Fortis Financial Group 17,467,832 12%
("Fortis")
P.O. Box 64284
St. Paul, MN 55164

Premier Growth AIG 12,613,817 27%

Growth and Income AIG 14,351,830 78%

American 2,869,967 15%

U.S. Government/ AIG 4,298,694 82%
High Grade
American 776,390 15%

Total Return AIG 2,767,222 79%

American 528,592 15%

International AIG 2,995,118 77%

American 613,930 16%

Short-Term American 101,745 15%
Multi-Market
AIG 518,468 75%

Global Bond American 193,755 6%

AIG 778,885 23%

National Union Fire 751,853 23%
Insurance Co.
c/o American

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Attn: Bill Tucker
80 Pine Street
New York, NY 10005

Keyport Life 1,587,139 47%
Insurance Co.
125 High Street
Boston, MA 02110

North American AIG 1,770,106 76%
Government Income
American 542,922 23%

Global Dollar AIG 657,842 77%
Government
American 147,701 17%

Skandia 44,038 5%

Utility Income AIG 1,478,691 78%

American 357,357 19%

Conservative AIG 1,948,168 75%
Investors
American 557,392 21%

Growth Investors AIG 898,178 75%

American 224,504 18%

Skandia 74,286 6%

Growth AIG 10,048,180 82%

American 1,861,123 15%

Worldwide AIG 2,211,916 79%
Privatization
American 501,137 18%

Technology AIG 6,569,573 86%

American 1,050,180 13%

Quasar AIG 5,631,895 72%

American 857,839 11%

Merrill Lynch 1,340,805 17%

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Real Estate AIG 1,240,717 70%

American 189,397 11%

COVA 299,952 17%
1 Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181

CUSTODIAN

State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, acts as Custodian for the
securities and cash of the Fund but plays no part in deciding the
purchase or sale of portfolio securities. Subject to the
supervision of the Fund's Directors, State Street may enter into
sub-custodial agreements for the holding of the Fund's foreign
securities.

PRINCIPAL UNDERWRITER

Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund.

COUNSEL

Legal matters in connection with the issuance of the
shares of the Fund offered hereby will be passed upon by Seward &
Kissel LLP, New York, New York. Seward & Kissel LLP has relied
upon the opinion of Venable, Baetjer and Howard, LLP, Baltimore,
Maryland, for matters relating to Maryland law.

INDEPENDENT AUDITORS

Ernst & Young, LLP, New York, New York, has been
appointed as independent auditors for the Fund.

SHAREHOLDER APPROVAL

The capitalized term Shareholder Approval as used in
this Statement of Additional Information means (1) the vote of
67% or more of the shares of that Portfolio represented at a
meeting at which more than 50% of the outstanding shares are
represented or (2) more than 50% of the outstanding shares of
that Portfolio, whichever is less.

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YIELD AND TOTAL RETURN QUOTATIONS

From time to time a Portfolio of the Fund states its
yield, and total return. A Portfolio's yield for any 30-day (or
one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the Commission which provides for
compounding on a semi-annual basis. The Portfolio's actual
distribution rate, which may be advertised in items of sales
literature, is computed in the same manner as yield except that
actual income dividends declared per share during the period in
question are substituted for net investment income per share.
Advertisements of a Portfolio's total return disclose the
Portfolio's average annual compounded total return for the period
since the Portfolio's inception. The Portfolio's total return
for each such period is computed by finding, through the use of a
formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment
at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on
shares of the Portfolio are assumed to have been reinvested when
received and the maximum sales charge applicable to purchases of
Portfolio shares is assumed to have been paid. The past
performance of each Portfolio is not intended to indicate future
performance.

The Money Market Portfolio's yield on its Class A shares
for the seven days ended December 31, 1998 was 4.48%. The U.S.
Government/High Grade Securities Portfolio's yield on its Class A
shares for the month ended December 31, 1998 was 4.90%. The
Short-Term Multi-Market Portfolio's yield on its Class A shares
for the month ended December 31, 1998 was 5.09%. The Global Bond
Portfolio's yield on its Class A shares for the month ended
December 31, 1998 was 4.82%. The North American Government
Income Portfolio's yield on its Class A shares for the month
ended December 31, 1998 was 7.67%. The Global Dollar Government
Portfolio's yield on its Class A shares for the month ended
December 31, 1998 was 11.08%. The High-Yield Portfolio's yield
on its Class A shares for the month ended December 31, 1998 was
10.68%.

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The average annual total return based on net asset value
for each Portfolio's Class A shares for the one-, five-, and ten-
year periods ended December 31, 1998 (or since inception through
that date, as noted) was as follows:

12 Months
Ended 5 Years Ended 10 Years Ended
12/31/98 12/31/98 12/31/98

Premier Growth Portfolio 47.97% 27.85% 25.42%*
Growth and Income Portfolio 20.89% 21.19% 16.01%*
U.S. Government/High Grade
Securities Portfolio 8.22% 6.66% 6.55%*
High-Yield Portfolio (3.69)% (.43)%* N/A
Total Return Portfolio 16.99% 14.20% 13.41%*
International Portfolio 13.02% 7.98% 10.12%*
Short-Term Multi-Market Portfolio 6.32% 3.99% 4.28%*
Global Bond Portfolio 14.12% 7.62% 8.72%*
North American Government Portfolio 4.07% 8.45%* N/A
Global Dollar Portfolio (21.71)% 6.47%* N/A
Utility Income Portfolio 23.91% 16.48%* N/A
Conservative Investors Portfolio 14.20% 11.11%* N/A
Growth Investors Portfolio 23.68% 15.84%* N/A
Growth Portfolio 28.73% 29.73%* N/A
Worldwide Privatization Portfolio 10.83% 12.10%* N/A
Technology Portfolio 63.79% 24.68%* N/A
Quasar Portfolio (4.49)% 8.05%* N/A
Real Estate Investment Portfolio (19.07)% (.06)%* N/A

* Inception Dates

Premier Growth Portfolio June 26, 1992
Growth and Income Portfolio January 14, 1991
U.S. Government/High Grade
Securities Portfolio September 17, 1992
High-Yield Portfolio October 27, 1997
Total Return Portfolio December 28, 1992
International Portfolio December 28, 1992
Short-Term Multi-Market Portfolio November 28, 1990
Global Bond Portfolio July 15, 1991
North American Government Portfolio May 3, 1994
Global Dollar Portfolio May 2, 1994
Utility Income Portfolio May 10, 1994
Conservative Investors Portfolio October 28, 1994
Growth Investors Portfolio October 28, 1994
Growth Portfolio September 15, 1994
Worldwide Privatization Portfolio September 23, 1994
Technology Portfolio January 11, 1996
Quasar Portfolio August 15, 1996
Real Estate Investment Portfolio January 9, 1997

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_________________________________________________________________

FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
_________________________________________________________________

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APPENDIX A

DESCRIPTION OF OBLIGATIONS ISSUED OR GUARANTEED
BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES

FEDERAL FARM CREDIT SYSTEM NOTES AND BONDS--are bonds
issued by a cooperatively owned nationwide system of banks and
associations supervised by the Farm Credit Administration, an
independent agency of the U.S. Government. These bonds are not
guaranteed by the U.S. Government.

MARITIME ADMINISTRATION BONDS--are bonds issued and
provided by the Department of Transportation of the U.S.
Government and are guaranteed by the U.S. Government.

FHA DEBENTURES--are debentures issued by the Federal
Housing Administration of the U.S. Government and are guaranteed
by the U.S. Government.

GNMA CERTIFICATES--are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage
loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Each mortgage loan
included in the pool is either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration.

FHLMC BONDS--are bonds issued and guaranteed by the
Federal Home Loan Mortgage Corporation.

FNMA BONDS--are bonds issued and guaranteed by the
Federal National Mortgage Association.

FEDERAL HOME LOAN BANK NOTES AND BONDS--are notes and
bonds issued by the Federal Home Loan Bank System and are not
guaranteed by the U.S. Government.

STUDENT LOAN MARKETING ASSOCIATION (SALLIE MAE) NOTES
AND BONDS--are notes and bonds issued by the Student Loan
Marketing Association.

Although this list includes a description of the primary
types of U.S. Government agency or instrumentality obligations in
which certain Portfolios of the Fund intends to invest,
Portfolios may invest in obligations of U.S. Government agencies
or instrumentalities other than those listed above.

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APPENDIX B

FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS AND FOREIGN CURRENCIES

FUTURES CONTRACTS

Portfolios of the Fund may enter into contracts for the
purchase or sale for future delivery of fixed-income securities
or foreign currencies, or contracts based on financial or stock
indices including any index of U.S. Government Securities,
Foreign Government Securities, corporate debt securities or
common stock. U.S. futures contracts have been designed by
exchanges which have been designated contracts markets by the
Commodity Futures Trading Commission (CFTC), and must be executed
through a futures commission merchant, or brokerage firm, which
is a member of the relevant contract market. Futures contracts
trade on a number of exchange markets, and, through their
clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.

At the same time a futures contract is purchased or
sold, a Portfolio must allocate cash or securities as a deposit
payment (initial deposit). It is expected that the initial
deposit would be approximately 1 1/2%-5% of a contracts face
value. Daily thereafter, the futures contract is valued and the
payment of variation margin may be required, since each day the
Portfolio would provide or receive cash that reflects any decline
or increase in the contracts value.

At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.

Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the

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contracts are traded, a Portfolio will incur brokerage fees when
it purchases or sells futures contracts.

INTEREST RATE FUTURES

The purpose of the acquisition or sale of a futures
contract, in the case of a portfolio, such as a Portfolio of the
Fund, which holds or intends to acquire fixed-income securities,
is to attempt to protect the Portfolio from fluctuations in
interest or foreign exchange rates without actually buying or
selling fixed-income securities or foreign currency. For
example, if interest rates were expected to increase, the
Portfolio might enter into futures contracts for the sale of debt
securities. Such a sale would have much the same effect as
selling an equivalent value of the debt securities owned by the
Portfolio. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the
futures contracts to the Portfolio would increase at
approximately the same rate, thereby keeping the net asset value
of the Portfolio from declining as much as it otherwise would
have. The Portfolio could accomplish similar results by selling
debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of
futures contracts as an investment technique allows a Portfolio
to maintain a defensive position without having to sell its
portfolio securities.

Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher
prices. Since the fluctuations in the value of futures contracts
should be similar to those of debt securities, the Portfolio
could take advantage of the anticipated rise in the value of debt
securities without actually buying them until the market had
stabilized. At that time, the futures contracts could be
liquidated and the Portfolio could then buy debt securities on
the cash market. To the extent a Portfolio enters into futures
contracts for this purpose, the assets in the segregated asset
account maintained to cover the Portfolio's obligations with
respect to such futures contracts will consist of cash, cash
equivalents or high quality liquid debt securities (or, in the
case of the North American Government Income Portfolio, Global
Dollar Government Portfolio and Utility Income Portfolio, high
grade liquid debt securities) from its portfolio in an amount
equal to the difference between the fluctuating market value of
such futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to
such futures contracts.

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The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
[5~producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.

In addition, futures contracts entail risks. Although
the Portfolio believes that use of such contracts will benefit
the Portfolio, if the Advisers investment judgment about the
general direction of interest rates is incorrect, the Portfolio's
overall performance would be poorer than if it had not entered
into any such contract. For example, if a Portfolio has hedged
against the possibility of an increase in interest rates which
would adversely affect the price of debt securities held in its
portfolio and interest rates decrease instead, the Portfolio will
lose part or all of the benefit of the increased value of its
debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have
to sell debt securities from its portfolio to meet daily
variation margin requirements. Such sales of bonds may be, but
will not necessarily be, at increased prices which reflect the
rising market. The Portfolio may have to sell securities at a
time when it may be disadvantageous to do so.

STOCK INDEX FUTURES

A Portfolio may purchase and sell stock index futures as
a hedge against movements in the equity markets. There are
several risks in connection with the use of stock index futures
by a Portfolio as a hedging device. One risk arises because of
the imperfect correlation between movements in the price of the
stock index futures and movements in the price of the securities
which are the subject of the hedge. The price of the stock index
futures may move more than or less than the price of the
securities being hedged. If the price of the stock index futures

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moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable
direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being
hedged has moved in a favorable direction, this advantage will be
partially offset by the loss on the index future. If the price
of the future moves more than the price of the stock, the
Portfolio will experience either a loss or gain on the future
which will not be completely offset by movements in the price of
the securities which are subject to the hedge. To compensate for
the imperfect correlation of movements in the price of securities
being hedged and movements in the price of the stock index
futures, the Portfolio may buy or sell stock index futures
contracts in a greater dollar amount than the dollar amount of
securities being hedged if the volatility over a particular time
period of the prices of such securities has been greater than the
volatility over such time period of the index, or if otherwise
deemed to be appropriate by the Adviser. Conversely, the
Portfolio may buy or sell fewer stock index futures contracts if
the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such
time period of the stock index, or it is otherwise deemed to be
appropriate by the Adviser It is also possible that, where the
Portfolio has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of
securities held in the Portfolio may decline. If this occurred,
the Portfolio would lose money on the futures and also experience
a decline in value in its portfolio securities. However, over
time the value of a diversified portfolio should tend to move in
the same direction as the market indices upon which the futures
are based, although there may be deviations arising from
differences between the composition of the Portfolio and the
stocks comprising the index.

Where futures are purchased to hedge against a possible
increase in the price of stock before the Portfolio is able to
invest its cash (or cash equivalents) in stocks (or options) in
an orderly fashion, it is possible that the market may decline
instead. If the Portfolio then concludes not to invest in stock
or options at that time because of concern as to possible further
market decline or for other reasons, the Portfolio will realize a
loss on the futures contract that is not offset by a reduction in
the price of securities purchased.

In addition the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in the stock index futures and the portion of the
portfolio being hedged, the price of stock index futures may not
correlate perfectly with movement in the stock index due to
certain market distortions. Rather than meeting additional

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margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the
normal relationship between the index and futures markets.
Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortion in the futures market, and because of the imperfect
correlation between the movements in the stock index and
movements in the price of stock index futures, a correct forecast
of general market trends by the investment adviser may still not
result in a successful hedging transaction over a short time
frame.

Positions in stock index futures may be closed out only
on an exchange or board of trade which provides a secondary
market for such futures. Although the Portfolio's intend to
purchase or sell futures only on exchanges or boards of trade
where there appear to be active secondary markets, there is no
assurance that a liquid secondary market on any exchange or board
of trade will exist for any particular contract or at any
particular time. In such event, it may not be possible to close
a futures investment position, and in the event of adverse price
movements, the Portfolio would continue to be required to make
daily cash payments of variation margin. However, in the event
futures contracts have been used to hedge portfolio securities,
such securities will not be sold until the futures contract can
be terminated. In such circumstances, an increase in the price
of the securities, if any, may partially or completely offset
losses on the futures contract. However, as described above,
there is no guarantee that the price of the securities will in
fact correlate with the price movements in the futures contract
and thus provide an offset on a futures contract.

The Adviser intends to purchase and sell futures
contracts on the stock index for which it can obtain the best
price with due consideration to liquidity.

OPTIONS ON FUTURES CONTRACTS

Portfolios of the Fund intend to purchase and write
options on futures contracts for hedging purposes. None of the
Portfolios is a commodity pool and all transactions in futures
contracts engaged in by a Portfolio must constitute bona fide
hedging or other permissible transactions in accordance with the
rules and regulations promulgated by the CFTC. The purchase of a
call option on a futures contract is similar in some respects to
the purchase of a call option on an individual security.
Depending on the pricing of the option compared to either the
price of the futures contract upon which it is based or the price

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of the underlying debt securities, it may or may not be less
risky than ownership of the futures contract or underlying debt
securities. As with the purchase of futures contracts, when a
Portfolio is not fully invested it may purchase a call option on
a futures contract to hedge against a market advance due to
declining interest rates.

The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract or securities comprising an index. If
the futures price at expiration of the option is below the
exercise price, the Portfolio will retain the full amount of the
option premium which provides a partial hedge against any decline
that may have occurred in the Portfolio's portfolio holdings.
The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or
foreign currency which is deliverable upon exercise of the
futures contract or securities comprising an index. If the
futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the
option premium which provides a partial hedge against any
increase in the price of securities which the Portfolio intends
to purchase. If a put or call option the Portfolio has written
is exercised, the Portfolio will incur a loss which will be
reduced by the amount of the premium it receives. Depending on
the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures
positions, the Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in
the value of portfolio securities.

The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Portfolio may
purchase a put option on a futures contract to hedge the
Portfolio's portfolio against the risk of rising interest rates.

The amount of risk the Portfolio assumes when it
purchases an option on a futures contract is the premium paid for
the option plus related transaction costs. In addition to the
correlation risks discussed above, the purchase of an option also
entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the
option purchased.

OPTIONS ON FOREIGN CURRENCIES

Portfolios of the Fund may purchase and write options on
foreign currencies for hedging purposes in a manner similar to
that in which futures contracts on foreign currencies, or forward

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contracts, will be utilized. For example, a decline in the
dollar value of a foreign currency in which portfolio dollar
value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of
portfolio securities, the Portfolio may purchase put options on
the foreign currency. If the value of the currency does decline,
the Portfolio will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would
have resulted.

Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Portfolio may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Portfolio deriving
from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could
sustain losses on transactions in foreign currency options which
would require it to forego a portion or all of the benefits of
advantageous changes in such rates.

Portfolios of the Fund may write options on foreign
currencies for the same types of hedging purposes. For example,
where a Portfolio anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a
put option, write a call option on the relevant currency. If the
expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities
will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the U.S. Dollar cost of
securities to be acquired, the Portfolio could write a put option
on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in
the case of other types of options, however, the writing of a
foreign currency option will constitute only a partial hedge up
to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell
the underlying currency at a loss which may not be offset by the
amount of the premium. Through the writing of options on foreign

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currencies, the Portfolio also may be required to forego all or a
portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.

Portfolios of the Fund intend to write covered call
options on foreign currencies. A call option written on a
foreign currency by a Portfolio is covered if the Portfolio owns
the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash
consideration held in a segregated account by the Fund's
Custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the
Portfolio has a call on the same foreign currency and in the same
principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of
the call written or (b) is greater than the exercise price of the
call written if the difference is maintained by the Portfolio in
cash, U.S. Government Securities and other high grade liquid debt
securities in a segregated account with the Fund's Custodian.

Portfolios of the Fund also intend to write call options
on foreign currencies that are not covered for cross- hedging
purposes. A call option on a foreign currency is for cross-
hedging purposes if it is not covered, but is designed to provide
a hedge against a decline in the U.S. Dollar value of a security
which the Portfolio owns or has the right to acquire and which is
denominated in the currency underlying the option due to an
adverse change in the exchange rate. In such circumstances, the
Portfolio collateralizes the option by maintaining in a
segregated account with the Fund's Custodian, cash or U.S.
Government Securities or other high quality liquid debt
securities (or, in the case of the North American Government
Income Portfolio and the Utility Income Portfolio, high grade
liquid debt securities) in an amount not less than the value of
the underlying foreign currency in U.S. Dollars marked to market
daily.

ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS,
FORWARD CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES

Unlike transactions entered into by a Portfolio in
futures contracts, options on foreign currencies and forward
contracts are not traded on contract markets regulated by the
CFTC or (with the exception of certain foreign currency options)
by the Commission. To the contrary, such instruments are traded
through financial institutions acting as market-makers, although
foreign currency options are also traded on certain national
securities exchanges, such as the Philadelphia Stock Exchange and
the Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter.

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In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer and a trader of forward
contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral
requirements associated with such positions.

Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation (OCC), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting a Portfolio to liquidate open positions at
a profit prior to exercise or expiration, or to limit losses in
the event of adverse market movements.

The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or
its clearing member, impose special procedures on exercise and
settlement, such as technical changes in the mechanics of
delivery of currency, the fixing of dollar settlement prices or
prohibitions, on exercise.

In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies
may be traded on foreign exchanges. Such transactions are
subject to the risk of governmental actions affecting trading in

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or the prices of foreign currencies or securities. The value of
such positions also could be adversely affected by (i) other
complex foreign political and economic factors, (ii) lesser
availability than in the United States of data on which to make
trading decisions, (iii) delays in a Portfolio's ability to act
upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.

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APPENDIX C

OPTIONS

Portfolios of the Fund will only write covered put and
call options, unless such options are written for cross-hedging
purposes. The manner in which such options will be deemed
covered is described in the Prospectus under the heading Other
Investment Policies and Techniques -- Options.

The writer of an option may have no control over when
the underlying securities must be sold, in the case of a call
option, or purchased, in the case of a put option, since with
regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount, of course, may, in the
case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period.
If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option
is exercised, the writer must fulfill the obligation to purchase
the underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.

The writer of a listed option that wishes to terminate
its obligation may effect a closing purchase transaction. This
is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that
the writers position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option.
Likewise, an investor who is the holder of a listed option may
liquidate its position by effecting a closing sale transaction.
This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction can be
effected.

Effecting a closing transaction in the case of a written
call option will permit the Portfolio to write another call
option on the underlying security with either a different
exercise price or expiration date or both, or in the case of a
written put option will permit the Portfolio to write another put
option to the extent that the exercise price thereof is secured
by deposited cash or short-term securities. Also, effecting a
closing transaction will permit the cash or proceeds from the
concurrent sale of any securities subject to the option to be
used for other Portfolio investments. If the Portfolio desires
to sell a particular security from its portfolio on which it has

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written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.

A Portfolio will realize a profit from a closing
transaction if the price of the transaction is less than the
premium received from writing the option or is more than the
premium paid to purchase the option; the Portfolio will realize a
loss from a closing transaction if the price of the transaction
is more than the premium received from writing the option or is
less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally
reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the
underlying security owned by the Portfolio.

An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Portfolio would have to exercise the options in order to
realize any profit. If the Portfolio is unable to effect a
closing purchase transaction in a secondary market, it will not
be able to sell the underlying security until the option expires
or it delivers the underlying security upon exercise. Reasons
for the absence of a liquid secondary market include the
following: (i) there may be insufficient trading interest in
certain options, (ii) restrictions may be imposed by a national
securities exchange (Exchange) on opening transactions or closing
transactions or both, (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options or underlying securities, (iv) unusual or
unforeseen circumstances may interrupt normal operations on an
Exchange, (v) the facilities of an Exchange or the Options
Clearing Corporation may not at all times be adequate to handle
current trading volume, or (vi) one or more Exchanges could, for
economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on
that Exchange (or in that class or series of options) would cease
to exist, although outstanding options on that Exchange that had
been issued by the Options Clearing Corporation as a result of
trades on that Exchange would continue to be exercisable in
accordance with their terms.

A Portfolio may write options in connection with buy-
and-write transactions; that is, the Portfolio may purchase a
security and then write a call option against that security. The
exercise price of the call the Portfolio determines to write will
depend upon the expected price movement of the underlying
security. The exercise price of a call option may be below (in-

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the-money), equal to (at-the-money) or above (out-of-the- money)
the current value of the underlying security at the time the
option is written. Buy-and-write transactions using in-the-
money call options may be used when it is expected that the price
of the underlying security will remain flat or decline moderately
during the option period. Buy-and-write transactions using at-
the-money call options may be used when it is expected that the
price of the underlying security will remain fixed or advance
moderately during the option period. Buy-and-write transactions
using out- of-the-money call options may be used when it is
expected that the premiums received from writing the call option
plus the appreciation in the market price of the underlying
security up to the exercise price will be greater than the
appreciation in the price of the underlying security alone. If
the call options are exercised in such transactions, the
Portfolio's maximum gain will be the premium received by it for
writing the option, adjusted upwards or downwards by the
difference between the Portfolio's purchase price of the security
and the exercise price. If the options are not exercised and the
price of the underlying security declines, the amount of such
decline will be offset in part, or entirely, by the premium
received.

The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Portfolio's gain will be limited to the premium received.
If the market price of the underlying security declines or
otherwise is below the exercise price, the Portfolio may elect to
close the position or take delivery of the security at the
exercise price and the Portfolio's return will be the premium
received from the put option minus the amount by which the market
price of the security is below the exercise price. Out-of-the-
money, at-the-money, and in-the-money put options may be used by
the Portfolio in the same market environments that call options
are used in equivalent buy- and-write transactions.

A portfolio may purchase put options to hedge against a
decline in the value of its portfolio. By using put options in
this way, the Portfolio will reduce any profit it might otherwise
have realized in the underlying security by the amount of the
premium paid for the put option and by transaction costs.

A Portfolio may purchase call options to hedge against
an increase in the price of securities that the Portfolio
anticipates purchasing in the future. The premium paid for the
call option plus any transaction costs will reduce the benefit,
if any, realized by the Portfolio upon exercise of the option,
and, unless the price of the underlying security rises
sufficiently, the option may expire worthless to the Portfolio.

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________________________________________________________________

APPENDIX D: ADDITIONAL INFORMATION ABOUT
THE UNITED KINGDOM, JAPAN, CANADA, MEXICO AND ARGENTINA
________________________________________________________________

The information in this section is based on material
obtained by the Fund from various United Kingdom, Japanese,
Canadian, Mexican and Argentine governmental and other sources
believed to be accurate but has not been independently verified
by the Fund or the Adviser. It is not intended to be a complete
description of the United Kingdom, Japan, Canada, Mexico or
Argentina, their economies or the consequences of investing in
United Kingdom or Japanese securities, or Canadian Government,
Mexican Government or Argentine Government Securities.

_______________________________________________________________

ADDITIONAL INFORMATION ABOUT THE UNITED KINGDOM
_______________________________________________________________

The United Kingdom of Great Britain and Northern Ireland
is located off the continent of Europe in the Atlantic Ocean.
Its population is approximately 59 million.

GOVERNMENT

The United Kingdom is a constitutional monarchy. Queen
Elizabeth II has been the head of state since she acceded to the
throne in 1952. The monarchy was established in 1066. The
monarch's power has eroded over the centuries, but the monarch
retains the power to call and dissolve Parliament, to give assent
to bills passed by Parliament, to appoint the Prime Minister and
to sign treaties or declare war. In practice, most of these acts
are performed by government ministers, and supreme legislative
authority now resides in the Parliament. Parliament, the
bicameral legislature, consists of the House of Commons and the
House of Lords. Acts of Parliament passed in 1911 and 1949 limit
the powers of the House of Lords to prevent bills passed by the
House of Commons from becoming law. The main purpose of the
House of Lords is now to revise and amend laws passed by the
House of Commons. The national government is headed by the Prime
Minister who is appointed by the monarch on the basis of ability
to form a government with the support of the House of Commons.

