ALLIANCE VARIABLE PRODUCTS SERIES FUND INC, 497, 1999-05-07

ALLIANCE VARIABLE PRODUCTS SERIES FUND INC
497, 1999-05-07

Previous: ALLIANCE VARIABLE PRODUCTS SERIES FUND INC, 497, 1999-05-07

Next: ALLIANCE VARIABLE PRODUCTS SERIES FUND INC, 497, 1999-05-07

<PAGE>

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

<PAGE>

Class A Prospectus

ALLIANCE VARIABLE PRODUCTS

SERIES FUND

May 3, 1999

Growth and Income Portfolio
Conservative Investors Portfolio
Growth Investors Portfolio
Growth Portfolio
Technology Portfolio
Quasar 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............................................... 10
Principal Risks by Portfolio............................................. 12
GLOSSARY................................................................... 13
DESCRIPTION OF THE PORTFOLIOS.............................................. 15
Investment Objectives and Policies....................................... 15
Description of Investment Practices...................................... 19
Additional Risk Considerations........................................... 28
MANAGEMENT OF THE PORTFOLIOS............................................... 33
PURCHASE AND SALE OF SHARES................................................ 35
How The Portfolios Value Their Shares.................................... 35
How To Purchase and Sell Shares.......................................... 35
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 35
FINANCIAL HIGHLIGHTS....................................................... 36
APPENDIX A................................................................. 40
</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 10.

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>

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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------
N/A N/A N/A 7.9 11.7 -0.4 35.8 24.1 28.8 20.9

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 23.67%, 4th quarter, 1998; and

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

4
<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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------
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.

5
<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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------
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.

6
<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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------
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.

7
<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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------
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.

8
<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

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------
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.

9
<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.

10
<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.

. 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.

. 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 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.

. 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.

11
<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
Rate Credit Market Foreign Currency Management Allocation Capitalization Sector
PORTFOLIO Risk Risk Risk Risk Risk Risk Risk Risk Risk
--------- -------- ------ ------ ------- -------- ---------- ---------