POLITICS

Since World War II the national government has been
formed by either the Conservative Party or the Labour Party. The
Conservative Party under the leadership of Margaret Thatcher
achieved a parliamentary majority and formed a new government in

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May 1979. In June 1983 and again in June 1987, the Conservative
Party under her leadership was reelected. The Party pursued
policies of reducing state intervention in the economy, reducing
taxes, deregulating business and industry and privatizing state-
owned enterprises. It also displayed an antipathy toward the
European Union. In November 1990, Mrs. Thatcher faced a
challenge for the leadership of the party from Michael Heseltine,
one of her former cabinet ministers. The opposition proposed
changes in policy, including increased government intervention in
the economy and a less confrontational approach toward the
European Union. The two wings of the Conservative Party looked
for someone who could unite the Party and elected John Major as
its leader and, by virtue of the Conservative Party majority, to
the post of Prime Minister.

Mr. Major led the Conservative Party to its fourth
successive general election victory in April 1992, after which
time, the popularity of both Mr. Major and the Conservative Party
declined. In April 1995, the Conservative Party won only 11% of
the vote in Scotland local elections, which resulted in
Conservative Party control of only 81 council seats out of 1,161.
It won only 25% of the vote in local council elections in England
and Wales in May 1995. In July 1995, Mr. Major won a vote of
confidence with his reelection as leader of the Conservative
Party. Despite Mr. Major's strengthened position within the
Conservative Party, the Party continued to suffer setbacks.
Within two weeks of Mr. Major's victory, the Conservative Party
lost its fifth by-election since the general election of 1992.
By 1996, his overall majority was reduced to one. In the next
general election, on May 1, 1997, Mr. Major and the Conservative
Party were defeated by the Labour Party led by Tony Blair, who
subsequently was appointed Prime Minister. The Labour Party now
holds 418 of the 659 seats in the House of Commons. The next
general election is required by law to occur no later than May
2002.

ECONOMY

The United Kingdom's economy is the fifth largest in the
Organization for Economic Cooperation and Development, behind the
United States, Japan, Germany and France. Its economy maintained
an average annual growth rate of 3.0% in real growth domestic
product ("GDP") terms from 1950 through 1973; from 1973 through
1981 growth slowed to an annual average of 0.7%; from 1982
through 1988 annual growth recovered to 3.6%; and from 1989
through 1993, the United Kingdom's real GDP annual growth rate
was 1.0%. The economy has continued to experience the moderate
growth that began in 1993, after the 1990-1992 recession, with
real GDP having grown by 4.4% in 1994, 2.8% in 1995, 2.6% in
1996, 3.5% in 1997 and 2.3% in 1998. The government has forecast
a GDP growth rate of 1.0% to 1.5% for 1999.

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The United Kingdom's economy experienced a significant
level of inflation in the 1980s and early 1990s. Since then,
inflation has moderated, averaging 2.8% (as measured by the RPIX,
which excludes mortgage interest payments) from 1993 to 1997.
The level of inflation during 1998 met the government's target
rate of 2.5% and is expected to meet the same target rate in
1999.

The sluggish growth in the United Kingdom's
manufacturing sector since the 1990-1992 recession continued the
trend toward the decreased importance of manufacturing in the
economy. Manufacturing accounted for just 21.8% of GDP in 1995
compared with 36.5% in 1960. The long-term decline in
manufacturing's share of GDP accelerated during the 1980-1981
recession. In those two years, manufacturing output and
employment each fell by approximately 14%. The United Kingdom's
traditional manufacturing industries of steel, shipbuilding and
textiles have not remained competitive in the international
marketplace. Since 1983, the United Kingdom has been a net
importer of manufactured goods for the first time since the
industrial revolution.

As the United Kingdom's manufacturing industry has
declined in importance, the service industry, including financial
services, has increased in importance. The service industries'
share of GDP has increased to almost two-thirds from 45% in 1960.

Employment has been shifting from manufacturing to the
service industry, a trend expected to continue for the
foreseeable future. Despite this development and the fact that
between the fourth quarter of 1988 and the fourth quarter of 1993
more than 900,000 manufacturing jobs were lost, until 1995 the
manufacturing sector remained the biggest single source of jobs.
By 1995, however, the manufacturing sector, while still
accounting for 8% of jobs, was no longer the biggest single
source. Overall, unemployment has continued to fall from a post-
recession high of 10.6% in January 1993 to 4.86% in December
1998.

Foreign trade remains an important part of the United
Kingdom's economy. In 1997, exports of goods represented 31.2%
of GDP. The United Kingdom has historically been an exporter of
manufactured products and an importer of food and raw materials,
but there is a growing trend toward manufactured goods forming a
larger proportion of imports. Machinery and transport equipment
accounted for 41.0% of imports in the first five months of 1998
compared to 20.4% in 1975 and for 51.6% of exports in the first
five months of 1998 compared to 42.3% in 1975. For every year
since 1982, the United Kingdom has been a net importer of goods.
The relative importance of the United Kingdom's trading partners
has also shifted. In 1997, the other members of the European

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Union accounted for 55.3% of all exports and 53.2% of its
imports, as compared to 43.3% and 41.3%, respectively, in 1980.
In 1997, the United Kingdoms largest trading partners with
respect to imports and exports were the United States and
Germany, respectively.

Historically, the United Kingdom's current account
consisted of relatively small trade deficits, sometimes
outweighed by surpluses on invisibles (services, interest,
dividends, profits and transfers). Since 1980, several important
changes have taken place with regard to the United Kingdom's
trading position. Those include the increased importance to the
economy of oil exports from the North Sea, the change from being
a net exporter to a net importer of goods and the diminishing
surpluses from invisibles. These developments led to a balance
of payments deficit, which continued through 1996. The balance
of payments moved into surplus in 1997 for the first time in over
a decade. Although the balance of payments returned to a deficit
during the first two quarters of 1998, it moved into surplus
again during the last two quarters, resulting in an overall
surplus for 1998.

With regard to the public sector of the economy, the
national government publishes forecasts for the economy and the
public sector net cash requirement (PSNCR), previously known as
the public sector borrowing requirement ("PSBR"). The PSNCR is a
mandated measure of the amount of borrowing required to balance
the national government's budget. Figures for the fiscal year
ended March 31, 1998, show a PSNCR equal to 0.2% of GDP (or a
general government financial deficit of 0.8%). As a result, the
general government budget balance for the 1997/1998 fiscal year
was well below the permitted level for countries scheduled to
participate in the Economic and Monetary Union ("EMU") beginning
in January 1999. Although the United Kingdom meets the EMUs
eligibility criteria, the government has announced that it would
not take any action before a referendum is held after the next
general election. In January 1999, the government submitted a
report to the European Commission detailing the steps the
government is taking to prepare the United Kingdom for possibly
joining the EMU at a later date.

MONETARY AND BANKING SYSTEM

The central bank of the United Kingdom is the Bank of
England. Its main functions are to advise on the formulation and
execution of monetary policy, to supervise banking operations in
the United Kingdom, to manage the domestic currency, and, as
agent for the Government, the country's foreign exchange
reserves. Additionally, shortly after taking office in 1997,
Prime Minister Blair vested responsibility for setting interest

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rates in a new Monetary Policy Committee headed by the Bank of
England, as opposed to the Treasury.

The City of London is one of the world's major financial
centers. It has the greatest concentration of banks and the
largest insurance market in the world. It is estimated that
United Kingdom insurers handle approximately 20% of the general
insurance business placed in the international market. Financial
services currently form approximately 20% of the country's GDP.

The currency unit of the United Kingdom is the Pound
Sterling. In June 1972, the Pound was allowed to float against
other currencies. The general trend since then has been a
depreciation against most major currencies, including the U.S.
Dollar, Japanese Yen, German Deutsche Mark ("DM"), French Franc
and the European Currency Unit. On October 8, 1990, Pound
Sterling became part of the Exchange Rate Mechanism ("ERM") of
the European Monetary System at a central rate of L1:DM2.95.
Membership in the ERM requires that each currency remain within a
certain fluctuation range against other currencies. If this
range is not maintained, the currency must be revalued.
Initially, the Pound remained competitive within the DM range of
2.80 to 2.98, but the pressures exerted by ERM membership made it
increasingly difficult for the United Kingdom to allow the Pound
to remain in the ERM. While the government continued to defend
the relative value of the Pound by raising interest rates, it
became clear that the Pound was not competitive against the
Deutsche Mark. On September 16, 1992, the Pound's membership in
the ERM was suspended. The value of the Pound continued to fall
rapidly after the exit from the ERM, reaching a low of DM2.335 at
the end of February 1993. It has since recovered against the
Deutsche Mark and other currencies. In addition to the United
Kingdom's former membership in the ERM, the growing importance of
trade with the European Union has made the Deutsche Mark exchange
rate more important to the United Kingdom than the U.S. Dollar
exchange rate. From 1988 through 1993, the Pound declined at an
average annual rate of approximately 15% against the U.S. Dollar
and approximately 20% against the Deutsche Mark. Since 1993, the
exchange rate between the Pound and the U.S. Dollar has remained
fairly constant, while the exchange rate between the Pound and
the Deutsche Mark has risen significantly, by over 35% between
January 1996 and July 1997. In 1996, the average annual exchange
rates of the Pound against the U.S. Dollar and the Deutsche Mark
were $1.59 and DM2.41, respectively. In 1997, the average
exchange rates of the Pound against the U.S. Dollar and the
Deutsche Mark were $1.64 and DM2.84, respectively. In 1998, the
average exchange rates of the Pound against the U.S. Dollar and
the Deutsche Mark were $1.7066 and DM2.91, respectively.

THE LONDON STOCK EXCHANGE

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The London Stock Exchange ("LSE") is both the national
stock exchange for the United Kingdom and the world's leading
marketplace for the trading of international equities. The LSE
provides a secondary market for trading in more than 10,000
securities. It offers markets for domestic securities
(securities issued by companies in the United Kingdom or
Ireland), foreign equities, United Kingdom gilts (securities
issued by the national government), bonds or fixed interest
stocks (usually issued by companies or local authorities) and
options. At the end of 1997, foreign equities constituted
approximately 59% and United Kingdom equities constituted
approximately 41% of the market value of all LSE listed and
quoted equity securities. Currently, the LSE is the world's
second largest in terms of market value, the New York Stock
Exchange being the largest.

The LSE developed as demand for capital increased with
the advent of the industrial revolution. By 1965, regional
exchanges had banded together to form the Federation of Stock
Exchanges. In 1973, the Irish Stock Exchange based in Dublin and
the London Stock Exchange merged, thereby creating a unified
exchange. On December 8, 1995, pursuant to a European Union
directive requiring its members to regulate stock exchanges in
their own countries, the Dublin Stock Exchange separated from the
LSE and became independent.

The LSE comprises different markets. In addition to the
market for officially-listed securities, the LSE includes a
market created in 1995 for smaller and newer companies known as
AIM. As of December 31, 1997, 308 companies with an aggregate
market value of 5.7 billion Pounds were traded on AIM. As of
December 31, 1997, the market value of the securities traded on
AIM was less than 1% of the market value of the securities
officially listed on the LSE.

In 1979, the abolition of foreign exchange controls made
it easier for United Kingdom savings institutions to invest money
overseas in non-United Kingdom securities. As a result, the
LSE's members were exposed for the first time to competition from
overseas brokers. The international competition and government
pressure led the LSE to institute major reforms. Deregulation of
the LSE, culminating on October 27, 1986 in what is commonly
referred to as "Big Bang", involved the introduction of
negotiated commissions on securities transactions, the
elimination of the system that had maintained a distinction
between brokers and marketmakers, ownership of member firms by
outside entities and the transfer of voting rights from
individual members to member firms.

The LSE runs markets for trading securities by providing
a market structure, regulating the operation of the markets,

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supervising the conduct of member firms dealing in the markets,
publishing company news and providing trade confirmation and
settlement services. The domestic market is based on the
competing marketmaker system. The bid and offer prices are
distributed digitally via the Exchange's automated price
information system, SEAQ (Stock Exchange Automated Quotations),
which provides widespread dissemination of the securities prices
for the United Kingdom equity market. Throughout the trading
day, marketmakers display their bid (buying) and offer (selling)
prices and the maximum transaction size to which these prices
relate. These prices are firm to other LSE member firms, except
that the prices for larger transactions are negotiable.

Marketmakers in the international equity market display
their quotes on SEAQ International. The system operates in a
manner similar to the domestic SEAQ, but is divided into 40
separate country sectors, of which 15 are developing markets
sectors.

On October 20, 1997 the LSE launched the new Stock
Exchange Electronic Trading Service, an initiative that will
improve efficiency and lower share trading costs, and is expected
to attract more volume and thus increase liquidity.

On July 7, 1998 the LSE and its German counterpart, the
Deutsche Borse, unexpectedly announced their intention to form a
strategic alliance under which members of one exchange will be
members of the other. While the first phase of the proposed
alliance began in January 1999, the LSE and the Deutsche Borse
still must address numerous issues, including agreement on common
regulations and promulgation by their respective governments of a
common tax regime for share trading.

Sector Analysis of the LSE. The LSE's domestic and
foreign securities include a broad cross-section of companies
involved in many different industries. In 1997, the five largest
industry sectors by turnover among domestic securities were
banking with 15.2% of the aggregate market value of domestic
market securities, pharmaceuticals with 8.7%, oil with 7.5%,
telecommunications with 5.4% and retailing with 5.1%. In 1997,
the five largest country sectors by market value among listed and
SEAQ International quoted securities were France with 15.4% of
the aggregate market value of listed and SEAQ International
quoted securities, Germany with 11.8%, Japan with 11.2%,
Switzerland with 10.0% and The Netherlands with 9.3%.

Market Growth of the LSE. LSE market value and the
trading volume have increased dramatically since the end of 1990.
In 1997, 280.3 billion domestic shares and 297.1 billion foreign
shares were traded as compared with 155.4 billion and 34.8
billion, respectively in 1991. At the end of 1997, the market

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value of listed domestic companies and foreign companies
increased to 1,251.4 billion Pounds and 2,429.1 billion Pounds
from 450.5 billion Pounds and 1,124.1 billion Pounds,
respectively, at the end of 1990.

Market Performance of the LSE. The FT-SE 100 is an
index that consists of the 100 largest United Kingdom companies.
The FT-SE 100 was introduced by the LSE in cooperation with The
Financial Times and the Institute and Faculty of Actuaries in
1984. As measured by the FT-SE 100, the performance of the 100
largest companies reached a record high of 6513.10 on April 13,
1999.

REGULATION OF THE UNITED KINGDOM FINANCIAL SERVICES INDUSTRY

The principal securities law in the United Kingdom is
the Financial Services Act. The Financial Services Act, which
became law in November 1986, established a new regulatory system
for the conduct of investment businesses in the United Kingdom.
Most of the statutory powers under the Act were transferred to
the Securities and Investments Board ("SIB"), a designated agency
created for this purpose. The SIB was given wide-ranging
enforcement powers and was made accountable to Parliament through
the Treasury. A system of self regulating organizations
("SROs"), which regulate their members, was made accountable to
the SIB. There are three SROs covering the financial market,
including the Securities and Futures Authority which is
responsible for overseeing activities on the Exchange. The other
SROs are the Investment Management Regulatory Organization and
the Personal Investment Authority. In 1988, it became illegal for
any firm to conduct business without authorization from the SRO
responsible for overseeing its activities. In addition,
Recognized Investment Exchanges ("RIEs"), which include the
London Stock Exchange of London, the London International
Financial Futures and Options Exchange, the London Commodities
Exchange, the International Petroleum Exchange of London, the
London Metal Exchange and the London Securities and Derivatives
Exchange were made accountable to the SIB. Recognition as an
RIE exempts the exchange (but not its members) from obtaining
authorization for actions taken in its capacity as an RIE. To
become an RIE, an exchange must satisfy the SIB that it meets
various prerequisites set out in the Act, including having
effective arrangements for monitoring and enforcing compliance
with its rules. Recognized Professional Bodies ("RPBs")
supervise the conduct of lawyers, actuaries, accountants and some
insurance brokers. Together the SROs, RIEs and RPBs provide the
framework for protection for investors and integrity of the
markets.

On May 20, 1997 the newly installed Labour government
announced a proposed major restructuring of the regulation and

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supervision of the financial services industry in the United
Kingdom. The main feature of the restructuring plan is to
transfer regulatory authority over banks from the Bank of England
to an expanded SIB, which has been named the Financial Services
Authority (FSA). In addition, the plan calls for the merger of
the three SROs into the FSA. The transfer of banking supervision
from the Bank of England to the FSA was formally implemented on
June 1, 1998. The consolidation of the SROs into the FSA, which
is more complex and more controversial, will not be implemented
before the end of 1999.

The European Union's Investment Services Directive
("ISD") will, with the various banking directives, provide the
framework for a single market in financial services in Europe.
Authorized firms will be able to operate on the basis of one
authorization throughout Europe. Member states were given until
January 1, 1996 to implement the ISD. As of October 1998, all
member states, including the United Kingdom, had implemented the
ISD, with the exception of Luxembourg, which is in the process of
doing so.

Basic restrictions on insider dealing in securities are
contained in the Company Securities Act of 1985. The Financial
Services Act provides guidelines for investigations into insider
dealing under the Criminal Justice Act of 1993 and penalties for
any person who fails to cooperate with such an investigation. In
addition, the Financial Services Act introduced new listing and
disclosure requirements for companies.

UNITED KINGDOM FOREIGN EXCHANGE AND INVESTMENT CONTROLS

The United Kingdom has no exchange or investment
controls, and funds and capital may be moved freely in and out of
the country. Exchange controls were abolished in 1979. As a
member of the European Union, the United Kingdom applies the
European Union's common external tariff.

________________________________________________________________

ADDITIONAL INFORMATION ABOUT JAPAN
________________________________________________________________

Japan, located in eastern Asia, consists of four main
islands: Hokkaido, Honshu, Kyushu and Shikoku, and many small
islands. Its population is approximately 126 million.

GOVERNMENT

The government of Japan is a representative democracy
whose principal executive is the Prime Minister. Japan's
legislature (known as the Diet) consists of two houses, the House

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of Representatives (the lower house) and the House of Councillors
(the upper house).

POLITICS

From 1955 to 1993, Japan's government was controlled by
the Liberal Democratic Party (the "LDP"), the major conservative
party. In August 1993, after a main faction left the LDP over
the issue of political reform, a non-LDP coalition government was
formed consisting of centrist and leftist parties and was headed
by Prime Minister Morihiro Hosokawa. In April 1994, Mr. Hosokawa
resigned due to allegations of personal financial irregularities.
The coalition members thereafter agreed to choose as prime
minister the foreign minister, Tsutomu Hata. As a result of the
formation of a center-right voting bloc, however, the Japan
Socialist Party (the "JSP"), a leftist party, withdrew from the
coalition. Consequently, Mr. Hata's government was a minority
coalition, the first since 1955, and was therefore unstable. In
June 1994, Mr. Hata and his coalition were replaced by a new
coalition made up of the JSP (since renamed the "Social
Democratic Party (the "SDP")), the LDP and the small New Party
Sakigake (the "Sakigake"). This coalition, which surprised many
because of the historic rivalries between the LDP and the SDP,
was led by Tomiichi Murayama, the first Socialist prime minister
in 47 years. Mr. Murayama stepped down in January 1996 and was
succeeded as Prime Minister by Liberal Democrat Ryutaro
Hashimoto. By September 1996, when Prime Minister Hashimoto
called for a general election on October 20, 1996, the stability
of the SDP-LDP-Sakigake coalition had become threatened. Both
the SDP and the Sakigake had lost more than half their seats in
the lower house of the Diet when a faction of the Sakigake split
off to form the Democratic Party of Japan. Their strength was
further diminished as a result of the October 20, 1996 House of
Representatives election. Although the LDP was 12 seats short of
winning a majority in that election, it was able to reduce the
margin to three seats and to achieve enough support from its two
former coalition parties, the SDP and the Sakigake, as well as
independents and other conservatives, to return Japan to a
single-party government for the first time since 1993.
Mr. Hashimoto was reappointed as Prime Minister on November 7,
1996. Subsequent to the 1996 elections, the LDP established and
is maintaining a majority in the House of Representatives as
individual members have joined the ruling party. By 1998 the
popularity of the LDP had declined, due to dissatisfaction with
Mr. Hashimoto's leadership, and in the July 12, 1998 House of
Councillors election, the LDP's representation fell to 103 seats
from 120 seats. As a result of the LDP's defeat, on July 13,
1998, Mr. Hashimoto announced his resignation as Prime Minister
and was replaced by Keizo Obuchi on July 24, 1998. On
January 14, 1999, the LDP formed a coalition government with a
major opposition party. As a result, Mr. Obuchi's administration

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strengthened its position in the Diet, where it increased its
majority in the House of Representatives and reduced its
shortfall in the House of Councillors. The opposition is
dominated by the new Minshuto (Democratic Party of Japan), which
was established in April 1998 by various opposition groups and
parties. The next general election (House of Representatives) is
required by law to occur no later than the end of 2000.

ECONOMY

The Japanese economy maintained an average annual growth
rate of 2.1% in real GDP terms from 1990 through 1994, compared
with 2.4% for the United States during the same period. In 1995
and 1996, Japan's real GDP growth was 1.4% and 4.1%,
respectively. In 1997, Japan's real GDP growth rate fell to 0.9%.
In 1998, Japan's real GDP contracted by 2.8%, marking five
consecutive quarters in which Japan experienced a negative real
GDP growth rate, resulting in the longest contraction of the
economy since the Japanese government began compiling such data
in 1955. Inflation has remained low, 1.3% in 1993, 0.7% in 1994,
- -0.1% in 1995, 0.1% in 1996, 1.7% in 1997 and 0.7% in 1998.
Private consumer demand has slowed due to uncertainty about the
economy and higher consumer taxes that went into effect in April
1997. Unemployment is at its highest level since the end of
World War II, rising to 4.6% in February 1999, and is not
expected to fall appreciably in the foreseeable future.

Japan's post World War II reliance on heavy industries
has shifted to higher technology products assembly and, most
recently, to automobile, electrical and electronic production.
Japan's success in exporting its products has generated sizable
trade surpluses. Since the early 1980's, Japan's relations with
its trading partners have been difficult, partly due to the
concentration of Japanese exports in products such as
automobiles, machine tools and semiconductors and the large trade
surpluses resulting therefrom, and an overall trade imbalance as
indicated by Japan's balance of payments. Japan's overall trade
surplus for 1994 was the largest in its history, amounting to
almost $145 billion. Exports totaled $386 billion, up 9.3% from
1993, and imports were $242 billion, up 13.6% from 1993. The
current account surplus in 1994 was $130 billion, down 1.5% from
a record high in 1993. By 1996, Japan's overall trade surplus
had decreased to $83 billion. Exports had increased to a total
of $400 billion, up 3.6% from 1994, and imports had increased to
a total of $317 billion, up 31.0% from 1994. During 1997, the
overall trade surplus increased approximately 22% from 1996.
Exports increased to a total of $409 billion, up 2% from 1996,
and imports decreased to $308 billion, down 3% from 1996. During
1998 the overall trade surplus increased approximately 8% from
1997. Exports decreased to a total of $386 billion, down 6% from
1997, and imports decreased to a total of $276 billion, down 10%

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from 1997. Both imports and exports are expected to continue
their decline in 1999, with the overall trade surplus continuing
on its upward course, but at a slower pace. Japan remains the
largest creditor nation and a significant donor of foreign aid.

On October 1, 1994, the U.S. and Japan reached an
agreement with respect to trade in insurance, glass and medical
and telecommunications equipment. In June 1995, the two
countries agreed in principal to increase Japanese imports of
American automobiles and automotive parts. These and other
agreements, however, have not been successful in addressing
Japan's trade surplus with the U.S. Other current sources of
tension between the two countries are disputes in connection with
trade in steel, semiconductors and photographic supplies,
deregulation of the Japanese insurance market, a dispute over
aviation rights and access to Japanese ports. It is expected
that the friction between the United States and Japan with
respect to trade issues will continue for the foreseeable future.

In response to pressures caused by the slumping Japanese
economy, the fragile financial markets and the appreciating Yen,
the Japanese government, in April and June 1995, announced
emergency economic packages that focused on higher and
accelerated public works spending and increased aid for post-
earthquake reconstruction in the Kobe area. These measures
helped to increase public investment and lead to faster GDP
growth, but failed to produce fundamental changes. In 1997 and
again in 1998, the government announced additional stimulus
packages that included increased public works spending and tax
cuts. These measures have also been unsuccessful in stimulating
Japan's economy. In October 1998, Prime Minister Obuchi
instructed his cabinet to prepare another emergency economic
stimulus plan calling for even more public spending and further
tax cuts. The plan, which was finalized in November 1998 and
approved by the legislature in March 1999, will lower personal
income taxes by 20% and bring the corporate tax structure more in
line with other industralized nations, as well as increase
government spending by 5.4% and provide $85.2 billion for new
public works program.

In addition to the government's emergency economic
packages announced in 1995, the Bank of Japan attempted to assist
the financial markets by lowering its official discount rate to a
record low in 1995. However, large amounts of bad debt have
prevented banks from expanding their loan portfolios despite low
discount rates. Japanese banks have suffered several years of
declining profits and many banks have required public funds to
avert insolvency. In June 1995, the Finance Ministry announced
an expansion of deposit insurance and restrictions on rescuing
insolvent banks. In June 1996, six bills designed to address the
large amount of bad debt in the banking system were passed by the

D-12

<PAGE>

Diet, but the difficulties worsened. By the end of the 1997/98
fiscal year, the government estimated that the banking system's
bad loans totaled 87.5 trillion Yen (approximately $600 billion),
or 11% of outstanding bank loans.

On December 17, 1997, in the wake of the collapse in the
previous month of one of Japan's 20 largest banks, the government
announced a proposal to strengthen the banks by means of an
infusion of public funds and other measures. In addition, the
imposition of stricter capital requirements and other supervisory
reforms scheduled to go into effect in April 1998 were postponed.
Subsequent to the December 1997 proposals, the government
proposed a series of additional proposals, culminating, after
vigorous political debate, in a set of laws that was approved by
the Diet in October 1998. The new laws will make $508 billion in
public funds available to increase the capital of Japan's banks,
to guarantee depositors' accounts and to nationalize the weakest
banks. On October 23, 1998, the Long-Term Credit Bank of Japan,
Ltd., one of Japan's 19 largest banks, became the first Japanese
bank to be nationalized pursuant to the new laws. On
December 11, 1998, the Nippon Credit Bank, Ltd. became the second
Japanese bank to be nationalized pursuant to the new laws. In
March 1999, 15 Japanese banks applied for, and are expected to
receive, a share of the $64 billion in public funds earmarked for
replenishing the capital of Japanese banks. It is unclear
whether these laws will achieve their intended effect. In
addition to bad domestic loans, Japanese banks also have
significant exposure to the current financial turmoil in other
Asian markets. The financial system's fragility is expected to
continue for the foreseeable future.

In November 1996, then Prime Minister Hashimoto
announced a set of initiatives to deregulate the financial sector
by the year 2001. Known as "Tokyo's Big Bang," the reforms
include changes in tax laws to favor investors, the lowering of
barriers between banking, securities and insurance, abolition of
foreign exchange restrictions and other measures designed to
revive Tokyo's status in the international capital markets and to
stimulate the economy. The Big Bang was formally launched in
April 1998. Some of the measures that have already been
implemented include a liberalization of foreign exchange
restrictions, a repeal of the ban on holding companies,
deregulation of fees on large transactions and allowing banks to
sell mutual funds. Other reforms that are scheduled to be
implemented include eliminating fixed brokerage commissions on
all stock trades (by the end of 1999) and allowing trust bank
subsidiaries of brokerage firms to manage pension funds (by
2000). While in the long term the Big Bang is viewed as a
positive step for Japan, in the current economic climate it is
viewed as putting additional stress on weaker institutions.

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<PAGE>

For the past several years, a growing budget deficit and
the threat of a budget crisis have resulted in a tightening of
fiscal policy. In March 1997, Prime Minister Hashimoto announced
the first detailed plan for fiscal reform. The plan called for
the lowering of the budget deficit to below 3% of GDP by Fiscal
Year 2003/2004. In June 1997, specific proposals for spending
cuts were approved by the cabinet and a Fiscal Reform Law,
incorporating the proposals into binding targets, were to have
been presented to the Diet late in 1997. In November 1997,
however, Prime Minister Hashimoto, facing growing pressure to
take steps to revitalize Japan's stagnant economy, announced a
new economic plan, the "Urgent Economic Policy Package Reforming
Japan for the 21st Century," which included tax cuts and public
spending. As discussed above, there have been several additional
programs of public spending and tax cuts.

Between 1985 and 1995, the Japanese Yen generally
appreciated against the U.S. Dollar. Between 1990 and 1994 the
Yen's real effective exchange rate appreciated by approximately
36%. 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 Yen has generally decreased in value against
the U.S. Dollar. The average Yen-Dollar exchange rates in 1996,
1997 and 1998 were 108.8, 121.0 and 130.99, respectively.

JAPANESE STOCK EXCHANGES. Currently, there are eight
stock exchanges in Japan. The Tokyo Stock Exchange (the "TSE"),
the Osaka Securities Exchange and the Nagoya Stock Exchange are
the largest, together accounting for approximately 99.8% of the
share trading volume and for about 98.0% of the overall trading
value of all shares traded on Japanese stock exchanges during the
year ended December 31, 1998. The other stock exchanges are
located in Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo. The
chart below presents annual share trading volume (in millions of
shares) and annual trading value (in billions of Yen) information
with respect to each of the three major Japanese stock exchanges
for the years 1989 through 1998. Trading volume and the value of
foreign stocks are not included.

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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
All Exchanges TOKYO OSAKA NAGOYA
VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE
_______ ______ ______ _____ _______ ______ _______ _____

1998 139,757 124,102 123,198 97,392 12,836 20,532 3,367 5,986
1997 130,657 151,445 107,566 108,500 15,407 27,024 6,098 12,758
1996 126,496 136,170 101,170 101,893 20,783 27,280 4,104 5,391
1995 120,149 115,840 92,034 83,564 21,094 24,719 5,060 5,462
1994 105,937 114,622 84,514 87,356 14,904 19,349 4,720 5,780
1993 101,173 106,123 86,935 86,889 10,440 14,635 2,780 3,459
1992 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1991 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1990 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1989 256,296 386,395 222,599 332,617 25,096 41,679 7,263 10,395

Source: The Tokyo Stock Exchange 1994, 1995, 1996, 1997 and 1998 Fact Books and December 1998
Monthly Statistics Report.
</TABLE>

THE TOKYO STOCK EXCHANGE

OVERVIEW OF THE TOKYO STOCK EXCHANGE. The TSE is the
largest of the Japanese stock exchanges and as such is widely
regarded as the principal securities exchange for all of Japan.
In 1998, the TSE accounted for 97.7% of the market value and
88.2% of the share trading volume on all Japanese stock
exchanges. A foreign stock section on the TSE, consisting of
shares of non-Japanese companies, listed 50 (out of 1,897 total
companies listed on the TSE) non-Japanese companies at the end of
February 1999. The market for stock of Japanese issuers on the
TSE is divided into a First Section and a Second Section. The
First Section is generally for larger, established companies (in
existence for five years or more) that meet listing criteria
relating to the size and business condition of the issuing
company, the liquidity of its securities and other factors
pertinent to investor protection. The TSE's Second Section is
for smaller companies and newly listed issuers.

SECTOR ANALYSIS OF THE FIRST AND SECOND SECTIONS. The
TSE's domestic stocks include a broad cross-section of companies
involved in many different areas of the Japanese economy. At the
end of 1997, the three largest industry sectors, based on market
value, listed on the first section of the TSE were banking, with
100 companies representing 15.83% of all domestic stocks listed
on the TSE; electric appliances, with 133 companies representing
15.06% of all domestic stocks so listed; and transportation
equipment with 61 companies representing 10.99% of all domestic
stocks so listed. No other industry sector represented more than
5% of TSE listed domestic stocks.

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<PAGE>

MARKET GROWTH OF THE TSE. The First and Second Sections
of the TSE grew in terms of both average daily trading value and
aggregate year-end market value from 1982, when they were
128,320 million Yen and 98,090 billion Yen, respectively, through
the end of 1989, when they were 1,335,810 million Yen and
611,152 billion Yen, respectively. Following the peak in 1989,
both average daily trading value and aggregate year-end market
value declined through 1992 when they were 243,362 million Yen
and 289,483 billion Yen, respectively. In 1993 and 1994, both
average daily trading value and aggregate year-end market value
increased and were 353,208 and 353,666 million Yen, respectively,
and 324,357 and 358,392 billion Yen, respectively. In 1995,
average daily trading value decreased to 335,598 million Yen and
aggregate year-end market value increased to 365,716 billion Yen.
In 1996, average daily trading value increased to 412,521 million
Yen and aggregate year-end market value decreased to
347,578 billion Yen. In 1997, average daily trading value
increased to 442,858 million Yen and aggregate year-end market
value decreased to 280,930 billion Yen. In 1998, average daily
trading value decreased to 394,298 million Yen and aggregate
year-end market value decreased to 275,181 billion Yen.

MARKET PERFORMANCE OF THE FIRST SECTION. As measured by
the TOPIX, a capitalization-weighted composite index of all
common stocks listed in the First Section, the performance of the
First Section reached a peak of 2,884.80 on December 18, 1989.
Thereafter, the TOPIX declined approximately 45% through
December 29, 1995. On December 30, 1996 the TOPIX closed at
1,470.94, down approximately 7% from the end of 1995. On
December 30, 1997, the TOPIX closed at 1,175.03, down
approximately 20% from the end of 1996. On December 30, 1998 the
TOPIX closed at 1086.99, down approximately 7% from the end of
1997. On April 15, 1999 the TOPIX closed at 1337.93.

JAPANESE FOREIGN EXCHANGE CONTROLS

Under Japan's Foreign Exchange and Foreign Trade Control
Law and cabinet orders and ministerial ordinances thereunder (the
"Foreign Exchange Controls"), prior notification to the Minister
of Finance of Japan (the "Minister of Finance") of the
acquisition of shares in a Japanese company from a resident of
Japan (including a corporation) by a non-resident of Japan
(including a corporation) is required unless the acquisition is
made from or through a securities company designated by the
Minister of Finance or if the Yen equivalent of the aggregate
purchase price of shares is not more than 100 million Yen. Even
in these situations, if a foreign investor intends to acquire
shares of a Japanese corporation listed on a Japanese stock
exchange or traded on a Japanese over-the-counter market
(regardless of the person from or through whom the foreign
investor acquires such shares) and as a result of the acquisition

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<PAGE>

the foreign investor would directly or indirectly hold 10% or
more of the total outstanding shares of that corporation, the
foreign investor must file a report within 15 days from the day
of such acquisition with the Minister of Finance and any other
minister with proper jurisdiction. In instances where the
acquisition concerns national security or meets certain other
conditions specified in the Foreign Exchange Controls, the
foreign investor must file a prior notification with respect to
the proposed acquisition with the Minister of Finance and any
other minister with proper jurisdiction. The ministers may make
a recommendation to modify or prohibit the proposed acquisition
if they consider that the acquisition would impair the safety and
maintenance of public order in Japan or harmfully influence the
smooth operation of the Japanese economy. If the foreign
investor does not accept the recommendation, the ministers may
issue an order modifying or prohibiting the acquisition. In
certain limited and exceptional circumstances, the Foreign
Exchange Controls give the Minister of Finance the power to
require prior approval for any acquisition of shares in a
Japanese company by a non-resident of Japan.

In general, the acquisition of shares by non-resident
shareholders by way of stock splits, as well as the acquisition
of shares of a Japanese company listed on a Japanese stock
exchange by non-residents upon exercise of warrants or conversion
of convertible bonds, are not subject to any of the foregoing
notification or reporting requirements. Under the Foreign
Exchange Controls, dividends paid on shares, held by non-
residents of Japan and the proceeds of any sales of shares within
Japan may, in general, be converted into any foreign currency and
remitted abroad.

Certain provisions of the Foreign Exchange Controls were
repealed or liberalized beginning in April 1998, pursuant to the
revised Foreign Exchange and Foreign Trade Law, which was
approved in May 1997 as part of the plan to implement the Big
Bang. Under the new law, Japanese citizens are permitted to open
foreign exchange accounts at banks and any company or individual
is permitted to engage in foreign exchange activities without
prior government approval.

REGULATION OF THE JAPANESE EQUITIES MARKETS

The principal securities law in Japan is the Securities
and Exchange Law ("SEL") which provides overall regulation for
the issuance of securities in public offerings and private
placements and for secondary market trading. The SEL was amended
in 1988 in order to liberalize the securities market; to regulate
the securities futures, index, and option trade; to add
disclosure regulations; and to reinforce the prevention of
insider trading. Insider trading provisions are applicable to

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<PAGE>

debt and equity securities listed on a Japanese stock exchange
and to unlisted debt and equity securities issued by a Japanese
corporation that has securities listed on a Japanese stock
exchange or registered with the Securities Dealers Association
(the "SDA"). In addition, each of the eight stock exchanges in
Japan has its own constitution, regulations governing the sale
and purchase of securities and standing rules for exchange
contracts for the purchase and sale of securities on the
exchange, as well as detailed rules and regulations covering a
variety of matters, including rules and standards for listing and
delisting of securities.

The loss compensation incidents involving preferential
treatment of certain customers by certain Japanese securities
companies, which came to light in 1991, provided the impetus for
amendments to the SEL, which took effect in 1992, as well as two
reform bills passed by the Diet in 1992. The amended SEL now
prohibits securities companies from operating discretionary
accounts, compensating losses or providing artificial gains in
securities transactions, directly or indirectly, to their
customers and making offers or agreements with respect thereto.
Despite these amendments, there have been certain incidents
involving loss compensation. To ensure that securities are
traded at their fair value, the SDA and the TSE have promulgated
certain rules, effective in 1992, which, among other things,
explicitly prohibit any transaction undertaken with the intent to
provide loss compensation of illegal gains regardless of whether
the transaction otherwise technically complies with the rules.
The reform bill passed by the Diet, which took effect in 1992 and
1993, provides for the establishment of a new Japanese securities
regulator and for a variety of reforms designed to revitalize the
Japanese financial and capital markets by permitting banks and
securities companies to compete in each other's field of
business, subject to various regulations and restrictions.

Further reforms in the regulation of the securities
markets are anticipated over the next several years as the Big
Bang is implemented.

________________________________________________________________

ADDITIONAL INFORMATION ABOUT CANADA
________________________________________________________________

Territory and Population

Canada is the second largest country in the world in
terms of land mass with an area of 9.22 million square kilometers
(3.85 million square miles). It is located north of the
continental United States of America and east of Alaska. Canada
comprises ten provinces (Alberta, British Columbia, Manitoba, New

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<PAGE>

Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward
Island, Quebec and Saskatchewan) and three territories (the
Northwest Territories, the Nunavut Territory and the Yukon
Territory). Its population is approximately 30 million.

Government

Canada is a constitutional monarchy with Queen Elizabeth
II of the United Kingdom its nominal head of state. The Queen is
represented by the Canadian governor-general, appointed on the
recommendation of the Canadian prime minister. Canada's
government has a federal structure, with a federal government and
ten provincial governments. The legislative branch consists of a
House of Commons (parliament) and the Senate. Members of the
House of Commons are elected by Canadian citizens over 18 years
of age. Senators are appointed on a regional basis by the Prime
Minister. The federal government is headed by the Prime Minister
who is chosen from the party that has won the majority of seats
in the House of Commons. The provincial governments each have a
Legislative Assembly and a Premier. The prime minister has the
privilege of appointing all judges except those of the provincial
courts.

Provinces have extensive power within specific areas of
jurisdiction. The federal government has defined areas of
jurisdiction and the power to act in areas declared by the House
of Commons to be for the general advantage of Canada. This
general power has been used to justify federal action in certain
areas of provincial jurisdiction. Concurrent federal and
provincial jurisdiction exists in certain matters, including
agriculture, immigration and pensions. The power-sharing issue
between the federal government and provincial governments has
been contentious and has proven to be a central issue in the
process of constitutional reform.

Politics

Since World War II, the federal government has been
formed by either the Liberal Party or the Progressive
Conservative Party. In October 1993, the Liberal Party, under
the leadership of Mr. Jean Chretien, won 178 of the 295 seats in
the Canadian House of Commons, ending nine years of rule by the
Progressive Conservative Party. The Liberal Party was re-elected
for a second term in the June 2, 1997 general election, but lost
20 seats in the House of Commons. The next general election is
required by law to occur no later than June 2002. Mr. Chretien
may face pressure to step down before then, however, if his
popularity, which has been dropping, erodes significantly.

Canada has had three major developments regarding unity
and constitutional reform in recent years. The first two major

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<PAGE>

developments were the rejection of the Meech Lake Agreement in
1990 and the Charlottetown Accord in 1992. Those reforms would
have given Quebec constitutional recognition as a distinct
society, transferred powers from the federal to the provincial
governments and reformed the Senate by providing for more equal
representation among the provinces.

The third major development is the continuing
possibility of Quebec's independence. Upon gaining power in
1994, the Quebec separatist party, Parti quebecois ("PQ"), called
for a referendum supporting independence. On October 30, 1995,
the referendum was defeated in a close ballot, in which 50.6%
voted against secession and 49.4% voted for secession. If the
referendum had been approved, Quebec would have become a separate
country, but would have retained formal political and economic
links with Canada similar to those that join members of the
European Union. The PQ, under the leadership of Lucien Bouchard,
was re-elected in the provincial election held on November 30,
1998, winning 75 of the 125 seats. However, the party's share of
the popular vote dropped 2% from the 1994 election to 43%. The
Parti liberal won 48 seats. It is unclear whether or not
Mr. Bouchard will hold a second referendum. The PQ previously
indicated it would do so if it were re-elected, but only if the
referendum would stand a strong chance of success. Given current
opinion polls, it is believed unlikely that a referendum would
have a strong chance of success. In August 1998, Canada's
Supreme Court rendered a unanimous opinion in a legal action
initiated by the federal government to determine the legality of
Quebec's secession. While the Court ruled that Quebec has no
right to unilaterally leave the Canadian federation, the court
also indicated that the federal government would have to
negotiate a separation if a clear majority of Quebec voters vote
for it. It is expected that Quebec's position within Canada will
continue to be a matter of political debate.

Monetary and Banking System

The central bank of Canada is the Bank of Canada. Its
main functions are conducting monetary policy, supervising
commercial banks, acting as a fiscal agent to the federal
government and managing the foreign exchange fund. The currency
unit of Canada is the Canadian Dollar. Canada does not impose
foreign exchange controls on capital receipts or payments by
residents or non-residents.

Trade

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<PAGE>

countries in the world. The North American Free Trade Agreement
("NAFTA") took effect on December 30, 1993. In July 1997 a free-
trade accord between Canada and Chile also took effect. Talks
with Brazil and Argentina are also under way for similar
bilateral trade agreements that are expected eventually to fall
under the umbrella of a new form of NAFTA. When fully
implemented, NAFTA is designed to create a free trade area in
North America, expand the flow of goods, services and investment,
and eventually eliminate tariff barriers, import quotas and
technical barriers among Canada, the United States, Mexico and
future parties to NAFTA. At the April 1998 Summit of the
Americas, an agreement was signed by the leaders of 34
governments across the Americas (including Canada) to begin trade
negotiations toward the creation of a free trade area across the
Western Hemisphere.

The trade sector is an important factor in the growth of
the Canadian economy. In 1995, the trade surplus was more than
three times higher than the average surplus between 1990 and
1994. In 1996, the trade surplus was almost 25% higher than it
was in 1995. In 1997, however, the trade surplus was reduced as
the rate of import growth almost doubled the rate of export
growth. The trade surplus continued to shrink in 1998 with
exports decreasing by 3.1% and imports increasing by 1.4%.

Economic Information Regarding Canada

Canada experienced rapid economic expansion during most
of the 1980s. In the early 1990s, however, the economy
experienced a deep recession. This resulted from, among other
things, high government debt and high interest rates. The
recession partly created and partly highlighted some difficulties
which the present government is attempting to resolve. The
relatively low level of economic activity during this period
reduced the growth of tax receipts with the result that the
already high levels of government debt increased.

RECENT DEVELOPMENTS. The deterioration in the
government's fiscal position, which started during the recession
in the early 1990s, was aggravated by a reluctance to decrease
expenditures or increase taxes. In its 1995 budget, however, the
Liberal Party introduced new spending cuts, the largest in over
thirty years, to reduce Canada's budget deficit. For the fiscal
years 1994-95, 1995-96 and 1996-97, the budget deficit was
approximately 5%, 4.2% and 1.1%, respectively of gross domestic
product ("GDP"). On October 24, 1998 the government announced
that there was a budget surplus of C$3.5 billion for the 1997-98
fiscal year, the first time in 28 years the government had
recorded a budget surplus. While the government's budget deficit
objectives can be achieved, it will require continued economic

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<PAGE>

growth, lower interest rates and additional reductions in
government spending.

In addition to the growth of the federal government
deficit, provincial government debt rose rapidly in the early
1990s. Several developments, including increased spending on
social services at the provincial level, were responsible for a
significant amount of the growth of public debt from 1990 through
1992. In response to the increase in provincial debt, a number
of rating agencies downgraded certain provincial debt ratings.
All provinces undertook plans to balance their respective
budgets, and, with the exception of Quebec which predicts small
deficits until the fiscal year 2000-01, the provinces have
achieved their goals. While Ontario and Quebec have not yet
balanced their budgets, both have made significant progress and
it is anticipated that both provinces will achieve their plans to
eliminate their budget deficits by fiscal year 2000-01.

Canada's real GDP growth rate slipped to 2.6% in 1995
and 1.2% in 1996 from 4.7% in 1994. In 1997 and 1998, real GDP
grew 3.8% and 2.8%, respectively. The recent growth of the
economy has been broadly based, unlike earlier periods of
recovery, when it was attributable almost entirely to a growth in
exports.

During 1994, despite growing output and low inflation,
concern over the country's deficit and the uncertainty associated
with Quebec's status within Canada led to a weakening of its
currency and higher interest rates. On January 20, 1995, the
exchange rate for the Canadian Dollar fell to .702 against the
U.S. Dollar, which at that time represented a nine-year low and
was close to its then record low of .692. The Bank of Canada
responded by increasing rates on Treasury bills and selling U.S.
Dollars. Between January 20, 1995 and September 30, 1997, the
Canadian Dollar increased in value from .702 to .724 against the
U.S. Dollar. The renewed strength of the Canadian Dollar during
this period facilitated the easing of monetary policy.
Subsequently, however, the Canadian Dollar depreciated, reaching
a record low of .633 against the U.S. Dollar on August 27, 1998.
On April 15, 1999, the Canadian Dollar was 0.672 against the U.S.
Dollar. In June 1997, with a real GDP growth rate of 4%
annualized during the first two quarters of 1997 and signs of
weakness in the Canadian Dollar, the Bank of Canada decided to
raise its Bank Rate for the first time since 1995, by 25 basis
points to 3.5%. The Bank Rate was raised several more times,
most recently on August 27, 1998, when it was raised one full
percentage point from 5% to 6%. The Bank Rate was subsequently
lowered to 5.75% on September 29, 1998, to 5.5% on October 16,
1998, and to 5.25% on November 18, 1998, following rate cuts by
the U.S. Federal Reserve on those dates. On March 11, 1999 the

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<PAGE>

Bank Rate was lowered to 5%, thus reversing the 1% increase
implemented on August 27, 1998.

The following provides certain statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Canadian Dollar, information concerning
inflation rates, historical information regarding the Canadian
GDP and information concerning yields on certain Canadian
Government Securities. Historical statistical information is not
necessarily indicative of future developments.

CURRENCY EXCHANGE RATES. The exchange rate between the
U.S. Dollar and the Canadian Dollar is at any moment related to
the supply of and demand for the two currencies, and changes in
the rate result over time from the interaction of many factors
directly or indirectly affecting economic conditions in the
United States and Canada, including economic and political
developments in other countries and government policy and
intervention in the money markets.

The range of fluctuation in the U.S. Dollar/Canadian
Dollar exchange rate has been narrower than the range of
fluctuation between the U.S. Dollar and most other major
currencies. However, the range that has occurred in the past is
not necessarily indicative of future fluctuations in that rate.
Future rates of exchange cannot be predicted, particularly over
extended periods of time.

The following table sets forth, for each year indicated,
the annual average of the daily noon buying rates in New York for
cable transfers in U.S. Dollars for one Canadian Dollar as
certified by the Federal Reserve Bank of New York:

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<PAGE>

Buying Rate in
U.S. Dollars

1981 0.83
1982 0.81
1983 0.81
1984 0.77
1985 0.73
1986 0.72
1987 0.75
1988 0.81
1989 0.84
1990 0.86
1991 0.87
1992 0.83
1993 0.78
1994 0.73
1995 0.73
1996 0.73
1997 0.72
1998 0.67
1999
January 0.66
February 0.67
March 0.66

Source: Federal Reserve Statistical Releases.

INFLATION RATE OF THE CANADIAN CONSUMER PRICE INDEX.
Since 1991, when the Canadian government adopted inflation
control targets, inflation in Canada has been maintained within
the targeted range of 1% to 3%. The government announced on
February 24, 1998 that the 1991 targets would be extended to the
end of 2001. The following table sets forth for each year
indicated the average change in the core Canadian consumer price
index for the twelve months ended December 31 for the years 1981
through 1998, and for the first two months of 1999 (annualized).

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<PAGE>

National Consumer
Price Index
_________________

1981 . . . . . . . . . . . . . . . 12.4%
1982 . . . . . . . . . . . . . . . 10.9
1983 . . . . . . . . . . . . . . . 5.7
1984 . . . . . . . . . . . . . . . 4.4
1985 . . . . . . . . . . . . . . . 3.9
1986 . . . . . . . . . . . . . . . 4.2
1987 . . . . . . . . . . . . . . . 4.4
1988 . . . . . . . . . . . . . . . 4.0
1989 . . . . . . . . . . . . . . . 5.0
1990 . . . . . . . . . . . . . . . 4.8
1991 . . . . . . . . . . . . . . . 5.6
1992 . . . . . . . . . . . . . . . 1.5
1993 . . . . . . . . . . . . . . . 1.8
1994 . . . . . . . . . . . . . . . 0.2
1995 . . . . . . . . . . . . . . . 2.1
1996 . . . . . . . . . . . . . . . 1.6
1997 . . . . . . . . . . . . . . . 1.6
1998 . . . . . . . . . . . . . . . 1.2
1999
January . . . . . . . . . . . . 1.0
February . . . . . . . . . . . . 0.9

Source: BANK OF CANADA REVIEW Winter 1996-1997; BANK OF CANADA
WEEKLY FINANCIAL STATISTICS.

CANADIAN GROSS DOMESTIC PRODUCT. The following table
sets forth Canada's GDP for the years 1981 through 1998, at
current and constant prices.

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Gross Domestic Change from
Gross Domestic Product at Prior Year at
Product Constant 1992 Constant Prices
_____________ Prices________ _______________

(millions of Canadian Dollars) (%)

1981 360,484 551,305 3.0%
1982 379,734 535,113 (2.9)
1983 411,160 549,843 2.8
1984 449,249 581,038 5.7
1985 485,139 612,416 5.4
1986 511,796 628,575 2.6
1987 558,106 654,360 4.1
1988 611,785 686,176 4.9
1989 656,190 703,577 2.5
1990 678,135 705,464 0.3
1991 683,239 692,247 (1.9)
1992 698,544 698,544 0.9
1993 724,960 714,583 2.3
1994 767,506 748,350 4.7
1995 806,778 767,913 2.6
1996 828,987 777,167 1.2
1997 866,252 806,737 3.8
1998 888,390 830,828 2.8

Source: BANK OF CANADA REVIEW Winter 1998-1999, STATISTICS
CANADA.

YIELDS ON CANADIAN GOVERNMENT TREASURY BILLS AND BONDS. The
following table sets forth the yields on 3-month and 6-month
Government of Canada Treasury bills and 5-year and 10-year Canada
Benchmark Bonds from January 1995 through March 1999.

Treasury Bills Benchmark Bonds
1995 3 Months 6 Months 5 Years 10 Years
____ ___________________ __________________

January 8.10 8.47 9.18 9.34
February 8.11 8.15 8.46 8.76
March 8.29 8.35 8.23 8.57
April 7.87 7.87 7.93 8.31
May 7.40 7.36 7.41 7.88
June 6.73 6.65 7.33 7.81
July 6.65 6.87 7.79 8.27
August 6.34 6.62 7.58 8.00
September 6.58 6.80 7.54 7.89
October 7.16 7.21 7.54 7.86
November 5.83 5.87 6.74 7.19
December 5.54 5.64 6.64 7.11

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Treasury Bills Benchmark Bonds
1996 3 Months 6 Months 5 Years 10 Years
____ ___________________ __________________

January 5.12 5.20 6.33 7.01
February 5.21 5.38 6.87 7.53
March 5.02 5.25 7.02 7.64
April 4.78 4.97 7.09 7.76
May 4.68 4.88 7.01 7.72
June 4.70 4.94 7.05 7.77
July 4.39 4.75 6.96 7.62
August 4.02 4.32 6.60 7.34
September 3.86 4.13 6.28 7.16
October 3.17 3.33 5.59 6.47
November 2.73 2.89 5.10 6.05
December 2.85 3.24 5.44 6.37

Treasury Bills Benchmark Bonds
1997 3 Months 6 Months 5 Years 10 Years
____ ___________________ __________________
January 2.87 3.21 5.67 6.65
February 2.91 3.17 5.44 6.38
March 3.14 3.45 5.75 6.59
April 3.14 3.55 5.92 6.68
May 2.99 3.39 5.86 6.65
June 2.86 3.19 5.32 6.14
July 3.29 3.62 5.18 5.80
August 3.11 3.68 5.36 6.06
September 2.86 3.49 5.17 5.70
October 3.59 3.82 4.99 5.49
November 3.67 4.11 5.17 5.56
December 3.99 4.56 5.34 5.61

Treasury Bills Benchmark Bonds
1998 3 Months 6 Months 5 Years 10 Years
____ ___________________ __________________
January 4.10 4.42 5.09 5.41
February 4.57 4.84 5.26 5.47
March 4.59 4.70 5.11 5.34
April 4.85 4.97 5.32 5.49
May 4.75 4.97 5.21 5.34
June 4.87 5.04 5.28 5.35
July 4.94 5.13 5.42 5.47
August 4.91 5.25 5.62 5.67
September 4.91 5.03 4.78 4.95
October 4.74 4.79 4.69 5.00
November 4.82 4.93 5.03 5.18
December 4.70 4.76 4.76 4.89

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Treasury Bills Benchmark Bonds
1999 3 Months 6 Months 5 Years 10 Years
____ ___________________ __________________

January 4.68 4.76 4.76 4.89
February 4.87 4.97 5.22 5.26
March 4.63 4.73 4.95 5.05

Source: BANK OF CANADA.

_________________________________________________________________

ADDITIONAL INFORMATION ABOUT THE UNITED MEXICAN STATES
_________________________________________________________________

Territory and Population

The United Mexican States ("Mexico") occupies a
territory of approximately 1.97 million square kilometers (759
thousand square miles). To the north, Mexico shares a border
with the United States of America, and to the south it has
borders with Guatemala and Belize. Its coastline is along both
the Gulf of Mexico and the Pacific Ocean. Mexico comprises 31
states and a Federal District (Mexico City). It is the second
most populous nation in Latin America, with an estimated
population of 91.1 million, as reported by the National Institute
of Statistics, Geography and Informatics in 1995.

Mexico's three largest cities are Mexico City,
Guadalajara and Monterrey, with estimated populations in 1995 of
16.4 million, 3.3 million and 2.9 million, respectively. In the
1980s, Government efforts concerning family planning and birth
control, together with declining birth rates among women under 35
and those living in urban areas, have resulted in a reduction of
the population growth rate to a projected 1.6% in 1997.

Government

The present form of government was established by the
Constitution, which took effect on May 1, 1917. The Constitution
establishes Mexico as a Federal Republic and provides for the
separation of the executive, legislative and judicial branches.
The President and the members of Congress are elected by popular
vote of Mexican citizens over 18 years of age.

Executive authority is vested in the President, who is
elected for a single six-year term. The executive branch
consists of 17 ministries, the office of the Federal Attorney
General, the Federal District Department and the office of the
Attorney General of the Federal District.

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Federal Legislative authority is vested in the Congress,
which is composed of the Senate and the Chamber of Deputies.
Senators serve a six-year term. Deputies serve a three-year
term, and neither Senators nor Deputies may serve consecutive
terms in the same Chamber. The Senate has 128 members, four from
each state and four from the Federal District. The Chamber of
Deputies has 500 members, of whom 300 are elected by direct vote
from the electoral districts and 200 are elected by a system of
proportional representation. The Constitution provides that the
President may veto bills and that Congress may override such
vetoes with a two-thirds majority of each Chamber.

Federal Judicial authority is vested in the Supreme
Court of Justice, the Circuit and District courts, and the
Federal Judicial Board. The Supreme Court has 11 members who are
selected by the Senate from a pool of candidates nominated by the
President. Its members serve for 15 year terms, except for the
current members of the Court, whose appointments range from eight
to 20 years.

Mexico has diplomatic relations with approximately 176
countries. It is a charter member of the United Nations and a
founding member of the Organization of American States, the
International Monetary Fund (the "IMF"), the World Bank, the
International Finance Corporation, the Inter-American Development
Bank and the European Bank for Reconstruction and Development.
Mexico became a member of the Organization for Economic
Corporation and Development (the "OECD") on April 14, 1994 and
the World Trade Organization ("WTO") on January 1, 1995 (the date
on which the WTO superseded the General Agreement on Trade and
Tariffs ("GATT")).

Politics

The Partido Revolucionario Institucional ("PRI") has
long been the dominant political party in Mexico, although its
dominance has been weakened in recent years. Since 1929 the PRI
has won all presidential elections and, until the 1997
Congressional elections, held a majority in Congress. Until 1989
it had also won all of the state governorships. The oldest
opposition party in Mexico is the Partido Accion Nacional
("PAN"). The third major party in Mexico is the Partido de la
Revolucion Democratica ("PRD").

On August 21, 1994, elections were held to select a new
President of Mexico for a six-year term beginning on December 1,
1994. In addition, elections were held for three-quarters of the
Senate and the entire Chamber of Deputies. The candidate of the
PRI, Ernesto Zedillo Ponce de Leon, won the Presidential election
with 48.77% of the votes, the candidate of the PAN was second
with 25.94% of the votes and the PRD candidate was third with

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16.6% of the votes. With respect to the Congressional elections,
the PRI maintained its majority in both chambers, with 93 seats
in the Senate and 298 seats in the Chamber of Deputies. The PAN
had the second largest representation with 25 seats in the Senate
and 118 seats in the Chamber of Deputies and the PRD had the
third largest representation with 10 seats in the Senate and 70
seats in the Chamber of Deputies. The PRI won two additional
seats pursuant to proportional representation and the PAN and the
PRD each won one seat in extraordinary elections held on
April 30, 1995. In the mid-term Congressional elections on
July 6, 1997, the PRI lost its majority in the Chamber of
Deputies and now holds 239 of its 500 seats. In the Senate, the
PRI retained its overall majority but lost the two-thirds
majority important in constitutional amendments. The PRI also
failed to win the election for mayor of Mexico City. The PRI was
successful, however, in 7 of the 10 state governorship elections
held in 1998. The next general elections are required by law to
occur in 2000 (congressional and presidential).

At the beginning of 1994 armed insurgents attacked (and
in some cases temporarily seized control of) several villages in
the southern state of Chiapas. While the Government responded by
providing support to the local authorities and publicly offering
to negotiate a peaceful resolution that would address the
underlying concerns of the local population, the conflict
remained a source of debate and uncertainty for the remainder of
the year. Negotiations with the insurgents continued through the
spring of 1994, but subsequently were broken off. In December of
1994, the Congress approved the creation of a Congressional peace
commission, to be formed by members of both chambers of Congress,
which would be responsible for mediating the negotiations between
the Government and the insurgents. By the end of 1994, however,
the insurgents had not agreed to resume negotiations and there
were additional incidents of civil unrest.

In the Spring of 1995, the Government renewed its
efforts to resolve its differences with the insurgents in the
Chiapas region by facilitating their participation in the
political process. On March 9, 1995, Congress approved a law
granting temporary amnesty to insurgents who participate in peace
talks with the Government, and on March 13, 1995, the law
establishing the framework for these peace talks took effect. On
September 11, 1995, the Government and the insurgents reached an
agreement pursuant to which both sides accepted a common
political agenda and procedural rules, and agreed to the creation
of a working committee regarding the rights of indigenous
peoples. This agreement was expected to represent a first step
toward a comprehensive peace agreement between the parties. The
working committee began negotiations on October 17, 1995 and
concluded a second round of meetings on November 19, 1995 having
made significant progress in laying out the framework for a

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plenary session that took place from January 10 through
January 19, 1996. The attendees at the plenary session drafted
an agreement on a series of measures aimed at enhancing and
guaranteeing the rights of the indigenous population. The
agreement was signed on February 16, 1996, but further
negotiations between the government and the insurgents were
unsuccessful.

On August 28, 1996, a newly formed group calling itself
the Popular Revolutionary Army attacked military and police
targets in small cities of some southern states of Mexico. It is
generally believed that this group does not enjoy popular
support, and its terrorists attacks have been condemned by both
Government and nongovernment representatives. The Government has
announced the apprehension of several alleged members of the
group.

On December 22, 1997, a violent incident occurred in the
municipality of Chenalho, Chiapas that resulted in the death of
45 civilians, mostly women and children. This incident
strengthened the resolve of the Government to negotiate peace in
Chiapas and toward that end the Government adopted a new peace
plan. The goals of the new peace plan include (a) reinitiating
an intense dialogue among the federal and state governments,
political parties and insurgent groups, (b) formulating a legal
framework that respects Mexico's multicultural heritage and
includes the indigenous population in the social and economic
development of Mexico, (c) achieving the disarmament of all non-
governmental groups, (d) continuing the investigation of the
Chenalho incident, and (e) restructuring the Chiapas state
police. It is unclear whether the government's new peace plan
will achieve its desired effect. On October 4, 1998 there were
elections in the State of Chiapas that, unlike recent elections,
were without violence and were relatively free of controversy.
Nonetheless, negotiations between the government and insurgent
groups continue to be stalemated and the conflict is expected to
be an electoral issue in the 2000 presidential campaign.

In addition to the civil unrest in Chiapas, certain
national developments have led to disillusionment among the
electorate with the institutions of government. These events
include the assassination of Luis Donaldo Colosio, the likely
successor to former President Salinas and the murder of Mr. Jose
Francisco Ruiz Massieu, a high-ranking PRI official. Links
between Mexico's drug cartels and high Government and military
officials have also been discovered. These links could
jeopardize Mexico's status as an ally of the U.S. in the war
against narcotics smuggling. While Mexico is currently certified
by the President of the United States as an ally, there is no
assurance that the certification will be maintained. A loss of

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<PAGE>

certification could result in the termination of U.S. economic
assistance to Mexico.

On July 25, 1996, the Mexican Government announced
certain proposed constitutional amendments aimed at reforming the
electoral law that were ratified on August 22, 1996. The
amendments, which had been agreed to by the President and the
leaders of the four major political parties represented in
Congress, among other things, exclude the President from the
Federal Electoral Institute, an autonomous agency charged with
organizing elections; eliminate the Electoral Committee of the
Chamber of Deputies, which had been responsible for determining
the validity of presidential elections; impose limits on
expenditures on political campaigns and controls on the source of
and uses of funds contributed to a political party; grant voting
rights to Mexican citizens residing abroad; reduce from 315 to
300 the maximum number of congressional representatives who may
belong to a single party, and establish an electoral procedure
intended to result in a more proportional representation in the
Senate. The Mexican Supreme Court is empowered to determine the
constitutionality of electoral laws and the Mexican Federal
Electoral Court, which had been part of the executive branch, is
now part of the judicial branch.

Money and Banking

Banco de Mexico, chartered in 1925, is the central bank
of Mexico. It is the Federal Government's primary authority for
the execution of monetary policy and the regulation of currency
and credit. It is authorized by law to regulate interest rates
payable on time deposits, to establish minimum reserve
requirements for credit institutions and to provide discount
facilities for certain types of bank loans. The currency unit of
Mexico is the Peso. Mexico repealed its exchange control rules
in 1991 and now maintains only a market exchange rate.

A constitutional amendment relating to Banco de Mexico's
activities and role within the Mexican economy became effective
on August 23, 1993. The amendment's purpose was to reinforce the
independence of Banco de Mexico, which may in the future act as a
counterbalance to the executive and legislative branches in
monetary policy matters. The amendment significantly strengthens
Banco de Mexico's authority with respect to monetary policy,
foreign exchange and related activities and the regulation of the
financial services industry. On April 1, 1994, a new law
governing the activities of Banco de Mexico became effective.
The new law was intended to put into effect the greater degree of
autonomy granted to Banco de Mexico under the constitutional
amendment described above and also established a Foreign Exchange
Commission charged with determining the nation's exchange rate
policies.

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Trade Reform

Mexico became a member of the GATT in 1986 and has been
a member of the WTO since January 1, 1995, the date on which the
WTO superseded the GATT. Mexico has also entered into NAFTA with
the United States and Canada. In addition, Mexico signed an
agreement providing for a framework for a free trade agreement in
1992 with Costa Rica, El Salvador, Guatemala, Honduras and
Nicaragua as a step toward establishing a free-trade area.
Mexico entered into definitive free trade agreements with Costa
Rica in April 1994 and Nicaragua in December 1997. A free trade
agreement between Mexico and Chile went into effect on January 1,
1992. A free trade agreement with Colombia and Venezuela was
signed in June 1994 and a similar agreement with Bolivia was
signed in September 1994; both agreements entered into force in
January 1995. In addition, Mexico began trade negotiations in
July 1998 with the European Union for a trade agreement; a second
round of talks occurred in January 1999. In connection with the
implementation of NAFTA, amendments to several laws relating to
financial services (including the Banking Law and the Securities
Market Law) became effective on January 1, 1994. These measures
permit non-Mexican financial groups and financial intermediaries,
through Mexican subsidiaries, to engage in various activities in
the Mexican financial system, including banking and securities
activities. In December 1998, Mexico lifted all remaining
restrictions on foreign ownership of its largest banks, which had
been excluded from the liberalization measures that became
effective in 1994.

Economic Information Regarding Mexico

During the period from World War II through the mid-
1970's, Mexico experienced sustained economic growth. During the
mid 1970's, Mexico experienced high inflation and, as a result,
the government embarked on a high-growth strategy based on oil
exports and external borrowing. The steep decline in oil prices
in 1981 and 1982, together with high international interest rates
and the credit markets' unwillingness to refinance maturing
external Mexican credits, led in 1982 to record inflation,
successive devaluations of the peso by almost 500% in total, a
pubic sector deficit of 16.9% of GDP and, in August 1982, a
liquidity crisis that precipitated subsequent restructurings of a
large portion of the country's external debt. Through much of
the 1980's, the Mexican economy continued to experience high
inflation and large foreign indebtedness. In February 1990,
Mexico became the first Latin American country to reach an
agreement with external creditor banks and multi-national
agencies under the U.S. Treasury's approach to debt reduction
known as the "Brady Plan."

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The value of the peso has been central to the
performance of the Mexican economy. From late 1982 until
November 11, 1991, Mexico maintained a dual foreign exchange rate
system, with a "controlled" rate and a "free market" rate. The
controlled exchange rate applied to certain imports and exports
of goods, advances and payments of registered foreign debt and
funds used in connection with the in-bond industry (the industry
is comprised of companies which import raw materials without
paying a duty), and payments of royalties and technical
assistance under registered agreements requiring such payments.
The free market rate was used for all other types of
transactions. The dual system assisted in controlling the value
of the Mexican Peso, particularly from 1983 to 1985. In later
years the difference between the two rates was not significant.
Mexico has since repealed the controlled rate.

A fixed exchange rate was maintained from February to
December 1988. Thereafter, under a Government implemented
devaluation schedule, the intended annual rate of devaluation was
gradually lowered from 16.7% in 1989 to 11.4% in 1990, 4.5% in
1991 and 2.4% in 1992. From October 1992 through December 20,
1994, the peso/dollar exchange rate was allowed to fluctuate
within a band that widened daily. The ceiling of the band, which
was the maximum selling rate, depreciated at a daily rate of
0.0004 pesos (equal to approximately 4.5% per year), while the
floor of the band, i.e., the minimum buying rate, remained fixed.
Banco de Mexico agreed to intervene in the foreign exchange
market to the extent that the peso/dollar exchange rate reached
either the floor or the ceiling of the band.

Beginning on January 1, 1994, volatility in the
peso/dollar exchange rate began to increase, with the value of
the peso relative to the dollar declining at one point to an
exchange rate of 3.375 pesos to the U.S. Dollar, a decline of
approximately 8.69% from the high of 3.1050 pesos reached in
early February. This increased volatility was attributed to a
number of political and economic factors, including a growing
current account deficit, the relative overvaluation of the peso,
investor reactions to the increase in U.S. interest rates, lower
than expected economic growth in Mexico in 1993, uncertainty
concerning the Mexican Presidential elections in August 1994 and
certain related developments.

On December 20, 1994, increased pressure on the
peso/dollar exchange rate led Mexico to increase the ceiling of
the Banco de Mexico intervention band. That action proved
insufficient to address the concerns of foreign investors, and
the demand for foreign currency continued. On December 22, the
Government adopted a free exchange rate policy, eliminating the
intervention band and allowing the peso to float freely against
the dollar. The value of the peso continued to weaken relative

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to the dollar in the following days. There was substantial
volatility in the peso/dollar exchange during the first quarter
of 1995, with the peso/dollar exchange rate falling to a low
point of 7.588 pesos to the U.S. Dollar on March 13, 1995. By
the end of April and through September 1995, the exchange rate
began to stabilize; however, the exchange rate began to show
signs of renewed volatility in October and November 1995. The
peso/dollar exchange rate fell to a low for the year of 8.14
pesos to the U.S. Dollar on November 13, 1995.

In order to address the adverse economic situation that
developed at the end of 1994, the Government announced in January
1995 a new economic program and a new accord among the Government
and the business and labor sectors of the economy, which,
together with a subsequent program announced in March 1995 and
the international support package described below, formed the
basis of Mexico's 1995 economic plan (the "1995 Economic Plan").
The objectives of the 1995 Economic Plan were to stabilize the
financial markets, lay the foundation for a return to lower
inflation rates over the medium-term, preserve Mexico's
international competitiveness, maintain the solvency of the
banking system and attempt to reassure long-term investors of the
strong underlying fundamentals of the Mexican economy.

The central elements of the 1995 Economic Plan were
fiscal reform, aimed at increasing public revenues through price
and tax adjustments and reducing public sector expenditures;
restrictive monetary policy, characterized by limited credit
expansion; stabilization of the exchange rate while maintaining
the current floating exchange rate policy; reduction of the
current account deficit; introduction of certain financial
mechanisms to enhance the stability of the banking sector; and
maintenance and enhancement of certain social programs, to ease
the transition for the poorest segments of society.

In addition to the actions described above, in the
beginning of 1995, the Government engaged in a series of
discussions with the IMF, the World Bank, the Inter-American
Development Bank and the U.S. and Canadian Governments in order
to obtain the international financial support necessary to
relieve Mexico's liquidity crisis and aid in restoring financial
stability to Mexico's economy. The proceeds of the loans and
other financial support were used to refinance public sector
short-term debt, primarily Tesobonos, to restore the country's
international reserves and to support the banking sector. The
largest component of the international support package was up to
$20 billion in support from the United States pursuant to four
related agreements entered into on February 21, 1995. During
1995, the U.S. Government and the Canadian Government disbursed
$13.7 billion of proceeds to Mexico under these agreements and
the North American Framework Agreement ("NAFA"), the proceeds of

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which were used by Mexico to refinance maturing short-term debt,
including Tesobonos and $1 billion of short-term swaps under the
NAFA. In a series of repayments and prepayments beginning in
October 1995 and ending in January 1997, Mexico repaid all of its
borrowings under the agreements.

Using resources made available through the international
support package as well as operations by Banco de Mexico, in 1995
Mexico altered its debt profile significantly. The outstanding
balance of Tesobonos (which are dollar denominated) was reduced
from $29.2 billion at December 31, 1994 to $16.2 billion at the
end of the first quarter of 1995, $10.0 billion at the end of the
second quarter, $2.5 billion at the end of the third quarter and
$246 million at the end of the fourth quarter. By February 16,
1996, Mexico had no Tesobonos outstanding, and has not issued
Tesobonos since that date. As of December 31, 1996, 100% of
Mexico's net internal debt was denominated and payable in pesos,
as compared with only 44.3% of such debt at the end of 1994.

On May 31, 1995, the Government announced the Plan
Nacional de Desarrollo 1995-2000 (1995-2000 National Development
Plan, or the "Development Plan"). The Development Plan covers
five topics: sovereignty; the rule of law; democratic
development; social development; and economic growth. The
fundamental strategic objective of the Development Plan is to
promote vigorous and sustainable economic growth. Among other
things, the Development Plan calls for steps to increase domestic
savings, preferences for channeling foreign investment into
direct productive investment, the elimination of unnecessary
regulatory obstacles to foreign participation in productive
activities and further deregulation of the economy.

On October 26, 1996, the Government announced the
establishment of another accord among the Government and the
business, labor and agricultural sectors of the economy known as
the Alianza para el Crecimiento Economico (Alliance for Economic
Growth or "ACE"). The chief objectives of the ACE are to foster
sustainable economic growth by emphasizing (i) the export sector,
particularly through domestic and foreign investment, (ii) public
investment, particularly in the hydrocarbon, electricity,
transportation and water sectors and (iii) fiscal and monetary
discipline in order to encourage an environment of greater price
stability and lower interest rates.

On December 31, 1997, the ACE expired. On February 24,
1998, the Government and representatives of the labor,
agriculture and business sectors signed the Acuerdo de
Cooperacion y Consulta (Cooperation and Consultation Accord or
"ACC"). In the ACC, the Government and the three economic
sectors agreed to increase productivity and competitiveness to
prepare Mexico for the globalization of the world economy. The

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accord is based on the following commitments: (i) a pledge by
the Government and the three economic sectors to periodically
examine the development of the Mexican economy and to create
subcommissions or working groups to analyze specific economic
problems; (ii) to allow the unimpeded negotiation of collective
bargaining agreements and to foster a cooperative environment to
achieve productivity and competitiveness goals, as well as the
equitable distribution of any resulting benefits; (iii) to set as
a priority workforce education and job training to increase
productivity and to facilitate worker transition to changing
production technology; and (iv) to catalyze capital investment,
infrastructure development and labor retraining in rural areas,
in order to increase productivity, competitiveness and the
standards of living in such areas.

On June 3, 1997, the Government announced the Programa
Nacional de Financiamiento del Desarrollo 1997-2000 (National
Development Financing Program 1997-2000, or "PRONAFIDE"). The
PRONAFIDE's goals are to: (i) achieve, on average, real GDP
growth of 5% per year, (ii) generate more than one million jobs
per year, (iii) increase real wages and salaries, (iv) strengthen
the capacity of the Government to respond to social needs and
(v) avoid economic crises of the types suffered by Mexico during
the past 20 years.

The effects of the devaluation of the peso, as well as
the Government's response to that and related events, were
apparent in the performance of the Mexican economy during 1995
and 1996. Mexico's trade deficit decreased during 1995, the
value of imports decreasing by 8.7% between 1994 and 1995, to
$72.5 billion in 1995. Although the value of imports in 1996
increased approximately 23.4% from 1995, to $89.5 billion,
exports increased by almost the same amount. During 1995, Mexico
registered a $7.089 billion trade surplus, its first annual trade
surplus since 1989. Mexico continued to register a trade surplus
in 1996 and 1997 but the surplus decreased by approximately 7.9%
to $6.531 billion in 1996 and 90% to $624 million in 1997. In
1998, Mexico registered a $6.6 billion deficit in its trade
balance. During 1996 and 1997, Mexico's current account balance
registered a deficit of $2.330 billion and $7.450 billion,
respectively, as compared with a deficit of $1.576 billion in
1995. During 1998, Mexico's current account balance registered
an estimated deficit of $13.6 billion.

Banco de Mexico is currently disclosing reserve figures
on a weekly basis. On December 31, 1998, Mexico's international
reserves amounted to $30.1 billion. On December 31, 1997,
Mexico's international reserves amounted to $28 billion, as
compared to $17.5 billion at December 31, 1996, $15.7 billion at
December 31, 1995, $6.1 billion at December 31, 1994 and
$24.5 billion at December 31, 1993.

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During 1995 real GDP decreased by 6.9%, as compared with
a growth rate of 3.5% during 1994. This downward trend continued
into the first quarter of 1996, but turned around in the second
quarter of 1996. The real GDP has continued to grow since that
time, resulting in an overall GDP growth rate of 5.2% for 1996,
7.0% for 1997 and 4.6% for 1998. The Government has predicted a
growth rate of 3% in 1999. Although the Mexican economy has
stabilized, there can be no assurance that the government's plan
will lead to a full recovery.

Statistical and Related Information
Concerning Mexico

The following provides certain statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Mexican Peso, information concerning
inflation rates, historical information regarding the Mexican GDP
and information concerning interest rates on certain Mexican
Government Securities. Historical information is not necessarily
indicative of future fluctuations or exchange rates. In 1982,
Mexico imposed strict foreign exchange controls which shortly
thereafter were relaxed and were eliminated in 1991.

CURRENCY EXCHANGE RATES. There is no assurance that
future regulatory actions in Mexico will not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.

The following table sets forth the exchange rates of the
Mexican Peso to the U.S. Dollar with respect to each year from
1981 to 1998.

Free Market Rate Controlled Rate
________________ _______________

End of End of
Period Average Period Average
______ ________ _______ _______

1981. . . . . . . 26 24 -- --
1982. . . . . . . 148 57 96 57
1983. . . . . . . 161 150 143 120
1984. . . . . . . 210 185 192 167
1985. . . . . . . 447 310 371 256
1986. . . . . . . 915 637 923 611
1987. . . . . . . 2.209 1.378 2.198 1.366
1988. . . . . . . 2.281 2.273 2.257 2.250
1989. . . . . . . 2.681 2.483 2.637 2.453
1990. . . . . . . 2.943 2.838 2.939 2.807
1991. . . . . . . 3.075 3.016 3.065* 3.007*
1992. . . . . . . 3.119 3.094 -- --
1993. . . . . . . 3.192 3.155 -- --

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1994. . . . . . . 5.325 3.222 -- --
1995. . . . . . . 7.643 6.419 -- --
1996. . . . . . . 7.851 7.598 -- --
1997. . . . . . . 8.083 7.918 -- --
1998. . . . . . . 9.901 9.152 -- --

* Through November 10, 1991.

Source: Banco de Mexico; Federal Reserve Statistical Releases.

INFLATION AND CONSUMER PRICES. Through much of the
1980's, the Mexican economy continued to be affected by high
inflation, low growth and high levels of domestic and foreign
indebtedness. The annual inflation rate, as measured by the
consumer price index, rose from 28.7% in December 1981 to 159.2%
in December 1987. In December 1987, the Mexican Government
agreed with labor and business to curb the economy's inflationary
pressures by freezing wages and prices (the "1987 accord"). The
1987 accord included the implementation of restrictive fiscal and
monetary policies, the elimination of trade barriers and the
reduction of import tariffs. After substantive increases in
public sector prices and utility rates, price controls were
introduced.

The 1987 accord was succeeded by a series of additional
accords, each of which continued to stress the moderation of
inflation, fiscal discipline and, in the case of accords entered
into prior to 1995, a gradual devaluation of the peso. There
was a gradual reduction in the number of goods and services whose
prices were covered by such accords. The two most recent of
these accords also incorporated a reduction in the income tax
rate applicable to corporations and certain self-employed
individuals from 35% to 34% and a reduction in the withholding
tax applicable to interest payments on publicly issued external
debt and external debt payable to certain financial institutions
from 15% to 4.9%. These policies lowered the consumer inflation
rate from 159.2% in 1987 to 7.1% in 1994.

Over the medium-term, the Government is committed to
reversing the decline in real wages experienced in the last
decade through control of inflation, a controlled gradual upward
adjustment of wages and a reduction in income taxes for the lower
income brackets. Nonetheless, the effect of the devaluation of
the peso and the Government's response to that event and related
developments caused a significant increase in inflation, as well
a decline in real wages for much of the population, during 1995,
when the inflation rate increased to 52.0%. Subsequent fiscal
and monetary policies succeeded in lowering inflation during 1996
and 1997 (as measured by the increase in the National Consumer
Price Index), to 27.7% and 15.7%, respectively. In 1998,

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however, inflation rose to 18.6%, well over the Government's
target of 12%.

CONSUMER PRICE INDEX. The following table sets forth
the changes in the Mexican consumer price index for the year
ended December 31 for the years 1981 through 1998.

Annual
Increases in
National Consumer
Price Index
_________________

1981............................. 28.7%
1982............................. 98.9
1983............................. 80.8
1984............................. 59.2
1985............................. 63.7
1986............................. 105.7
1987............................. 159.2
1988............................. 51.7
1989............................. 19.7
1990............................. 29.9
1991............................. 18.8
1992............................. 11.9
1993............................. 8.0
1994............................. 7.1
1995............................. 52.0
1996............................. 27.7
1997............................. 15.7
1998............................. 18.6

Source: Banco de Mexico.

MEXICAN GROSS DOMESTIC PRODUCT. The following table
sets forth certain information concerning Mexico's GDP for the
years 1990 through 1998 at current and constant prices.

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Gross Gross Change
Domestic Domestic from Prior
Product Product at Year at
at Current Constant Constant
Prices 1993 Prices(1) Prices
__________ ___________ __________
(millions of Argentine Pesos) (percent)

1991. . . . 949,148 1,189,017 4.2
1992. . . . 1,125,334 1,232,162 3.6
1993. . . . 1,256,196 1,256,196 2.0
1994. . . . 1,423,364 1,312,200 4.5
1995. . . . 1,840,431 1,230,608 (6.2)
1996. . . . 2,508,147 1,294,152 5.2
1997(2) . . 3,187,441 1,384,825 7.0
1998(2) . . 3,798,000 N/A 4.6

(1) Constant peso with purchasing power at December 31, 1993,
expressed in pesos.
(2) Preliminary.

Source: Banco de Mexico; Mexico's National Statistics, Geography
and Informatics Institute (INEGI).

INTEREST RATES. The following table sets forth the
average interest rates per annum on 28-day and 91-day CETES,
which are peso-denominated Treasury bills, the average weighted
cost of term deposits for commercial banks ("CPP"), the average
interest rate ("TIIP") and the equilibrium interest rate ("TIIE")
for the periods listed below. The government announced plans in
late 1997 to issue medium-term CETES for the first time in 1998.

Average CETES and Interest Rates
_________________________________

28-Day 91-Day
CETES CETES CPP TIIP TIIE
_____ _____ _____ _____ _____

1990:
Jan.-June 41.2 40.7 43.2% _____ _____
July-Dec. 28.3 29.4 31.0 _____ _____
1991:
Jan.-June 21.2 21.7 24.3 _____ _____
July-Dec. 17.3 18.0 20.8 _____ _____
1992:
Jan.-June 13.8 13.8 16.9 _____ _____
July-Dec. 17.4 18.0 20.7 _____ _____
1993:
Jan.-June 16.4 17.3 20.9 20.4(1) _____
July-Dec. 13.5 13.6 16.2 16.1 _____

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1994:
Jan.-June 13.0 13.5 14.2 15.3 _____
July-Dec. 15.2 15.7 16.8 20.4 _____
1995:
Jan.-June 55.0 54.3 49.6 63.6 71.2(2)
July-Dec. 41.9 42.2 40.7 44.5 44.5
1996:
Jan.-June 35.4 37.2 34.5 37.3 37.2
July-Dec. 27.4 28.6 26.9 30.2 30.1
1997:
Jan.-June 20.8 22.2 20.8 23.2 23.2
July-Dec. 18.8 20.3 17.4 20.5 20.6
1998:
Jan.-June 18.8 19.8 17.2 20.6 20.6
July-Dec. 30.7 32.5 25.0 32.9 33.1

(1) February-June average.
(2) Average for the last two weeks of March.

Source: Banco de Mexico.

________________________________________________________________

ADDITIONAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
________________________________________________________________

Territory and Population

The Republic of Argentina ("Argentina") is the second
largest country in Latin America, occupying a territory of
2.8 million square kilometers (1.1 million square miles)
(3.8 million square kilometers (1.5 million square miles) if
territorial claims in the Antarctic and certain South Atlantic
islands are included). It is located at the extreme south of the
South American continent, bordered by Chile, Bolivia, Paraguay,
Brazil, Uruguay and the South Atlantic Ocean. Argentina consists
of 23 provinces and the federal capital of Buenos Aires. In
1991, the year of the last Census, it had a population of
approximately 34.6 million.

The most densely inhabited areas and the traditional
agricultural wealth are on the wide temperate belt that stretches
across central Argentina. About one-third of the population
lives in the greater Buenos Aires area. Six other urban centers,
Cordoba, Rosario, Mendoza, San Miguel de Tucuman, Mar del Plata
and La Plata, have a population of over 500,000 each.
Approximately 79% of the country's population is urban. During
the period 1980-1990, Argentina's population grew at a 1.4%
average annual rate. In the 1990-1995 period, Argentina's
population grew at a 1.2% average annual rate.

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Government

The current Argentine federal constitution (the
"Constitution"), was promulgated on August 24, 1994 and became
effective immediately. The Constitution retains the basic
principles of the Constitution first established in 1853. The
Constitution provides for a tripartite system of government: an
executive branch headed by a president; a legislative branch made
up of a bicameral congress; and a judicial branch, of which the
Supreme Court of Justice (the "Supreme Court") is the highest
body of authority. The President is directly elected by the
voters and may serve for a maximum of two consecutive four-year
terms. The next election for the Presidency is required by law
to occur no later than October 1999. The President directs the
general administration of the country and has the power to veto
laws in whole or in part, although Congress may override a veto
by a two-thirds vote.

The Congress is made up of the Senate and the Chamber of
Deputies. The 72-member Senate consists of three Senators for
each province and the federal capital of Buenos Aires. Senators
are elected for six-year terms, and serve in staggered terms so
that one-third of the Senate's seats are subject to elections
every two years. The Chamber of Deputies consists of 257 seats
which are allocated according to each province's population.
Representatives are elected for four-year staggered terms so that
one-half of the Chamber is subject to elections every two years.

The judicial system comprises federal and provincial
trial courts, courts of appeal and supreme courts. The supreme
judicial power of the Republic is vested in the Supreme Court,
which has nine members who are appointed for life by the
President (subject to ratification by the Senate). In addition,
in 1994 Argentina's two largest political parties entered into an
agreement whereby future Supreme Court justices will be selected
from a list of nominees mutually agreed upon by both parties.

Each province has its own constitution, and elects its
own governor, legislators and judges, without the intervention of
the federal government.

Politics

The two largest political parties in Argentina are the
Partido Justicialista or Peronist Party ("PJ"), which evolved out
of Juan Peron's efforts to expand the role of labor in the
political process in the 1940s, and the Union Civica Radical or
Radical Civic Union ("UCR"), founded in 1890. Traditionally, the
UCR has had more urban middle-class support and the PJ more labor
support. At present, support for both parties is broadly based,
with the PJ having substantial support from the business

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community. Smaller parties occupy varied political positions on
both sides of the political spectrum and some are active only in
certain provinces. Following the October 26, 1997 Congressional
elections, the PJ held 119 seats and the UCR and others held 138
seats in the Chamber of Deputies.

Since the 1930's, Argentina's political parties have had
difficulty in resolving the inter-group conflicts that arose out
of the Great Depression, the deepening social divisions that
occurred under the Peron Government and the economic stagnation
of the past several decades. As a result, the military
intervened in the political process on several occasions and
ruled the country for 22 of the past 69 years. Poor economic
management by the military and the loss of a brief war with the
United Kingdom over the Malvinas (Falkland) Islands led in 1983
to the end of the most recent military government, which had
ruled the country since 1976.

Four military uprisings have occurred since 1983, the
most recent in December 1990. The uprisings, which were led by a
small group of officers, failed due to a lack of support from the
public and the military as a whole.

Since 1983, Argentina has had two successive elected
civilian Presidents. Raul Alfonsin, elected in 1983, was the
first civilian president in six decades to stay in office until
the scheduled election of a successor. His UCR Government re-
established civilian rule, including a functioning Congress. The
current president, Carlos Menem, won the presidential election in
May 1989 and took office in July 1989, several months ahead of
the scheduled inauguration, in the midst of an economic crisis.

President Menem, the leader of the PJ, was first elected
with the backing of organized labor and business interests that
traditionally supported a closed economy and a large public
sector. Shortly after taking office, however, President Menem
adopted market-oriented and reformist policies, including an
aggressive privatization program, a reduction in the size of the
public sector and an opening of the economy to international
competition. President Menem won reelection in May 1995, but his
popularity has declined since then as the government has faced
allegations of corruption and criticism from both the ruling and
opposition parties concerning its economic policies. In the
October 26, 1997 Congressional elections, the PJ lost 12 seats in
the lower house, leaving it with 119 of the 257 seats, far short
of its pre-election majority. Although President Menem had
planned to seek a third term (which would have required a
constitutional amendment), in July 1998 he announced that he
would not do so, thus sparing Argentina from political turmoil as
it approaches the 1999 elections.

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<PAGE>

As President Menem's second term in office approaches
its end, Argentina looks ahead to the presidential election in
October 1999. As of early April 1999, President Menem's party,
the PJ, had not yet nominated a presidential candidate. The PJ's
opposition, the UCR and its partner, Alianza por el Trabajo, la
Justicia y la Produccion, has formally commenced campaigning for
its presidential candidate, Fernando de la Rua.

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

Monetary and Banking System

The central bank of Argentina is the Banco Central de la
Republica Argentina ("Central Bank of Argentina"). Its primary
functions include the administration of the financial sector,
note issue, credit control and regulation of foreign exchange
markets. The currency unit of Argentina is the Peso. Under the
Government's medium-term program with the IMF, the Government has
agreed to maintain the present fixed exchange rate of one peso
per dollar. Due to the ease of convertibility between the peso
and the dollar as a result of the Government's exchange rate
policies, changes in U.S. interest rates constitute a significant
factor in determining peso-dollar capital flows.

Economic Information Regarding Argentina

The Argentina economy has many strengths including a
well balanced natural resource base and a high literacy rate.
Since World War II, however, it has had a record of erratic
growth, declining investment rates and rapid inflation. Since
the implementation of the current reform program in March 1991,
significant progress has been made in reducing inflation and
increasing real GDP growth. Although the GDP declined by 4.4% in
1995, it has increased every year since then: 4.8% in 1996, 8.6%
in 1997 and an estimated 4.2% in 1998. The decline in the rate
of GDP growth in 1998 was largely a consequence of the Russian
default on its financial commitments and the financial
instability in Asia and Brazil during the third and fourth
quarters, when the GDP grew by 2.9% and an estimated 0.5%,
respectively.

DEREGULATION OF THE ECONOMY AND PRIVATIZATIONS.
Deregulation of the domestic economy, liberalization of trade and
reforms of investment regulations are prominent features of
Argentina's structural adjustment program. In order to achieve
the free functioning of markets, the Government has undertaken an

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<PAGE>

extensive program for the removal of economic restrictions and
regulations and the promotion of competition.

In 1989 and 1990, steps were taken to remove various
regulations that restricted both international trade and domestic
commerce. Restrictions were removed in order to allow the
private sector to provide certain public services, such as
telephone, electricity and natural gas, subject to governmental
regulation.

On October 31, 1991, the Argentine government
promulgated its principal deregulation legislation which
deregulated the domestic market for goods, services and
transportation, abolished restrictions on imports and exports,
abolished or simplified a number of regulatory agencies and
allowed free wage bargaining in the private sector. In the
financial sector, this legislation abolished all stamp taxes
relating to publicly offered securities, all capital gains taxes
on stocks and bonds held by non-resident investors and fixed
commissions on the stock exchanges.

In addition, Argentina has eliminated restrictions on
foreign direct investment and capital repatriation. In late
1993, legislation was adopted abolishing previous requirements of
a three-year waiting period for capital repatriation. Under the
new legislation, foreign investors will be permitted to remit
profits at any time and to organize their companies and make use
of domestic credit under the same rights and under the same
conditions as local firms. The process of deregulation and
liberalization is continuing through the privatization process,
the proposed reform of the social security system, regional
integration and further labor law reforms.

In 1989, the State Reform Law declared certain
enterprises eligible for privatization. In addition to increasing
the efficiency of services provided by public sector enterprises,
the privatizations have also served to reduce outstanding debt
(by applying cash proceeds and through the selective use of debt-
to-equity conversions), increase reserves and increase tax
revenues from the new owners of the enterprises. The
privatization program has also served as an important conduit for
direct foreign investment into Argentina attracting interested
investors from Asia, Europe, North America and Latin America.
The Government completed 32 major privatizations in 1993, 11 in
1994 and 3 in 1995. On March 13, 1995 the Government announced a
new fiscal package, which included, among other measures, an
acceleration in the sale of assets and the privatization of
several additional companies. In July 1997, the postal service
was privatized and on February 11, 1998, the Government
officially unveiled a decree awarding the management of 33 of
Argentina's airports to a private consortium, bringing to more

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<PAGE>

than $30 billion the amount of assets sold since the
privatization program began.

In January 1999, the Government sold most of its
residual interest (14.99%) in the Yacimientos Petroliferos
Fiscales, the largest oil and natural gas producer in Argentina,
in an auction in which major international oil firms were invited
to participate. The only bidder was the Spanish company Repsol,
which made an offer for the minimum price. The $2.01 billion in
proceeds from the sale will be channeled to the Provincial
Development Trust Fund. The Government has not decided whether
the sale of an additional 5.4% will be similarly made en bloc or
whether it will be sold to retail investors on the stock market.
The Government will retain one "golden share" granting it veto
power over any strategic decisions.

Also in January 1999, the Government sold the first
tranche of 25% in Banco Hipotecario National, the national
mortgage bank, which raised $260 million. The proceeds were to
be used to pay back the $220 million bridge loan obtained in 1998
from the banks in charge of organizing the sale; the balance will
be used to capitalize the Regional Infrastructure Trust Fund.
The sale of the shares had been postponed on several occasions
during 1998 because of the adverse conditions in the
international financial markets.

The following provides certain statistical and related
information regarding historical rates of exchange between the
U.S. Dollar and the Argentine Peso, information concerning
inflation rates, historical information concerning the Argentine
GDP and information concerning interest rates on certain
Argentine Government Securities. Historical statistical
information is not necessarily indicative of future developments.

CURRENCY EXCHANGE RATES. The Argentine foreign exchange
market was highly controlled until December 1989, when a free
exchange rate was established for all foreign transactions.
Since the institution of the Convertibility Law on April 1, 1991,
the Argentine currency has been tied to the U.S. Dollar. Under
the Convertibility Law, the Central Bank of Argentina must
maintain a reserve in foreign currencies, gold and certain public
bonds denominated in foreign currencies equal to the amount of
outstanding Argentine currency and is obliged to sell dollars to
any person who so requires at a rate of one peso to one dollar.
From April 1, 1991 through the end of 1991, the exchange rate was
approximately 10,000 Australes (the predecessor to the Argentine
Peso) per U.S. Dollar. On January 1, 1992 the Argentine Peso
equal to 10,000 Australes was introduced. Since January 1, 1992,
the rate of exchange from Argentine Peso to U.S. Dollar has been
approximately one to one. However, the historic range of

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<PAGE>

exchange rates is not necessarily indicative of future rates.
Future rates of exchange cannot be predicted.

The following table sets forth, for each year indicated,
the nominal exchange rates of Argentine Peso to U.S. Dollar as of
the last day of the period indicated.

Free Rate

1990 . . . . . . . . . . . . .5590
1991 . . . . . . . . . . . . .9990
1992 . . . . . . . . . . . . .9990
1993 . . . . . . . . . . . . .9990
1994 . . . . . . . . . . . . 1.0
1995 . . . . . . . . . . . . 1.0
1996 . . . . . . . . . . . . 1.0
1997 . . . . . . . . . . . . 1.0
1998 . . . . . . . . . . . . 1.0

Source: Banco Central de la Republica Argentina.

WAGES AND PRICES. Prior to the adoption of the economic
plan announced by former Economy Minister Domingo F. Cavallo in
March 1991, the Argentine economy was characterized by low and
erratic growth, declining investment rates and rapid inflation.
Argentina's high inflation rates and balance of payments
imbalances during the period from 1975 to 1990 resulted mainly
from a lack of control over fiscal policy and the money supply.
Large subsidies to state-owned enterprises and an inefficient tax
collection system led to large persistent public-sector deficits
which were financed in large part through increases in the money
supply and external financings. High inflation combined with the
lag between the accrual and receipt of taxes reduced real tax
revenues and increased the size of the deficit, further fueling
the inflationary cycle. Inflation accelerated on several
occasions and turned into hyperinflation in 1989 and the end of
1990, with prices rising at an annual rate of 1,000% or more.

During the 1980's and in 1990, the Argentine government
instituted several economic plans to stabilize the economy and
foster real growth, all of which failed after achieving initial
success mainly because the government was unable to sustain
reductions in the public deficit. The government's initial
stabilization efforts included a devaluation of the Austral, a
fixed exchange rate, wage and price controls and a sharp rise in
public utility rates.

The government's efforts proved inadequate, however, and
foreign exchange markets declined sharply in anticipation of a
new bout of hyperinflation. The government adopted a new set of
stabilization measures in December 1989 which abandoned attempts

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<PAGE>

to control wages, prices and the exchange rate and sought to
restrain the public deficit which was believed to be the
principal cause of Argentina's chronic inflation. The new
stabilization plan (called the Bonex Plan) featured, among other
things, tax reforms, a tighter rein on public enterprises and
restrictions on lending activities of the public sector banks
(which had been financing provincial government deficits through
loans which were in turn financed with discounts from the Central
Bank), government personnel cuts and a reliance on cash income
generated by privatizations to reduce the public sector deficit.
The plan also eliminated all restrictions on foreign exchange
transactions. In addition, the plan froze fixed-rate short-term
bank deposits pursuant to which holders of 7- to 30-day deposits
were permitted to withdraw no more than the equivalent of
approximately U.S. $1,000 from their accounts, and the balance
was made payable only in 10-year U.S. Dollar denominated
government bonds (Bonex 89). The plan also provided for the
compulsory exchange of certain domestic currency denominated
bonds for Bonex 89.

The stabilization effort succeeded in ending temporarily
the period of hyperinflation, but not in ending the Argentine
economy's susceptibility to inflation. In late 1990, a
deterioration in the finances of the social security system and
provincial governments led to an expansion of Central Bank
credit. The Central Bank loaned funds to the social security
system to allow it to meet year-end payments and also funded
provincial banks suffering deposit runs. The provincial banks
continued to lend to finance provincial government deficits. The
credit expansion led to downward market pressure on the Austral,
and a resurgence of price inflation. Between December 1989 and
December 1990, the CPI rose 1,343.9%, which was significantly
less than the 4,923.6% increase in 1989, but was still an
unacceptably high inflation rate. The government responded by
installing a new economic team headed by Economy Minister
Cavallo, which acted to reduce the public sector deficit by
increasing public utility rates and taxes and by developing a new
stabilization program.

The Argentine government's current stabilization program
is built around the plan announced by former Economy Minister
Cavallo on March 20, 1991 (the "Convertibility Plan", as amended
and supplemented), and approved by Congress through passage of
the Convertibility Law. The Convertibility Plan has sought to
reduce inflation and restore economic stability through reforms
relating to the tax system, privatizations and the opening of the
economy that are intended to address underlying structural
problems that had distorted fiscal and monetary policy.

The Convertibility Plan is centered on the two following
fundamental principles:

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(1) Full international reserve backing for the monetary
base. The monetary base (consisting of currency in circulation
and peso deposits of financial entities with the Central Bank) is
not to exceed the Central Bank's gross international assets as a
fixed rate of one Argentine Peso per U.S. Dollar. This
effectively means that the money supply can be increased only
when backed by increases in the level of international reserves,
and not whenever the public sector deficit or the financial
sector needs to be financed. Gross international assets include
the Central Bank's holdings of gold, foreign exchange (including
short-term investments), U.S. Dollar denominated Argentine
government bonds (in an amount not to exceed 30% of total assets)
and its net Asociacion Latinoamericana de Integraction ("ALADI")
claims (except overdue claims) all freely available and valued at
market prices. Under this arrangement, in which the Argentine
Peso is fully convertible into the U.S. Dollar, no increase in
the domestic monetary base can occur without an equivalent
increase in gross international assets at the one Argentine Peso
per U.S. Dollar rate; and

(2) the elimination of the fiscal deficit and the
achievement of a surplus in the primary balance to provide funds
for the government to service its debt and thereby eliminate the
need for further borrowings.

The IMF has supported the implementation of the
Convertibility Plan and designed a financial program for the
Argentine public sector. In the event of any noncompliance with
the program, Argentina is required to consult in the first
instance with the IMF in order to obtain a waiver and, if
required, revise the program to remedy the situation. In the
second half of 1994, the Government decided to seek private
financing rather than utilize its EFF allotment for that period.
After the onset of the Mexican currency crisis, however, the
Government determined that it was necessary to seek further
funding through the EFF program, including drawing down on its
unused quota for the later part of 1994. Negotiations with the
IMF led to approval in April 1995 of economic performance waivers
for the last two quarters of 1994, an extension of the EFF credit
for a fourth year through March 30, 1996, and an increase in the
amount of the EFF credit by the equivalent of approximately
US$2.4 billion to a total of approximately US $6.3 billion. On
February 4, 1998, the IMF, citing Argentina's strong
macroeconomic performance in 1997, announced its approval of a
new three-year EFF credit for Argentina in the amount of
approximately US $2.8 billion to support the government's medium-
term economic reform program for 1998-2000.

Argentina, like other Latin American countries, has been
affected by the recent financial instability in Asia. In October
1998, Argentina negotiated a $4 billion aid package with the

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World Bank and the Inter-American Development Bank. Argentina
also announced the issuance of $11 billion in 29-year Treasury
bonds in the domestic market, which would be placed in six
monthly installments between October 1998 and March 1999. The
Government also obtained a bridge loan for $700 million with
private domestic and international banks. As a result, at the
start of the fourth quarter of 1998, the government had raised
enough funds to cover its borrowing needs until March 1999. The
official estimate of total public-sector borrowing needs for 1999
amounts to $14.5 billion or $17.2 billion if the roll-over of
T-bills is included.

The Convertibility Plan has simplified fiscal and market
regulations and reallocated state activities to the private
sector, thereby reducing state expenditures, increasing the
amount of federal revenues and at the same time encouraging
domestic private sector initiative and foreign investment. Since
the Convertibility Plan was introduced in March 1991, inflation
as measured by the consumer price index declined from a 27.0%
monthly rate in February 1991 to a 0.3% monthly rate in December
1992 and resulted in a 24.8% annual rate for 1992. Inflation has
continued to decrease. In 1997 and 1998, the annual rate of
inflation was 0.5% and 0.9%, respectively.

The international financial crises of 1998 and their
impact on the domestic banking sector have prompted the
authorities to adopt new measures to prevent a run on bank
deposits, as well as to improve the strength and performance of
Argentina's banks. In September 1998, the Central Bank increased
the amount covered by deposit insurance and extended coverage to
large deposits, which had previously been uninsured.

CONSUMER PRICE INDEX. The following table sets forth
for each year indicated the change in Argentine Consumer Prices
for the twelve months ended December 31, 1989-98.

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INFLATION

Consumer Prices,
Increase Over
Previous Period
----------------

1989................................... 4,923.6
1990................................... 1,343.9
1991................................... 84.1
1992................................... 24.8
1993................................... 10.6
1994................................... 4.2
1995(1)................................ 3.4
1996(1)................................ 0.2
1997................................... 0.5
1998 (Estimate)........................ 0.9

(1) In 1996, a new index was introduced called the
Indice Precios Internos al por Mayor (IPIM). The IPIM is broadly
similar to the index formerly used to determine wholesale price
inflation, but varies slightly as to the weighted average of the
goods measured in the index. The 1995 figures were also
recalculated using the new IPIM index.

___________________

Source: Banco Central de la Republica Argentina; Economist
Intelligence Unit.

ARGENTINE GROSS DOMESTIC PRODUCT. The following table
sets forth Argentina's GDP for the years 1989 through 1998.

D-52

<PAGE>

Gross Change
Domestic from Prior
Gross Product at Year at
Domestic Constant Constant
Product 1986 Prices Prices
________ ___________ ___________
(millions of Argentine Pesos) (percent)

1991 180,898 10,270 8.9
1992 226,847 11,159 8.7
1993 257,570 11,832 6.0
1994 281,600 12,710 7.4
1995 279,500 12,150 (4.6)
1996 294,100 12,672 4.3
1997 327,900 N/A 8.6
1998 N/A N/A 4.2

_______________

Source: Banco Central de la Republica Argentina; Ministerio de
Economia, Obras y Servicios Publicos.

1998 data are preliminary.

D-53

<PAGE>

ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
_________________________________________________________________

This Statement of Additional Information is not a prospectus
but supplements and should be read in conjunction with the
Prospectus dated May 3, 1999 for Alliance Variable Products
Series Fund, Inc. (the "Fund") that offers Class B shares. A
separate Prospectus and Statement of Additional Information
relates to the Fund's Class A shares. Copies of the Prospectuses
of the Fund may be obtained by contacting Alliance Fund Services,
Inc. at the address or telephone number shown above.

TABLE OF CONTENTS

PAGE

<PAGE>

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

<PAGE>

_________________________________________________________________

INTRODUCTION
_________________________________________________________________

INVESTMENT POLICIES AND RESTRICTIONS
_________________________________________________________________

MONEY MARKET PORTFOLIO

<PAGE>

may extend to 397 days). Accordingly, the Portfolio may make the
following investments diversified by maturities and issuers:

<PAGE>

For additional information regarding repurchase
agreements, see Other Investment Policies -- Repurchase
Agreements, below.

In recent years, a large institutional market has
developed for certain types of restricted securities including,

<PAGE>

subject to the limitations described above on securities issued
under Section 4(2).

(i) the frequency of trades and quotations for the
security;

(ii) the number of dealers making quotations to
purchase or sell the security;

(iii) the number of other potential purchasers of
the security;

(iv) the number of dealers undertaking to make a
market in the security;

(vi) any applicable Securities and Exchange
Commission interpretation or position with
respect to such types of securities.

<PAGE>

Under Rule 2a-7, the Money Market Portfolio may not
invest more than 5% of its assets in the first tier securities of
any one issuer other than the United States Government, its

<PAGE>

agencies and instrumentalities. Generally, a first tier security
is an Eligible Security that has received a short-term rating
from the requisite NRSROs in the highest short-term rating
category for debt obligations, or is an unrated security deemed
to be of comparable quality. Government securities are also
considered to be first tier securities. In addition, the
Portfolio may not invest in a security that has received, or is
deemed comparable in quality to a security that has received, the
second highest rating by the requisite number of NRSROs (a second
tier security) if immediately after the acquisition thereof that
Portfolio would have invested more than (A) the greater of 1% of
its total assets or one million dollars in securities issued by
that issuer which are second tier securities, or (B) five percent
of its total assets in second tier securities.

The Portfolio may not:

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

<PAGE>

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days.

8. Purchase any security which has a maturity date
more than one year from the date of the Portfolio's purchase;

9. Make investments for the purpose of exercising
control;

10. Purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition or
reorganization;

12. Make short sales of securities or maintain a short
position or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof; or

PREMIER GROWTH PORTFOLIO

<PAGE>

The Adviser expects that, under normal circumstances,
the Portfolio will invest at least 85% of the value of its total
assets in the equity securities of American companies (except

<PAGE>

enters into a short sale with respect to such security, the
Portfolio generally will be deemed to have sold the appreciated
security and thus will recognize gain for tax purposes.

<PAGE>

The Portfolio may not:

<PAGE>

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);

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

5. Mortgage, pledge or hypothecate any of its assets,
except as may be necessary in connection with permissible
borrowings described in paragraph 4 above (in an aggregate amount
not to exceed 15% of total assets of the Portfolio), or as
permitted in connection with short sales of securities "against
the box" by the Portfolio, as described above;

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Write put options;

9. Make investments for the purpose of exercising
control;

10. Except as permitted in connection with short sales
of securities against the box described under the heading Short
Sales above, make short sales of securities;

12. Buy or sell any real estate or interests therein,
commodities or commodity contracts, including commodity futures
contracts.

GROWTH AND INCOME PORTFOLIO

<PAGE>

The Portfolio may not:

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

6. 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;

<PAGE>

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Purchase the securities of any other investment
company except in a regular transaction on the open market;

9. Purchase the securities of any issuer if directors
or officers of the Fund or certain other interested persons own
more than 5% of such securities; or

10. Invest in the securities of any company for the
purpose of exercising control of management.

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO

<PAGE>

on the underlying pool. The FHLMC guarantees timely monthly
payment of interest on PCs and the ultimate payment of principal.

<PAGE>

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

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

2. Obligations of, or guaranteed by, national or state
bank holding companies, which obligations, although not rated as
a matter of policy by either S&P or Moody's, are rated AAA, AA or
A by Fitch;

3. Commercial paper rated A-1+, A-1, A-2 or A-3 by
S&P, D-1, D-2 or D-3 by Duff & Phelps, F1, F2 or F3 by Fitch 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.

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
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.

<PAGE>

INVESTMENT PRACTICES.

<PAGE>

For additional information on the use, risks and costs
of options, see Appendix C.

<PAGE>

For additional information on the use, risks and costs
of future contracts and options on future contracts, see
Appendix B.

When such transactions are negotiated, the price, which
is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities
take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements
beyond two months may be negotiated. Securities purchased or
sold under a forward commitment are subject to market
fluctuation, and no interest (or dividend) accrues to the
purchaser prior to the settlement date. At the time the
Portfolio enters into a forward commitment, it will record the
transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a when, as and if
issued security would be canceled in the event that the required
condition did not occur and the trade was canceled.

<PAGE>

PORTFOLIO TURNOVER. Because the Portfolio actively uses
trading to benefit from yield disparities among different issues
of fixed-income securities or otherwise to achieve its investment

<PAGE>

The Portfolio may not:

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

<PAGE>

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Participate on a joint or joint and several basis
in any securities trading account;

9. Invest in companies for the purpose of exercising
control;

10. Issue senior securities, except in connection with
permitted borrowing for extraordinary emergency purposes;

13. Invest in the securities of any investment company,
except in connection with a merger, consolidation, acquisition of
assets or other reorganization approved by the Fund's
shareholders;

14. Invest more than 25% of the value of its total
assets at the time of investment in the aggregate of:

<PAGE>

the value of the Portfolio's total assets at the time of
investment;

(b) debt securities of foreign issuers which are
rated Aaa, Aa or A by Moody's or AAA, AA or A by S&P; and

15. Purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real
estate or interests therein;

17. Purchase securities on margin, except for such
short-term credits as may be necessary for the clearance of
transactions.

HIGH-YIELD PORTFOLIO

<PAGE>

as well as in new types of such contracts that may become
available.

<PAGE>

The Portfolio may not:

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

6. 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
(illiquid securities purchased by the Portfolio may include: (a)

<PAGE>

subordinated debentures or other debt securities issued in the
course of acquisition financing such as that associated with
leveraged buyout transactions, and (b) participation interests in
loans to domestic companies, or to foreign companies and
governments, original by commercial banks and supported by
letters of credit or other credit facilities offered by such
banks or other financial institutions);

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

9. Act as securities underwriter or invest in
commodities or commodity contracts, except that the Portfolio (i)
may acquire restricted or not readily marketable securities under
circumstances where, if such securities are sold, the Portfolio
might be deemed to be an underwriter for purposes of the
Securities Act, and (ii) may purchase financial futures as
described in the Prospectus and above;

11. Invest in companies for the purpose of exercising
control of management;

13. Participate on a joint, or on a joint and several,
basis in any trading account in securities;

14. Effect a short sale of any security;

15. Purchase securities on margin, but it may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities; or

16. Invest in the securities of any other investment
company except in connection with a merger, consolidation,
acquisition of assets or other reorganization.

<PAGE>

TOTAL RETURN PORTFOLIO

Although the Portfolio may invest in foreign securities,
it has no present intention to do so.

<PAGE>

The Portfolio may not:

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Purchase the securities of any other investment
company except in a regular transaction in the open market;

9. Retain investments in the securities of any issuer
if directors or officers of the Fund or certain other interested
persons own more than 5% of such securities;

10. Invest in other companies for the purchase of
exercising control of management;

<PAGE>

11. Purchase securities on margin or sell securities
short;
12. Underwrite securities issued by other persons;

13. Purchase any securities as to which it would be
deemed a statutory underwriter under the Securities Act of 1933;

14. Purchase or sell commodities or commodity
contracts; or

15. Issue any securities senior to the capital stock
offered hereby.

INTERNATIONAL PORTFOLIO

In determining whether the Portfolio will be invested
for capital appreciation or for income or any combination of
both, the Adviser regularly analyzes a broad range of
international equity and fixed-income markets in order to assess
the degree of risk and level of return that can be expected from
each market. Based upon the current assessment of the Adviser,
the Portfolio expects that its objective will, over the long
term, be met principally through investing in the equity
securities of established non-United States companies which, in
the opinion of the Adviser, have potential for growth of capital.
However, the Portfolio can be expected during certain periods to
place substantial emphasis on income through investment in
foreign debt securities when it appears that the total return
from such securities will equal or exceed the return on equity
securities.

Investments may be made from time to time in companies
in, or governments of, developing countries as well as developed
countries. Although there is no universally accepted definition,

<PAGE>

a developing country is generally considered to be a country
which is in the initial stages of its industrialization cycle
with a low per capita gross national product. Historical
experience indicates that the markets of developing countries
have been more volatile than the markets of the more mature
economies of developed countries; however, such markets often
have provided higher rates of return to investors. The Adviser
at present does not intend to invest more than 10% of the
Portfolio's total assets in companies in, or governments of,
developing countries.

<PAGE>

principal activities in the United States. As discussed below,
the Portfolio may also from time to time invest its temporary
cash balances in United States short-term money market
instruments.

SPECIAL RISK CONSIDERATIONS. Investors should
understand and consider carefully the substantial risks involved
in securities of foreign companies and governments of foreign
nations, some of which are referred to below, and which are in
addition to the usual risks inherent in domestic investments.

<PAGE>

one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.

The Portfolio may not:

<PAGE>

total assets would be invested in such issuer, except that 25% of
the value of the total assets of a Portfolio may be invested
without regard to such 5% limitation;

4. Borrow money, except that the Portfolio may borrow
money only for extraordinary or emergency purposes and then only
in amounts not exceeding 15% of its total assets at the time of
borrowing;

6. 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;

7. Invest more than 10% of the value of its total
assets in repurchase agreements not terminable within seven days;

8. Purchase a security if, as a result, the Portfolio
would own any securities of an open-end investment company or
more than 3% of the total outstanding voting stock of any closed-
end investment company, or more than 5% of the value of the
Portfolio's total assets would be invested in securities of any
closed-end investment company or more than 10% of such value in
closed-end investment companies in general, unless the security
is acquired pursuant to a plan of reorganization or an offer of
exchange;

<PAGE>

10. Purchase or sell commodity contracts, provided,
however, that this policy does not prevent the Portfolio from
entering into forward foreign currency exchange contracts;

11. Purchase securities on margin, except for use of
the short-term credit necessary for clearance of purchases of
portfolio securities;

12. Effect short sales of securities;

15. Invest in companies for the purpose of exercising
management or control; or

16. Issue senior securities except as permitted by the
1940 Act.

SHORT-TERM MULTI-MARKET PORTFOLIO AND GLOBAL BOND PORTFOLIO

GENERAL. The objective of the Short-Term Multi-Market
Portfolio is to seek the highest level of current income,
consistent with what the Adviser considers to be prudent
investment risk, that is available from a portfolio of high-
quality debt securities having remaining maturities of not more
than three years. The Portfolio seeks high current yields by
investing in debt securities denominated in the U.S. Dollar and a
range of foreign currencies. Accordingly, the Portfolio seeks
investment opportunities in foreign, as well as domestic,
securities markets. While the Portfolio normally maintains a
substantial portion of its assets in debt securities denominated
in foreign currencies, the Portfolio invests at least 25% of its
net assets in U.S. Dollar-denominated securities. The Portfolio
is designed for the investor who seeks a higher yield than a
money market fund or certificate of deposit and less fluctuation
in net asset value than a longer-term bond fund. Certificates of
deposit are insured and generally have fixed interest rates while
yields for the Portfolio fluctuate with changes in interest rates
and other market conditions.

<PAGE>

U.S. GOVERNMENT SECURITIES. See Appendix A hereto for a
description of obligations issued or guaranteed by U.S.
Government agencies or instrumentalities.

<PAGE>

thereafter the amount of margin deposits on all the futures
contracts of the Portfolio and premiums paid on options on
futures contracts would exceed 5% of the market value of the
total assets of the Portfolio. The second restriction is that
the aggregate market value of the outstanding futures contracts
purchased by a Portfolio not exceed 50% of the market value of
the total assets of the Portfolio. Neither of these restrictions
will be changed by the Board of Directors without considering the
policies and concerns of the various applicable federal and state
regulatory agencies.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix B.

The matching of the increase in value of a forward
contract and the decline in the U.S. Dollar equivalent value of
the foreign currency-denominated asset that is the subject of the
hedge generally will not be precise. In addition, a Portfolio
may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the
Portfolio's ability to use such contracts to hedge or cross-hedge
its assets. Also, with regard to a Portfolio's use of cross-
hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to
the U.S. Dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange rates of
the foreign currencies underlying the Portfolio's cross-hedges
and the movements in the exchange rates of the foreign currencies

<PAGE>

in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.

A Portfolio may not:

1. Invest 25% or more of its total assets in
securities of companies engaged principally in any one industry
(other than, with respect to the Short-Term Multi-Market
Portfolio only, the banking industry) except that this
restriction does not apply to U.S. Government Securities;

3. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;

<PAGE>

4. 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;

5. Make loans except through (i) the purchase of debt
obligations in accordance with its investment objectives and
policies; (ii) the lending of portfolio securities; or (iii) the
use of repurchase agreements;

6. Participate on a joint or joint and several basis
in any securities trading account;

7. Invest in companies for the purpose of exercising
control;

10. (a) Purchase or sell real estate, except that it
may purchase and sell securities of companies which deal in real
estate or purchase and sell securities of companies which deal in
real estate or interests therein; (b) purchase or sell
commodities or commodity contracts (except currencies, futures
contracts on currencies and related options, forward contracts or
contracts for the future acquisition or delivery of fixed-income
securities and related options, futures contracts and options on
futures contracts and other similar contracts); (c) invest in
interests in oil, gas, or other mineral exploration or
development programs; (d) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions; and (e) act as an underwriter of securities,
except that the Portfolio may acquire restricted securities under
circumstances in which, if such securities were sold, the

<PAGE>

Portfolio might be deemed to be an underwriter for purposes of
the Securities Act.

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO

<PAGE>

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 POLICIES.

U.S. GOVERNMENT SECURITIES. For a general description
of obligations issued or guaranteed by U.S. Government agencies
or instrumentalities, see Appendix B.

GNMA CERTIFICATES. For information regarding GNMA
Certificates, see "U.S. Government/High Grade Securities
Portfolio -- GNMA Certificates," above.

<PAGE>

FHLMC SECURITIES. For information regarding FHLMC
Securities, see "U.S. Government/High Grade Securities Portfolio
- -- FHLMC Securities," above.

FNMA SECURITIES. For information regarding FNMA
Securities, see "U.S. Government/High Grade Securities Portfolio
- -- FNMA Securities," above.

<PAGE>

Canada Mortgage and Housing Corporation (CMHC), a federal Crown
corporation that is (except for certain limited purposes) an
agent of the Government of Canada whose guarantee (similar to
that of GNMA in the United States) is an unconditional obligation
of the Government of Canada except as described below. The NHA
currently provides that the aggregate principal amount of all
issues of NHA Mortgage-Related Securities in respect of which
CMHC may give a guarantee must not exceed $60 billion.

<PAGE>

Securities may be as short as six months or as long as eighteen
years.

ILLIQUID SECURITIES. The Portfolio has adopted the
following investment policy which may be changed by the vote of
the Board of Directors.

The Board of Directors has adopted the requirement that
futures contracts and options on futures contracts only be used
as a hedge and not for speculation. In addition to this
requirement, the Board of Directors has also restricted the
Portfolio's use of futures contracts so that the aggregate of the
market value of the outstanding futures contracts purchased by
the Portfolio not exceed 50% of the market value of the total
assets of the Portfolio. These restrictions will not be changed
by the Fund's Board of Directors without considering the policies
and concerns of the various applicable federal and state
regulatory agencies.

<PAGE>

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix B.

While these contracts are not presently regulated by the
Commodity Futures Trading Commission (CFTC), the CFTC may in the
future assert authority to regulate forward contracts. In such

<PAGE>

event the Portfolio's ability to utilize forward contracts in the
manner set forth in the Prospectus may be restricted. Forward
contracts will reduce the potential gain from a positive change
in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result
in poorer overall performance for the Portfolio than if it had
not entered into such contracts. The use of foreign currency
forward contracts will not eliminate fluctuations in the
underlying U.S. Dollar equivalent value of the proceeds of or
rates of return on the Portfolio's foreign currency denominated
portfolio securities and the use of such techniques will subject
the Portfolio to certain risks.

<PAGE>

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

INVESTMENT RESTRICTIONS

The Portfolio may not:

1. Invest 25% or more of its total assets in
securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government
Securities;

2. Borrow money, except the Portfolio may, in
accordance with provisions of the Act, borrow money from banks
for temporary or emergency purposes, including the meeting of
redemption requests which might require the untimely 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) 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;

3. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;

5. Participate on a joint or joint and several basis
in any securities trading account;

6. Invest in companies for the purpose of exercising
control;

<PAGE>

consideration, securities of the same issue as, and equal in
amount to, the securities sold short (short sales against the
box), and unless not more than 10% of the Portfolio's net assets
(taken at market value) is held as collateral for such sales at
any one time (it is the Portfolio's present intention to make
such sales only for the purpose of deferring realization of gain
or loss for Federal income tax purposes);

In addition to the restrictions set forth above, in
connection with the qualification of its shares for sale in
certain states, the Portfolio may not invest in warrants if, such
warrants valued at the lower of cost or market, would exceed 5%
of the value of the Portfolio's net assets. Included within such
amount, but not to exceed 2% of the Portfolio's net assets may be
warrants which are not listed on the New York Stock Exchange or
the American Stock Exchange. Warrants acquired by the Portfolio
in units or attached to securities may be deemed to be without
value. The Portfolio will also not purchase puts, calls,
straddles, spreads and any combination thereof if by reason
thereof the value of its aggregate investment in such classes of
securities will exceed 5% of its total assets.

For additional information about Canada, Mexico and
Argentina, see Appendix D.

<PAGE>

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

<PAGE>

assets in the securities or obligations of issuers located in any
particular country.

INVESTMENT POLICIES

<PAGE>

Philippines, Uruguay and Venezuela are the only countries which
have issued Collateralized Brady Bonds.

<PAGE>

securities of issuers conducting their principal business
activities in the same industry (i.e., foreign government). The
Portfolio's investment in Participations typically will result in
the Portfolio having a contractual relationship only with the
Lender and not with the borrower. The Portfolio will have the
right to receive payments of principal, interest and any fees to
which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations,
the Portfolio generally will have no right to enforce compliance
by the borrower with the terms of the loan agreement relating to
the Loan, nor any rights of set-off against the borrower, and the
Portfolio may not directly benefit from any collateral supporting
the Loan in which it has purchased the Participation. As a
result, the Portfolio may be subject to the credit risk of both
the borrower and the Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a
Participation, the Portfolio may be treated as a general creditor
of the Lender and may not benefit from any set-off between the
Lender and the borrower. Certain Participations may be
structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender
with respect to the Participation, but even under such a
structure, in the event of the Lenders insolvency, the Lenders
servicing of the Participation may be delayed and the
assignability of the Participation impaired. The Portfolio will
acquire Participations only the Lender interpositioned between
the Portfolio and the borrower in a Lender having total assets of
more than $25 billion and whose senior unsecured debt is rated
investment grade or higher (i.e. Baa or higher by Moody's or BBB
or higher by S&P, Duff & Phelps or Fitch).

When the Portfolio purchases Assignments from Lenders it
will acquire direct rights against the borrower on the Loan.
Because Assignments are arranged through private negotiations
between potential assignees and potential assignors, however, the
rights and obligations acquired by the Portfolio as the purchaser
of an assignment may differ from, and be more limited than, those
held by the assigning Lender. The assignability of certain
Sovereign Debt Obligations is restricted by the governing
documentation as to the nature of the assignee such that the only
way in which the Portfolio may acquire an interest in a Loan is
through a Participation and not an Assignment. The Portfolio may
have difficulty disposing of Assignments and Participations
because to do so it will have to assign such securities to a
third party. Because there is no liquid market for such
securities, the Portfolio anticipates that such securities could
be sold only to a limited number of institutional investors. The
lack of a liquid secondary market may have an adverse impact on
the value of such securities and the Portfolio's ability to
dispose of particular Assignments or Participations when

<PAGE>

necessary to meet the Portfolio's liquidity needs in response to
a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary
market for Assignments and Participations also may make it more
difficult for the Portfolio to assign a value to these securities
for purposes of valuing the Portfolio's portfolio and calculating
its asset value.

<PAGE>

factors, the investment performance of the Portfolio would
diminish compared with what it would have been if these
investment techniques were not used. Moreover, even if the
Adviser is correct in its forecasts, there is a risk that the
swap position may correlate imperfectly with the price of the
asset or liability being hedged.

OPTIONS. The Portfolio may write covered put and call
options and purchase put and call options on securities of the
types in which it is permitted to invest that are traded on U.S.
and foreign securities exchanges. The Portfolio may also write
call options for cross-hedging purposes. There are no specific
limitations on the Fund's writing and purchasing of options.

<PAGE>

banks or savings and loan institutions) deemed creditworthy by
the Adviser, and the Adviser has adopted procedures for
monitoring the creditworthiness of such entities. Options
purchased or written by the Portfolio in negotiated transactions
are illiquid and it may not be possible for the Portfolio to
effect a closing transaction at a time when the Adviser believes
it would be advantageous to do so. See "Description of the Fund
- -- Additional Investment Policies and Practices -- Illiquid
Securities in the Fund's Prospectus".

WARRANTS. The Portfolio may invest in warrants, which
are option securities permitting their holder to subscribe for
other securities. The Portfolio may invest in warrants for debt
securities or warrants for equity securities that are acquired in
connection with debt instruments. Warrants do not carry with
them dividend or voting rights with respect to the securities
that they entitle their holder to purchase, and they do not
represent 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 investments. 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 investment portfolio any common
stock received upon the exercise 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

<PAGE>

sale. The Portfolio does not intend to retain in its investment
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.

REPURCHASE AGREEMENTS. For information regarding
repurchase agreements, see "Other Investment Policies -
Repurchase Agreements," below.

ILLIQUID SECURITIES. The fund has adopted the following
investment policy which may be changed by the vote of the Board
of Directors.

For additional information regarding illiquid
securities, see "Other Investment Policies -- Illiquid
Securities," below.

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

<PAGE>

correspondingly greater expenses than a lower rate, which
expenses must be borne by the Fund and its shareholders. High
portfolio turnover also may result in the realization of
substantial net short-term capital gains. See "Dividends,
Distributions and Taxes" and "Portfolio Transactions."

CERTAIN RISK CONSIDERATIONS

Certain countries other than those on which the
Portfolio focus its investments may require governmental approval

<PAGE>

for the repatriation of investment income, capital or the
proceeds of sales of securities by foreign investors. In
addition, if a deterioration occurs in a country's balance of
payments, the country could impose temporary restrictions on
foreign capital remittances. The Portfolio could be adversely
affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by
the application to the Portfolio of any restrictions on
investments. Investing in local markets may require the
portfolio to adopt special procedures, seek local governmental
approvals or take other actions, each of which may involve
additional costs to the Portfolio.

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

<PAGE>

Central banks and other governmental authorities which
control the servicing of Sovereign Debt Obligations may not be
willing or able to permit the payment of the principal or
interest when due in accordance with the terms of the
obligations. As a result, the issuers of Sovereign Debt
Obligations may default on their obligations. Defaults on
certain Sovereign Debt Obligations have occurred in the past.
Holders of certain Sovereign Debt Obligations may be requested to
participate in the restructuring and rescheduling of these
obligations and to extend further loans to the issuers. The
interests of holders of Sovereign Debt Obligations could be
adversely affected in the course of restructuring arrangements or
by certain other factors referred to below. Furthermore, some of
the participants in the secondary market for Sovereign Debt
Obligations may also be directly involved in negotiating the
terms of these arrangements and may therefore have access to
information not available to other market participants.

<PAGE>

concentrated in a few commodities could be vulnerable to a
decline in the international prices of one or more of those
commodities. Increased protectionism on the part of a country's
trading partners could also adversely affect the country's
exports and diminish its trade account surplus, if any. To the
extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected.

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 example, remedies from defaults on certain Sovereign
Debt Obligations, unlike those on private debt, must, in some
cases, be pursued in the courts of the defaulting party itself.
Legal recourse therefore may be significantly diminished.
Bankruptcy, moratorium and other similar laws applicable to
issuers of Sovereign Debt Obligations may be substantially
different from those applicable to issuers of private debt
obligations. The political context, expressed as the willingness
of an issuer of Sovereign Debt Obligations to meet the terms of
the debt obligation, for example, is of considerable importance.
In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of
securities issued by foreign governments in the event of default
under commercial bank loan agreements.

<PAGE>

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Global Dollar Government Portfolio,
supplement those set forth above and in the Prospectus, and may
not be changed without Shareholder Approval, as defined under the
caption "General Information", below.

The Portfolio may not:

1. Invest 25% or more of its total assets in
securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government
Securities;

3. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;

<PAGE>

5. Invest in companies for the purpose of exercising
control;

UTILITY INCOME PORTFOLIO

<PAGE>

Portfolio, under normal circumstances, invests at least 65% of
the value of its total assets in securities of companies in the
utilities industry. The Portfolio considers a company to be in
the utilities industry if, during the most recent twelve month
period, at least 50% of the company's gross revenues, on a
consolidated basis, is derived from the utilities industry. At
least 65% of the Portfolio's total assets are to be invested in
income-producing securities.

The Portfolio invests in equity securities, such as
common stocks, securities convertible into common stocks and
rights and warrants to subscribe for the purchase of common
stocks and in fixed-income securities, such as bonds and
preferred stocks. The Portfolio may vary the percentage of
assets invested in any one type of security based upon the
Advisers evaluation as to the appropriate portfolio structure for
achieving the Portfolio's investment objective under prevailing
market, economic and financial conditions. Certain securities
(such as fixed-income securities) will be selected on the basis
of their current yield, while other securities may be purchased
for their growth potential.

INVESTMENT POLICIES

<PAGE>

make the convertible security less volatile than the underlying
common stock. As with debt securities, the market value of
convertible securities tends to decrease as interest rates rise
and, conversely, to increase as interest rates decline. While
convertible securities generally offer lower interest or dividend
yields than non-convertible debt securities of similar quality,
they offer investors the potential to benefit from increases in
the market price of the underlying common stock. When the market
price of the common stock underlying a convertible security
increases, the price of the convertible security increasingly
reflects the value of the underlying common stock and may rise
accordingly. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on
a yield basis, and thus may not depreciate to the same extent as
the underlying common stock. Convertible securities rank senior
to common stocks on an issuers capital structure. They are
consequently of higher quality and entail less risk than the
issuers common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed-income
security. The Portfolio may invest up to 30% of its net assets
in the convertible securities of companies whose common stocks
are eligible for purchase by the Portfolio under the investment
policies described above and in the Prospectus.

RIGHTS OR WARRANTS. The Portfolio may invest up to 5%
of its net assets in rights or warrants which entitle the holder
to buy equity securities at a specific price for a specific
period of time, but will do so only if the equity securities
themselves are deemed appropriate by the Adviser for inclusion in
the Portfolio's investment portfolio. Rights and warrants
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 warrant will
expire worthless. Moreover, a right or warrant ceases to have
value if it is not exercised prior to the expiration date.

<PAGE>

U.S. GOVERNMENT SECURITIES. For a general description
of obligations issued or guaranteed by U.S. Government agencies
or instrumentalities, see Appendix A.

OPTIONS. For additional information on the use, risks
and costs of options, see Appendix C.

Through the purchase of listed index options, the
Portfolio could achieve many of the same objectives as through
the use of options on individual securities. Price movements in
the Portfolio's portfolio securities probably will not correlate
perfectly with movements in the level of the index and,
therefore, the Portfolio would bear a risk of loss on index
options purchased by it if favorable price movements of the
hedged portfolio securities do not equal or exceed losses on the
options or if adverse price movements of the hedged portfolio
securities are greater than gains realized from the options.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. For
a discussion regarding futures contracts and options on futures
contracts, see "North American Government Income Portfolio --
Futures Contracts" and "Options on Futures Contracts", above.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix B.

<PAGE>

PORTFOLIO TURNOVER. The Portfolio may engage in
active short-term trading in connection with its investment in
shorter- term fixed-income securities in order to benefit from
yield disparities among different issues of securities, to seek
short- term profits during periods of fluctuating interest rates,
or for other reasons. Such trading will increase the Portfolio's
rate of turnover and the incidence of short-term capital gain
taxable as ordinary income. It is anticipated that the
Portfolio's annual turnover rate will not exceed 200%. An annual
turnover rate of 200% occurs, for example, when all of the
securities in the Portfolio's portfolio are replaced twice in a
period of one year. A portfolio turnover rate approximating 200%
involves correspondingly greater brokerage commissions than would
a lower rate, which expenses must be borne by the Portfolio and
its shareholders.

<PAGE>

CERTAIN RISK CONSIDERATIONS

Telecommunications regulation typically limits rates
charged, returns earned, providers of services, types of
services, ownership, areas served and terms for dealing with
competitors and customers. Telecommunications regulation
generally has tended to be less stringent for newer services,
such as mobile services, than for traditional telephone service,
although there can be no assurances that such newer services will
not be heavily regulated in the future. Regulation may limit
rates based on an authorized level of earnings, a price index, or
some other formula. Telephone rate regulation may include
government-mandated cross-subsidies that limit the flexibility of
existing service providers to respond to competition. Telephone
utilities are still experiencing the effect of the break-up of
American Telephone & Telegraph Company, including increased
competition and rapidly developing technologies with which
traditional telephone companies now compete. Regulation may also
limit the use of new technologies and hamper efficient
depreciation of existing assets. If regulation limits the use of
new technologies by established carriers or forces cross-
subsidies, large private networks may emerge.

Declines in the price of alternative fuels have
adversely affected gas utilities. Many gas utilities generally
have been adversely affected by oversupply conditions, and by
increased competition from other providers of utility services.
In addition, some gas utilities entered into long-term contracts
with respect to the purchase or sale of gas at fixed prices,
which prices have since changed significantly in the open market.
In many cases, such price changes have been to the disadvantage
of the gas utility. Gas utilities are particularly susceptible
to supply and demand imbalances due to unpredictable climate
conditions and other factors and are subject to regulatory risks
as well.

<PAGE>

Alliance's opinion, increased competition and change may provide
better positioned utility companies with opportunities for
enhanced profitability.

INVESTMENTS IN LOWER-RATED FIXED-INCOME SECURITIES.
Adverse publicity and investor perceptions about lower-rated
securities, whether or not based on fundamental analysis, may
tend to decrease the market value and liquidity of such lower-
rated securities. The Adviser tries to reduce the risk inherent
in investment in lower-rated securities through credit analysis,
diversification and attention to current developments and trends
in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities,
the Advisers research and credit analysis are a correspondingly
important aspect of its program for managing the Portfolio's
securities than would be the case if the Portfolio did not invest
in lower-rated securities. In considering investments for the
Portfolio, the Adviser attempts to identify those high-risk,
high-yield securities whose financial condition is adequate to
meet future obligations, has improved or is expected to improve
in the future. The Advisers analysis focuses on relative values
based on such factors as interest or dividend coverage, asset

<PAGE>

coverage earnings prospects, and the experience and managerial
strength of the issuer.

INVESTMENT RESTRICTIONS. The following restrictions,
which are applicable to the Utility Income Portfolio, supplement
those set forth above and may not be changed without Shareholder
Approval, as defined under the caption "General Information,"
below.

The Portfolio may not:

1. Invest more than 5% of its total assets in the
securities of any one issuer except the U.S. Government, although
with respect to 25% of its total assets it may invest in any
number of issuers;

3. Purchase more than 10% of any class of the voting
securities of any one issuer;

<PAGE>

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;

7. Participate on a joint or joint and several
basis in any securities trading account;

8. Invest in companies for the purpose of exercising
control;

9. Issue any senior security within the meaning of the
Act except that the Portfolio may write put and call options;

11.(a) Purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real
estate or interests therein; (b) purchase or sell commodities or
commodity contracts (except currencies, futures contracts on
currencies and related options, forward contracts or contracts
for the future acquisition or delivery of securities and related
options, futures contracts and options on futures contracts and
options on futures contracts and other similar contracts); (c)
invest in interests in oil, gas, or other mineral exploration or
development programs; (d) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions; and (e) act as an underwriter of securities,

<PAGE>

except that the Portfolio may acquire restricted securities under
circumstances in which, if such securities were sold, the
Portfolio might be deemed to be an underwriter for purposes of
the Securities Act.

CONSERVATIVE INVESTORS PORTFOLIO
GROWTH INVESTORS PORTFOLIO
GROWTH PORTFOLIO

For a general description of the Portfolio's investment
policies, see the Fund's Prospectus.

<PAGE>

Portfolio may not be able to sell these securities (other than
Rule 144A Securities) unless they are registered under applicable
Federal and state securities laws, or may have to sell such
securities at less than fair market value. Investment in these
securities is restricted to 5% of a Portfolio's total assets
(excluding, to the extent permitted by applicable law, Rule 144A
Securities) and is also subject to the restriction against
investing more than 15% of total assets in illiquid securities.
To the extent permitted by applicable law, Rule 144A Securities
will not be treated as illiquid for purposes of the foregoing
restriction so long as such securities meet the liquidity
guidelines established by the Fund's Board of Directors.
Pursuant to these guidelines, the Adviser will monitor the
liquidity of a Portfolio's investment in Rule 144A Securities
and, in reaching liquidity decisions, will consider: (1) the
frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to
make a market in the security; and (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and
the mechanics of the transfer).

FOREIGN SECURITIES. Each of the Portfolios, may invest
without limit in securities of foreign issuers which are not
publicly traded in the United States, although each of these
Portfolios generally will not invest more than 15% of its total
assets (30% in the case of the Growth Investors Portfolio) in
such securities. Investment in foreign issuers or securities
principally outside the United States may involve certain special
risks due to foreign economic, political, diplomatic and legal
developments, including favorable or unfavorable changes in
currency exchange rates, exchange control regulations (including
currency blockage), expropriation of assets or nationalization,
confiscatory taxation, imposition of withholding taxes on
dividend or interest payments, and possible difficulty in
obtaining and enforcing judgments against foreign entities.
Furthermore, issuers of foreign securities are subject to
different, often less comprehensive, accounting, reporting and
disclosure requirements than domestic issuers. The securities of
some foreign companies and foreign securities markets are less
liquid and at times more volatile than securities of comparable
U.S. companies and U.S. securities markets. Foreign brokerage
commissions and other fees are also generally higher than in the
United States. There are also special tax considerations which
apply to securities of foreign issuers and securities principally
traded overseas.

<PAGE>

DESCRIPTION OF CERTAIN MONEY MARKET SECURITIES
IN WHICH THE PORTFOLIOS MAY INVEST

COMMERCIAL PAPER. Commercial paper consists of short-
term (usually from 1 to 270 days) unsecured promissory notes
issued by entities in order to finance their current operations.

VARIABLE NOTES. Variable amounts master demand notes
and variable amount floating rate notes are obligations that
permit the investment of fluctuating amounts by a Portfolio at
varying rates of interest pursuant to direct arrangements between
a Portfolio, as lender, and the borrower. Master demand notes
permit daily fluctuations in the interest rate while the interest
rate under variable amount floating rate notes fluctuate on a
weekly basis. These notes permit daily changes in the amounts
borrowed. The Portfolios have the right to increase the amount
under these notes at any time up to the full amount provided by
the note agreement, or to decrease the amount, and the borrower
may repay up to the full amount of the notes without penalty.
Because these types of notes are direct lending arrangements
between the lender and the borrower, it is not generally
contemplated that such instruments will be traded and there is no
secondary market for these notes. Master demand notes are
redeemable (and, thus, immediately repayable by the borrower) at
face value, plus accrued interest, at any time. Variable amount

<PAGE>

floating rate notes are subject to next-day redemption for 14
days after the initial investment therein. With both types of
notes, therefore, the Portfolio's right to redeem depends on the
ability of the borrower to pay principal and interest on demand.
In connection with both types of note arrangements, the
Portfolios consider earning power, cash flow and other liquidity
ratios of the issuer. These notes, as such, are not typically
rated by credit rating agencies. Unless they are so rated, a
Portfolio may invest in them only if at the time of an investment
the issuer has an outstanding issue of unsecured debt rated Aa or
better by Moody's or AA or better by S&P, Duff & Phelps or Fitch

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
reflect probably 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 capacity. A description of
Moody's, S&Ps, Duff & Phelps and Fitch short-term note ratings is
included as Appendix A to the Prospectus.

The staff of the Commission is of the view that certain
asset-backed securities may constitute investment companies under
the 1940 Act. The Portfolios intend to conduct their operations
in a manner consistent with this view, and therefore they
generally may not invest more than 10% of their total assets in
such securities without obtaining appropriate regulatory relief.

<PAGE>

interest or dividends paid by the issuer on the securities loaned
and would also receive compensation based on investment of the
collateral. A Portfolio would not, however, have the right to
vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important
vote to be taken among holders of the securities or of the giving
or withholding of their consent on a material matter affecting
the investment. As with other extensions of credit there are
risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail
financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the
judgment of the Adviser, the consideration which can be earned
currently from securities loans of this type justifies the
attendant risk. If the Adviser determines to make securities
loans, it is not intended that the value of the securities loaned
would exceed 25% of the value of a Portfolio's total assets.

<PAGE>

been set aside in order to meet redemptions. In addition, if a
Portfolio determines it is advisable as a matter of investment
strategy to sell the forward commitment or when-issued or delayed
delivery securities before delivery, that Portfolio may incur a
gain or loss because of market fluctuations since the time the
commitment to purchase such securities was made. Any such gain
or loss would be treated as a capital gain or loss and would be
treated for tax purposes as such. When the time comes to pay for
the securities to be purchased under a forward commitment or on a
when-issued or delayed delivery basis, a Portfolio will meet its
obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so,
from the sale of the forward commitment or when-issued or delayed
delivery securities themselves (which may have a value greater or
less than a Portfolio's payment obligation).

<PAGE>

to sell a particular security from its portfolio on which it has
written a call option, it will effect a closing transaction in
connection with the option prior to or concurrent with the sale
of the security.

<PAGE>

otherwise is below the exercise price, a Portfolio may elect to
close the position or retain the option until it is exercised, at
which time the Portfolio will be required to take delivery of the
security at the exercise price; the Portfolio's return will be
the premium received from the put option minus the amount by
which the market price of the security is below the exercise
price, which could result in a loss. Out-of-the-money put
options may be written when it is expected that the price of the
underlying security will decline moderately during the option
period. In-the-money put options may be used when it is expected
that the premiums received from writing the put option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone.

By writing a call option, a Portfolio limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option.
By writing a put option, a Portfolio assumes the risk that it may
be required to purchase the underlying security for an exercise
price above its then current market value, resulting in a capital
loss unless the security subsequently appreciates in value.
Where options are written for hedging purposes, such transactions
constitute only a partial hedge against declines in the value of
portfolio securities or against increases in the value of
securities to be acquired, up to the amount of the premium.

<PAGE>

Portfolio will reduce any profit it might otherwise have realized
in the underlying security by the amount of the premium paid for
the put option and by transaction costs.

A Portfolio may also purchase put options on securities
indexes to hedge its investments against a decline in value. By
purchasing a put option on a securities index, a Portfolio seeks
to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of a Portfolio's
investments does not decline as anticipated, or if the value of
the option does not increase, the Portfolio's loss will be
limited to the premium paid for the option. The success of this
strategy will largely depend on the accuracy of the correlation
between the changes in value of the index and the changes in
value of a Portfolio's security holdings.

<PAGE>

indexes when a Portfolio is substantially fully invested is a
form of leverage, up to the amount of the premium and related
transaction costs, and involves risks of loss and of increased
volatility similar to those involved in purchasing calls on
securities the Portfolio owns.

<PAGE>

hedging technique allows a Portfolio to hedge its interest rate
risk without having to sell its portfolio securities. If
interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of that Portfolio's
interest rate futures contracts would be expected to increase at
approximately the same rate, thereby keeping the net asset value
of that Portfolio from declining as much as it otherwise would
have. On the other hand, if interest rates were expected to
decline, interest rate futures contracts could be purchased to
hedge in anticipation of subsequent purchases of long-term bonds
at higher prices. Because the fluctuations in the value of the
interest rate futures contracts should be similar to those of
long-term bonds, a Portfolio could protect itself against the
effects of the anticipated rise in the value of long-term bonds
without actually buying them until the necessary cash became
available or the market had stabilized. At that time, the
interest rate futures contracts could be liquidated and that
Portfolio's cash reserves could then be used to buy long-term
bonds on the cash market.

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securities to be acquired instead declines as a result of
appreciation of the dollar, the Portfolio sustains losses on its
futures position which could reduce or eliminate the benefits of
the reduced cost of portfolio securities to be acquired.

The writing of a call option on a Futures Contract
constitutes a partial hedge against declining prices of the
securities in the Portfolio's portfolio. If the futures price at
expiration of the option is below the exercise price, a Portfolio
will retain the full amount of the option premium, which provides
a partial hedge against any decline that may have occurred in the
Portfolio's portfolio holdings. The writing of a put option on a
Futures Contract constitutes a partial hedge against increasing
prices of the securities or other instruments required to be
delivered under the terms of the Futures Contract. If the
futures price at expiration of the put option is higher than the
exercise price, a Portfolio will retain the full amount of the
option premium, which provides a partial hedge against any
increase in the price of securities which the Portfolio intends
to purchase. If a put or call option a Portfolio has written is
exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options on
futures positions, a Portfolio's losses from exercised options on

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futures may to some extent be reduced or increased by changes in
the value of portfolio securities.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each of
the Portfolios and the Growth Investors Portfolio may enter into
forward foreign currency exchange contracts (Forward Contracts)
to attempt to minimize the risk to the Portfolio from adverse
changes in the relationship between the U.S. Dollar and foreign
currencies. The Portfolios intend to enter into Forward
Contracts for hedging purposes similar to those described above
in connection with their transactions in foreign currency futures
contracts. In particular, a Forward Contract to sell a currency
may be entered into in lieu of the sale of a foreign currency
futures contract where a Portfolio seeks to protect against an
anticipated increase in the exchange rate for a specific currency
which could reduce the dollar value of portfolio securities
denominated in such currency. Conversely, a Portfolio may enter
into a Forward Contract to purchase a given currency to protect
against a projected increase in the dollar value of securities
denominated in such currency which the Portfolio intends to
acquire. A Portfolio also may enter into a Forward Contract in
order to assure itself of a predetermined exchange rate in
connection with a fixed-income security denominated in a foreign
currency. The Portfolios may engage in currency cross hedging
when, in the opinion of the Adviser, the historical relationship
among foreign currencies suggests that a Portfolio may achieve
the same protection for a foreign security at a reduced cost
through the use of a Forward Contract relating to a currency
other than the U.S. Dollar or the foreign currency in which the
security is denominated.

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RISK FACTORS IN OPTIONS FUTURES AND FORWARD
TRANSACTIONS. The Portfolio's abilities effectively to hedge all
or a portion of their portfolios through transactions in options,
Futures Contracts, Options on Futures Contracts, Forward
Contracts and options on foreign currencies-depend on the degree
to which price movements in the underlying index or instrument
correlate with price movements in the relevant portion of the
Portfolio's portfolios or securities the Portfolios intend to
purchase. In the case of futures and options based on an index,
the portfolio will not duplicate the components of the index, and
in the case of futures and options on fixed-income securities,
the portfolio securities which are being hedged may not be the
same type of obligation underlying such contract. As a result,
the correlation probably will not be exact. Consequently, the
Portfolios bear the risk that the price of the portfolio
securities being hedged will not move by the same amount or in
the same direction as the underlying index or obligation.

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Portfolio has a position and the portfolio securities the
Portfolio is attempting to hedge, which could result in a loss on
both the portfolio and the hedging instrument.

In writing a call option on a security, foreign
currency, index or futures contract, a Portfolio also incurs the

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risk that changes in the value of the assets used to cover the
position will not correlate closely with changes in the value of
the option or underlying index or instrument. For example, when
a Portfolio writes a call option on a stock index, the securities
used as cover may not match the composition of the index, and the
Portfolio may not be fully covered. As a result, the Portfolio
could suffer a loss on the call which is not entirely offset or
offset at all by an increase in the value of the Portfolio's
portfolio securities.

In the event of the occurrence of any of the foregoing
adverse market events, a Portfolio's overall return may be lower
than if it had not engaged in the transactions described above.

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The trading of Futures Contracts and options (including
Options on Futures Contracts) is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm
or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to
liquidate existing positions or to recover excess variation
margin payments.

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contracts and those standards, as modified from time to time,
will be implemented and monitored by the Adviser. Under these
special arrangements, the Fund will enter into contracts with
primary dealers which provide that each Portfolio has the
absolute right to repurchase an option it writes at any time at a
repurchase price which represents fair market value, as
determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to
a formula contained in the contract. Although the specific
details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a
multiple of the premium received by the Portfolio for writing the
option, plus the amount, if any, by which the option is in-the-
money. The formula will also include a factor to account for the
difference between the price of the security and the strike price
of the option if the option is written out-of-the-money. Under
such circumstances the Portfolio will treat as illiquid the
securities used as cover for over-the-counter options it has
written only to the extent described in the Prospectuses.
Although each agreement will provide that the Portfolio's
repurchase price shall be determined in good faith (and that it
shall not exceed the maximum determined pursuant to the formula),
the formula price will not necessarily reflect the market value
of the option written; therefore, the Portfolio might pay more to
repurchase the option contract than the Portfolio would pay to
close out a similar exchange-traded option.

Because of low initial margin deposits made upon the
opening of a futures position and the writing of an option, such
transactions involve substantial leverage. As a result,
relatively small movements in the price of the contract can
result in substantial unrealized gains or losses. However, to
the extent the Portfolio's purchase or sell Futures Contracts and
Options on Futures Contracts and purchase and write options on
securities and securities indexes for hedging purposes, any
losses incurred in connection therewith should, if the hedging
strategy is successful, be offset, in whole or in part, by
increases in the value of securities held by the Portfolio or
decreases in the prices of securities the Portfolio intends to
acquire. When a Portfolio writes options on securities or
options on stock indexes for other than hedging purposes, the
margin requirements associated with such transactions could
expose the Portfolio to greater risk.

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In addition, the CFTC and the various contract markets have
established limits referred to as speculative position limits on
the maximum net long or net short position which any person may
hold or control in a particular futures or option contract. An
exchange may order the liquidation of positions found to be in
violation of these limits and may impose other sanctions or
restrictions. The Adviser does not believe that these trading
and position limits will have any adverse impact on the
strategies for hedging the portfolios of the Portfolios.

Settlements of exercises of over-the-counter Forward
Contracts or foreign currency options generally must occur within
the country issuing the underlying currency, which in turn

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requires traders to accept or make delivery of such currencies in
conformity with any United Sates or foreign restrictions and
regulations regarding the maintenance of foreign banking
relationships and fees, taxes or other charges.

In addition, over-the-counter transactions can be
entered into only with a financial institution willing to take
the opposite side, as principal, of a Portfolio's position unless
the institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the
Portfolio. Where no such counterparty is available, it will not
be possible to enter into a desired transaction. There also may
be no liquid secondary market in the trading of over-the-counter
contracts, and a Portfolio could be required to retain options
purchased or written, or Forward Contracts entered into, until
exercise, expiration or maturity. This in turn could limit the
Portfolio's ability to profit from open positions or to reduce
losses experienced, and could result in greater losses.

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creditworthiness has been reviewed and found satisfactory by the
Adviser.

Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the
Commission, as are other securities traded on such exchanges. As
a result, many of the protections provided to traders on
organized exchanges will be available with respect to such
transactions. In particular, all foreign currency option
positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (OCC),
thereby reducing the risk of counterparty default. Further, a
liquid secondary market in options traded on a national
securities exchange may be more readily available than in the
over-the-counter market, potentially permitting a Portfolio to
liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market
movements.

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Each Portfolio has adopted the additional restriction
that it will not enter into a Futures Contract if, immediately
thereafter, the value of securities and other obligations
underlying all such Futures Contracts would exceed 50% of the
value of such Portfolio's total assets. Moreover, a Portfolio
will not purchase put and call options if as a result more than
10% of its total assets would be invested in such options.

ECONOMIC EFFECTS AND LIMITATIONS. Income earned by a
Portfolio from its hedging activities is treated as capital gain

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and, if not offset by net realized capital losses incurred by a
Portfolio, is distributed to shareholders in taxable
distributions. Although gain from futures and options
transactions may hedge against a decline in the value of a
Portfolio's portfolio securities, that gain, to the extent not
offset by losses, is distributed in light of certain tax
considerations and constitutes a distribution of that portion of
the value preserved against decline.

PORTFOLIO TURNOVER. The Adviser manages each
Portfolio's portfolio by buying and selling securities to help

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attain its investment objective. A high portfolio turnover rate
will involve greater costs to a Portfolio (including brokerage
commissions and transaction costs) and may also result in the
realization of taxable capital gains, including short-term
capital gains taxable at ordinary income rates. See "Dividends,
Distributions and Taxes and Portfolio Transactions" below.

The following restrictions, which are applicable to the
Conservative Investors Portfolio, the Growth Investors Portfolio
and the Growth Portfolio, supplement those set forth above and
may not be changed without Shareholder Approval, as defined under
the caption "General Information," below.

None of the Portfolios will:

3. Borrow money in excess of lot of the value (taken
at the lower of cost or current value) of its total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or pending settlement of securities transactions or
for extraordinary or emergency purposes;

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It is also a fundamental policy of each Portfolio that
it may purchase and sell futures contracts and related options.

None of the Portfolios will:

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conditional the sale is made upon equivalent conditions and
further provided that no Portfolio will make such short sales
with respect to securities having a value in excess of 5% of its
total assets.

(g) Invest more than 5% of its assets in the securities
of any one investment company, own more than 3% of any one
investment company's outstanding voting securities or have total
holdings of investment company securities in excess of 10% of the
value of the Portfolio's assets except that the Growth Portfolio
will not purchase securities issued by any other registered
investment company or investment trust except (A) by purchase in
the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary
brokers commission, or (B) where no commission or profit to a
sponsor or dealer results from such purchase, or (C) when such
purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that the Portfolio
will not purchase such securities if such purchase at the time
thereof would cause more than 5% of its total assets (taken at
market value) to be invested in the securities of such issuers;
and, provided further, that the Portfolio's purchases of
securities issued by an open-end investment company will be
consistent with the provisions of the 1940 Act.

(h) Make investments for the purpose of exercising
control or management.

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(i) Participate on a joint or joint and several basis
in any trading account in securities.

WORLDWIDE PRIVATIZATION PORTFOLIO

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stock, rights or warrants to subscribe for or purchase common or
preferred stock, securities (including debt securities)
convertible into common or preferred stock and securities that
give the holder the right to acquire common or preferred stock.

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INVESTMENT POLICIES

The Portfolio may maintain not more than 5% of its net
assets in debt securities rated below Baa by Moody's and BBB by
S&P, Duff & Phelps or Fitch, or, if not rated, determined by the
Adviser to be of equivalent quality. The Portfolio will not
purchase a debt security that, at the time of purchase, is rated
below B by Moody's, Duff & Phelps, Fitch and S&P, or determined
by the Adviser to be of equivalent quality, but may retain a debt
security the rating of which drops below B. See "Special Risk
Considerations" below.

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put and call options, unless such options are written for cross-
hedging purposes. There are no specific limitations on the
Portfolio's writing and purchasing of options.

The Portfolio may purchase or write options on
securities of the types in which it is permitted to invest in
privately negotiated (i.e., over-the-counter) transactions. The
Portfolio will effect such transactions only with investment
dealers and other financial institutions (such as commercial
banks or savings and loan institutions) deemed creditworthy by
the Adviser, and the Adviser has adopted procedures for
monitoring the creditworthiness of such entities. Options
purchased or written by the Portfolio in negotiated transactions
are illiquid and it may not be possible for the Portfolio to
effect a closing transaction at a time when the Adviser believes
it would be advantageous to do so. See "Description of the
Portfolio -- Additional Investment Policies and Practices --
Illiquid Securities" in the Portfolio's Prospectus.

For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.

OPTIONS ON FOREIGN CURRENCIES. For additional
information on the use, risks and costs of options on foreign
currencies, see Appendix B.

FORWARD COMMITMENTS. No forward commitments will be
made by the Portfolio if, as a result, the Portfolio's aggregate
commitments under such transactions would be more than 30% of the
then current value of the Portfolio's total assets. For a
discussion regarding forward commitments, see "Other Investment
Policies -- Forward Commitments," below.

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within a period of one year. The turnover rate has a direct
effect on the transaction costs to be borne by the Portfolio, and
as portfolio turnover increases it is more likely that the
Portfolio will realize short-term capital gains.

SPECIAL RISK CONSIDERATIONS

Investment in the Portfolio involves the special risk
considerations described below.

RISKS OF FOREIGN INVESTMENT

RECENT MANAGEMENT REORGANIZATION. Prior to making an
initial equity offering, most state enterprises or former state
enterprises go through an internal reorganization of management.
Such reorganizations are made in an attempt to better enable
these enterprises to compete in the private sector. However,
certain reorganizations could result in a management team that
does not function as well as the enterprises prior management and
may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a
number of years, with the government continuing to hold a
controlling position in the enterprise even after the initial
equity offering for the enterprise.

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an initial equity offering these enterprises may no longer have
such protection or receive such preferential treatment and may
become subject to market competition from which they were
previously protected. Some of these enterprises may not be able
to effectively operate in a competitive market and may suffer
losses or experience bankruptcy due to such competition.

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require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in
a particular company, or limit the investment by foreign persons
to only a specific class of securities of a company which may
have less advantageous terms than securities of the company
available for purchase by nationals or impose additional taxes on
foreign investors. The national policies of certain countries
may restrict investment opportunities in issuers deemed sensitive
to national interests. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities
from certain of the countries is controlled under regulations,
including in some cases the need for certain advance government
notification or authority. In addition, if a deterioration
occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
The Portfolio could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investment. The liquidity of the Portfolio's
investments in any country in which any of these factors exist
could be affected and the Adviser will monitor the affect of any
such factor or factors on the Portfolio's investments. Investing
in local markets may require the Portfolio to adopt special
procedures, seek local governmental approvals or other actions,
any of which may involve additional costs to the Portfolio.

Foreign issuers are subject to accounting, auditing and
financial standards and requirements that differ, in some cases
significantly, from those applicable to U.S. issuers. In
particular, the assets and profits appearing on the financial
statements of a foreign issuer may not reflect its financial
position or results of operations in the way they would be
reflected had the financial statements been prepared in
accordance with U.S. generally accepted accounting principles.
In addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules in some of the countries in
which the Portfolio will invest require, for both tax and
accounting purposes, that certain assets and liabilities be
restated on the issuers balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation

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accounting may indirectly generate losses or profits.
Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the
real condition of those issuers and securities markets.
Substantially less information is publicly available about
certain non-U.S. issuers than is available about U.S. issuers.

ECONOMIC POLITICAL AND LEGAL RISKS. The economies of
individual foreign countries may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross
domestic product or gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of
payments position. Nationalization, expropriation or
confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or
diplomatic developments could affect adversely the economy of a
foreign country or the Portfolio's investments in such country.
In the event of expropriation, nationalization or other
confiscation, the Portfolio could lose its entire investment in
the country involved. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may
provide less protection to security holders such as the Portfolio
than that provided by U.S. laws. The Portfolio intends to spread
its portfolio investments among the capital markets of a number
of countries and, under normal market conditions, will invest in
the equity securities of issuers based in at least four, and
normally considerably more, countries. There is no restriction,
however, on the percentage of the Portfolio's assets that may be
invested in countries within any one region of the world. To the
extent that the Portfolio's assets are invested within any one
region, the Portfolio may be subject to any special risks that
may be associated with that region.

NON-DIVERSIFIED STATUS. The Portfolio is a non-
diversified investment company, which means the Portfolio is not

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limited in the proportion of its assets that may be invested in
the securities of a single issuer. However, the Portfolio
intends to conduct its operations so as to qualify to be taxed as
a regulated investment company for purposes of the Internal
Revenue Code of 1986, as amended, which will relieve the
Portfolio of any liability for federal income tax to the extent
its earnings are distributed to shareholders. See "Dividends,
Distribution and Taxes--United States Federal Income Taxes-
- -General." To so qualify, among other requirements, the
Portfolio limits its investments so that, at the close of each
quarter of the taxable year, (i) not more than 25% of the market
value of the Portfolio's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the
securities of a single issuer and the Portfolio will not own more
than 10% of the outstanding voting securities of a single issuer.
Investments in U.S. Government Securities are not subject to
these limitations. Because the Portfolio, as a non-diversified
investment company, may invest in a smaller number of individual
issuers than a diversified investment company, an investment in
the Portfolio may, under certain circumstances, present greater
risk to an investor than an investment in a diversified
investment company.

INVESTMENTS IN LOWER-RATED DEBT SECURITIES. Debt
securities rated below investment grade, i.e., Ba and lower by
Moody's or BB and lower by S&P, Duff & Phelps and Fitch (lower-
rated securities), or, if not rated, determined by the Adviser to
be of equivalent quality, are subject to greater risk of loss of
principal and interest than higher-rated securities and are
considered to be predominantly speculative with respect to the
issuers capacity to pay interest and repay principal, which may
in any case decline during sustained periods of deteriorating
economic conditions or rising interest rates. They are also
generally considered to be subject to greater market risk than
higher-rated securities in times of deteriorating economic
conditions. In addition, lower-rated securities may be more
susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities, although
the market values of securities rated below investment grade and
comparable unrated securities tend to react less to fluctuations
in interest rate levels than do those of higher-rated securities.
Debt securities rated Ba by Moody's or BB by S&P, Duff & Phelps
and Fitch are judged to have speculative characteristics or to be

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predominantly speculative with respect to the issuers ability to
pay interest and repay principal. Debt securities rated B by
Moody's, S&P, Duff & Phelps and Fitch are judged to have highly
speculative characteristics or to be predominantly speculative.
Such securities may have small assurance of interest and
principal payments. Debt securities having the lowest ratings
for non-subordinated debt instruments assigned by Moody's, S&P,
Duff & Phelps or Fitch (i.e., rated C by Moody's or CCC and
lower by S&P, Duff & Phelps or Fitch) 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.

Adverse publicity and investor perceptions about lower-
rated securities, whether or not based on fundamental analysis,
may tend to decrease the market value and liquidity of such
lower-rated securities. The Adviser tries to reduce the risk
inherent in investment in lower-rated securities through credit
analysis, diversification and attention to current developments
and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will
not occur. Since the risk of default is higher for lower-rated
securities, the Advisers research and credit analysis are a
correspondingly important aspect of its program for managing the
Portfolio's securities than would be the case if the Portfolio
did not invest in lower-rated securities. In considering
investments for the Portfolio, the Adviser attempts to identify
those high-risk, high-yield securities whose financial condition
is adequate to meet future obligations, has improved or is
expected to improve in the future. The Advisers analysis focuses
on relative values based on such factors as interest or dividend
coverage, asset coverage earnings prospects, and the experience
and managerial strength of the issuer.

Non-rated securities will also be considered for
investment by the Portfolio when the Adviser believes that the

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financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves,
limits the risk to the Portfolio to a degree comparable to that
of rated securities which are consistent with the Portfolio's
objective and policies.

INVESTMENT RESTRICTIONS

The Portfolio may not:

1. Invest 25% or more of its total assets in
securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government
Securities;

3. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;

5. Participate on a joint or joint and several basis
in any securities trading account;

6. Invest in companies for the purpose of exercising
control;

7. Issue any senior security within the meaning of the
Act except that the Portfolio may write put and call options;

8. Make short sales of securities or maintain a short
position, unless at all times when a short position is open it on

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an equal amount of such securities or securities convertible into
or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in
amount to, the securities sold short (short sales against the
box), and unless not more than 10% of the Portfolio's net assets
(taken at market value) is held as collateral for such sales at
any one time (it is the Portfolio's present intention to make
such sales only for the purpose of deferring realization of gain
or loss for Federal income tax purposes); or

9.(a) Purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real
estate or interests therein; (b) purchase or sell commodities or
commodity contracts including futures contracts (except foreign
currencies, foreign currency options and futures, options and
futures on securities and securities indices and forward
contracts or contracts for the future acquisition or delivery of
securities and foreign currencies and related options on futures
contracts and similar contracts); (c) invest in interests in oil,
gas, or other mineral exploration or development programs; (d)
purchase securities on margin, except for such short-term credits
as may be necessary for the clearance of transactions; and (e)
act as an underwriter of securities, except that the Portfolio
may acquire restricted securities under circumstances in which,
if such securities were sold, the Portfolio might be deemed to be
an underwriter for purposes of the Securities Act.

TECHNOLOGY PORTFOLIO

General

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

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

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Portfolio to seek securities having potential for capital
appreciation in a variety of industries.

INVESTMENT POLICIES

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options occurs when the stocks involved are lower priced or
volatile, or both. While an option that has been written is in
force, the maximum profit that may be derived from the optioned
stock is the premium less brokerage commissions and fees.

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hedged portfolio securities do not equal or exceed losses on the
options or if adverse price movements of the hedged portfolio
securities are greater than gains realized from the options.

FOREIGN INVESTMENTS. The Portfolio will not purchase a
foreign security if such purchase at the time thereof would cause
10% or more of the value of the Portfolio's total assets to be
invested in foreign securities. Foreign issuers are subject to
accounting and financial standards and requirements that differ,
in some cases significantly, from those applicable to U.S.
issuers. In particular, the assets and profits appearing on the
financial statements of a foreign issuer may not reflect its
financial position or results of operations in the way they would
be reflected had the financial statement been prepared in
accordance with U.S. generally accepted accounting principles.
In addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules in some of the countries in
which the Portfolio invests require, for both tax and accounting
purposes, that certain assets and liabilities be restated on the
issuers balance sheet in order to express items in terms of
currency of constant purchasing power. Inflation accounting may
indirectly generate losses or profits. Consequently, financial
data may be materially affected by restatements for inflation and
may not accurately reflect the real condition of those issuers
and securities markets. Substantially less information is
publicly available about certain non-U.S. issuers than is
available about U.S. issuers.

Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in

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certain foreign securities and increase the costs and expenses of
the Portfolio. Certain countries in which the Portfolio may
invest require governmental approval prior to investments by
foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign
persons only to a specific class of securities of an issuer that
may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors.

Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the Securities Act), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might
also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.

In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,

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commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuers ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.

LENDING OF PORTFOLIO SECURITIES. In order to increase
income, the Portfolio may from time to time lend its securities
to brokers, dealers and financial institutions and receive
collateral in the form of cash or U.S. Government Securities.
Under the Portfolio's procedures, collateral for such loans must
be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities (including
interest accrued on the loaned securities). The interest
accruing on the loaned securities will be paid to the Portfolio
and the Portfolio has the right, on demand, to call back the
loaned securities. The Portfolio may pay fees to arrange the
loans. The Portfolio will not lend its securities in excess of
30% of the value of its total assets, nor will the Portfolio lend
its securities to any officer, director, employee or affiliate of
the Fund or the Adviser.

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commission expenses can be expected to be borne by the Portfolio.
Management anticipates that the Portfolio's annual rate of
portfolio turnover will not be in excess of 100% in future years.
A 100% annual turnover rate would occur, for example, if all the
stocks in the Portfolio's portfolio were replaced once in a
period of one year.

INVESTMENT RESTRICTIONS

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

3. Concentrate its investments in any one industry, but
the Portfolio has reserved the right to invest up to 25% of its
total assets in a particular industry;

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5. Make short sales of securities or maintain a short
position or write put options;

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

7. Purchase the securities of any other investment
company or investment trust, except when such purchase is part of
a merger, consolidation or acquisition of assets;

9. Purchase participations or other direct interests in
oil, gas, or other mineral exploration or development programs;

10. Participate on a joint or joint and several basis
in any securities trading account;

11. Invest in companies for the purpose of exercising
control;

12. Purchase securities on margin, but it may obtain
such short-term credits from banks as may be necessary for the
clearance of purchases and sales of securities;

14. Borrow money except for the short-term credits from
banks referred to in paragraph (xii) above and except for
temporary or emergency purposes and then only from banks and in

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an aggregate amount not exceeding 5% of the value of its total
assets at the time any borrowing is made. Money borrowed by the
Portfolio will be repaid before the Portfolio makes any
additional investments;

QUASAR PORTFOLIO

General

The investment objective of the Portfolio is growth of
capital by pursuing aggressive investment policies. Investments
will be made based upon their potential for capital appreciation.
Therefore, current income will be incidental to the objective of
capital growth. Because of the market risks inherent in any
investment, the selection of securities on the basis of their
appreciation possibilities cannot ensure against possible loss in
value. Moreover, to the extent the Portfolio seeks to achieve its
objective through the more aggressive investment policies
described below, risk of loss increases. The Portfolio is
therefore not intended for investors whose principal objective is
assured income or preservation of capital.

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include the economic and political outlook, the values of
individual securities relative to other investment alternatives,
trends in the determinants of corporate profits, and management
capability and practices.

The Portfolio may invest in both listed and unlisted
domestic and foreign securities, in restricted securities, and in
other assets having no ready market, but not more than 15% of the
Portfolio's total assets may be invested in all such restricted
or not readily marketable assets at any one time. Restricted
securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration
statement is in effect under Rule 144 or 144A promulgated under
the Securities Act. Where registration is required, the
Portfolio may be obligated to pay all or part of the registration
expense, and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted
to sell a security under an effective registration statement.
If, during such a period adverse market conditions were to
develop, the Portfolio might obtain a less favorable price than
that which prevailed when it decided to sell. Restricted
securities and other not readily marketable assets will be valued
in such manner as the Board of Directors of the Fund in good
faith deems appropriate to reflect their fair market value.

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greater risk than is inherent in ordinary investment securities.
The Portfolio will not, however, purchase securities of any
company with a record of less than three years continuous
operation (including that of predecessors) if such purchase would
cause the Portfolio's investments in such companies, taken at
cost, to exceed 25% of the value of the Portfolio's total assets.

ADDITIONAL INVESTMENT POLICIES AND PRACTICES

The following additional investment policies supplement
those set forth above.

GENERAL. In seeking to attain its investment objective
of growth of capital, the Portfolio supplements customary
investment practices by engaging in a broad range of investment
techniques including short sales against the box, writing call
options, purchases and sales of put and call options written by
others and investing in special situations. These techniques are
speculative, may entail greater risk, may be considered of a more
short-term nature, and to the extent used, may result in greater
turnover of the Portfolio's portfolio and a greater expense than
is customary for most investment companies. Consequently, the
Portfolio is not a complete investment program and is not a
suitable investment for those who cannot afford to take such
risks or whose objective is income or preservation of capital.
No assurance can be given that the Portfolio will achieve its
investment objective. However, by buying shares in the Portfolio
an investor may receive advantages he would not readily obtain as
an individual, including professional management and continuous
supervision of investments. The Portfolio is subject to the
overall limitation (in addition to the specific restrictions
referred to below) that the aggregate value of all restricted and
not readily marketable securities of the Portfolio, and of all
cash and securities covering outstanding call options written or
guaranteed by the Portfolio, shall at no time exceed 15% of the
value of the total assets of the Portfolio.

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to obtain securities identical to those sold short without
payment. Short sales may be used in some cases by the Portfolio
to defer the realization of gain or loss for Federal income tax
purposes on securities then owned by the Portfolio. However, if
the Portfolio has unrealized gain with respect to a security and
enters into a short sale with respect to such security, the
Portfolio generally will be deemed to have sold the appreciated
security and thus will recognize gain for tax purposes.

The writing of call options will, therefore, involve a
potential loss of opportunity to sell securities at higher
prices. In exchange for the premium received, the writer of a
fully collateralized call option assumes the full downside risk
of the securities subject to such option. In addition, the
writer of the call gives up the gain possibility of the stock
protecting the call. Generally, the opportunity for profit from
the writing of options is higher, and consequently the risks are
greater when the stocks involved are lower priced or volatile, or
both. While an option that has been written is in force, the
maximum profit that may be derived from the optioned stock is the
premium less brokerage commissions and fees. (For a discussion
regarding certain tax consequences of the writing of call options
by the Fund, see "Dividends, Distributions and Taxes.")

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securities exchange on which options are traded, and will in such
cases be endorsed or guaranteed by a member of a national
securities exchange or qualified broker-dealer, which may be
Donaldson, Lufkin & Jenrette Securities Corporation (DLJ), an
affiliate of the Adviser. The endorsing or guaranteeing firm
requires that the option writer (in this case the Portfolio)
maintain a margin account containing either corresponding stock
or other equity as required by the endorsing or guaranteeing
firm. A call written by the Portfolio will not be sold unless
the Portfolio at all times during the option period owns either
(a) the optioned securities, or securities convertible into or
carrying rights to acquire the optioned securities or (b) an
offsetting call option on the same securities.

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INVESTMENT RESTRICTIONS

The following restrictions, which are applicable to the
Quasar Portfolio, supplement those set forth above and may not be
changed without Shareholder Approval, as defined under the
caption "General Information," below.

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

2. Invest more than 25% of the value of its total
assets in any particular industry;

3. Borrow money except for temporary or emergency
purposes in an amount not exceeding 5% of its total assets at the
time the borrowing is made;

4. Purchase or sell real estate;

5. Participate on a joint or joint and several basis
in any securities trading account;

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6. Invest in companies for the purpose of exercising
control;

7. Purchase or sell commodities or commodity
contracts;

8. Except as permitted in connection with short sales
of securities against the box described under the heading Short
Sales above, make short sales of securities;

11. Except as permitted in connection with short sales
of securities against the box described under the heading
Additional Investment Policies and Practices above, make short
sales of securities; or

12. Purchase securities on margin, but it may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities.

REAL ESTATE INVESTMENT PORTFOLIO

GENERAL

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ADDITIONAL INVESTMENT POLICIES AND PRACTICES

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

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as determined by the Adviser may share some or all of the risk of
non-convertible debt securities with those rating.

FORWARD COMMITMENTS. No forward commitments will be
made by the Portfolio if, as a result, the Portfolio's aggregate
commitments under such transactions would be more than 30% of the
then current value of the Portfolio's total assets. The
Portfolio's right to receive or deliver a security under a
forward commitment may be sold prior to the settlement date, but
the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
custodian maintains, in a segregated account of the Fund, cash
and/or securities having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis
and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If
the Fund, however, chooses to dispose of the right to receive or
deliver a security subject to a forward commitment prior to the
settlement date of the transaction, it may incur a gain or loss.
In the event the other party to a forward commitment transaction
were to default, the Fund might lose the opportunity to invest
money at favorable rates or to dispose of securities at favorable
prices.

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in an aggregate amount equal to the purchase price of the
securities underlying the commitment.

REPURCHASE AGREEMENTS. The Portfolio may enter into
repurchase agreements pertaining to U.S. Government Securities
with member banks of the Federal Reserve System or primary
dealers (as designated by the Federal Reserve Bank of New York)
in such securities. There is no percentage restriction on the
Portfolio's ability to enter into repurchase agreements.
Currently, the Portfolio intends to enter into repurchase
agreements only with its custodian and such primary dealers. A
repurchase agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-
upon future date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an
agreed-upon interest rate which is effective for the period of
time the buyers money is invested in the security and which is
related to the current market rate rather than the coupon rate on
the purchased security. This results in a fixed rate of return
insulated from market fluctuations during such period. Such
agreements permit the Portfolio to keep all of its assets at work
while retaining overnight flexibility in pursuit of investments
of a longer-term nature. The Portfolio requires continual
maintenance by its Custodian for its account in the Federal
Reserve/Treasury Book Entry System of collateral in an amount
equal to, or in excess of, the resale price. In the event a
vendor defaulted on its repurchase obligation, the Portfolio
might suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. In the
event of a vendors bankruptcy, the Portfolio might be delayed in,
or prevented from, selling the collateral for its benefit. The
Fund's Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Adviser
monitors the creditworthiness of the dealers with which the
Portfolio enters into repurchase agreement transactions.

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securities in an amount that, when added to cash or securities
deposited with the broker-dealer, will at all times equal at
least 100% of the current market value of the security sold
short.

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institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Portfolio, however, could affect adversely
the marketability of such portfolio securities and the Portfolio
might be unable to dispose of such securities promptly or at
reasonable prices. Rule 144A has already produced enhanced
liquidity for many restricted securities, and market liquidity
for such securities may continue to expand as a result of this
regulation and the consequent inception of the PORTAL System, an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers sponsored
by the National Association of Securities Dealers, Inc. The
Portfolio's investment in Rule 144A eligible securities are not
subject to the limitations described above on securities issued
under Section 4(2).

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distributions to shareholders in money market instruments
referred to above.

PORTFOLIO TURNOVER. Generally, the Portfolio's policy
with respect to portfolio turnover is to hold its securities for
six months or longer. However, it is also the Portfolio's policy
to sell any security whenever, in the judgment of the Adviser,
its appreciation possibilities have been substantially realized
or the business or market prospects for such security have
deteriorated, irrespective of the length of time that such
security has been held. The Adviser anticipates that the
Portfolio's annual rate of portfolio turnover will not exceed
100%. A 100% annual turnover rate would occur if all the
securities in the Portfolio's portfolio were replaced once within
a period of one year. The turnover rate has a direct effect on
the transaction costs to be borne by the Portfolio, and as
portfolio turnover increases it is more likely that the Portfolio
will realize short-term capital gains.

RISK FACTORS ASSOCIATED WITH
THE REAL ESTATE INDUSTRY

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 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 1940 Act.

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abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs, have
been more volatile in price than the larger capitalization stocks
included in the S&P 500.

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may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.

GENERAL. Although the Portfolio does not invest
directly in real estate, it invests primarily in Real Estate
Equity Securities and has a policy of concentration of its
investments in the real state 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 others: 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, 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 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 a greater extent.

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INVESTMENT RESTRICTIONS

The following restrictions, which are applicable to the
Real Estate Investment Portfolio, supplement those set forth
above and may not be changed without Shareholder Approval, as
defined under the caption "General Information," below.

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

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

4. Purchase or sell real estate, except that it may
purchase and sell securities of companies which deal in real
estate or interests therein, including Real Estate Equity
Securities; and

5. Borrow money except for temporary or emergency
purposes or to meet redemption requests, in an amount not
exceeding 5% of the value of its total assets at the time the
borrowing is made.

6. Pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;

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8. Participate on a joint or joint and several basis
in any securities trading account;

9. Invest in companies for the purpose of exercising
control;

10. Issue any senior security within the meaning of the
1940 Act;

OTHER INVESTMENT POLICIES

REPURCHASE AGREEMENTS. Each Portfolio, except the Total
Return Portfolio and the Technology Portfolio, may invest in
repurchase agreements pertaining to the types of securities in
which it invests. A repurchase agreement arises when a buyer
purchases a security and simultaneously agrees to resell it to
the vender at an agreed-upon future date, normally one day or a
few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon market rate which is effective
for the period of time the buyers money is invested in the
security and which is not related to the coupon rate on the
purchased security. Such agreements permit a Portfolio to keep
all of its assets at work while retaining overnight flexibility
in pursuit of investments of a longer-term nature. Each
Portfolio requires continual maintenance of collateral held by
the Fund's Custodian in an amount equal to, or in excess of, the
market value of the securities which are the subject of the
agreement. In the event that a vendor defaulted on its
repurchase obligation, the Portfolio might suffer a loss to the
extent that the proceeds from the sale of the collateral were
less than the repurchase price. If the vendor became bankrupt,
the Portfolio might be delayed in, or prevented from, selling the
collateral. Repurchase agreements may be entered into with
member banks of the Federal Reserve System or primary dealers (as
designated by the Federal Reserve Bank of New York) in U.S.

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Government securities. Repurchase agreements often are for short
periods such as one day or a week, but may be longer.

ILLIQUID SECURITIES. The following investment policy,
which is not fundamental and may be changed by the vote of the
Board of Directors, is applicable to each of the Fund's
Portfolios.

A Portfolio will not invest in illiquid securities if
immediately after such investment more than 10% or, in the case
of the North American Government Income Portfolio, Global Dollar
Government Portfolio, Utility Income Portfolio, Technology
Portfolio, Quasar Portfolio and the Real Estate Investment
Portfolio, 15%, of the Portfolio's total assets (taken at market
value) would be invested in such securities. For this purpose,
illiquid securities include, among others, (a) securities that
are illiquid by virtue of the absence of a readily available
market or legal or contractual restriction or resale, (b) options
purchased by the Portfolio over-the-counter and the cover for
options written by the Portfolio over-the-counter and (c)
repurchase agreements not terminable within seven days.

Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act,
securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.

In recent years, however, a large institutional market
has developed for certain securities that are not registered

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under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuers ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.

Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a safe harbor from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by a Portfolio, however, could affect adversely
the marketability of such portfolio securities and the Portfolio
might be unable to dispose of such securities promptly or at
reasonable prices. Rule 144A has already produced enhanced
liquidity for many restricted securities, and market liquidity
for such securities may continue to expand as a result of this
regulation and the consequent inception of the PORTAL System
sponsored by the National Association of Securities Dealers,
Inc., an automated system for the trading, clearance and
settlement of unregistered securities of domestic and foreign
issuers. The Portfolio's investments in Rule 144A eligible
securities are not subject to the limitations described above
under Section 4(2).

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dispose of the security, the method of soliciting offers and the
mechanics of the transfer); and (vi) any applicable Commission
interpretation or position with respect to such type of
securities.

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comprise less than 60% of the Portfolio's net asset value, two
different foreign countries when foreign securities comprise less
than 40% of the Portfolio's net asset value and one foreign
country when foreign securities comprise less than 20% of the
Portfolio's net asset value. The Fund has also voluntarily
agreed that each Portfolio which may invest in foreign securities
will limit its investment in the securities of issuers located in
any one country to 20% of the Portfolio's net asset value, except
that the Portfolio may have an additional 15% of its net asset
value invested in securities of issuers located in Australia,
Canada, France, Japan, the United Kingdom or West Germany.

_________________________________________________________________

MANAGEMENT OF THE FUND
_________________________________________________________________

DIRECTORS AND OFFICERS

The Directors and principal officers of the Fund, their
ages and their primary occupations during the past five years are
set forth below. Each such Director and officer is also a
trustee, director or officer of other registered investment
companies sponsored by the Adviser. Unless otherwise specified,
the address of each of the following persons is 1345 Avenue of
the Americas, New York, New York 10105.

DIRECTORS

JOHN D. CARIFA,***** 54, is the President, Chief
Operating Officer and a Director of Alliance Capital Management
Corporation (ACMC),****** with which he has been associated
since prior to 1994.
____________________

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

****** For purposes of this Statement of Additional Information,
ACMC refers to Alliance Capital Management Corporation,
the sole general partner of the Adviser, and the
predecessor general partner of the Adviser, and the
predecessor general partner of the same name.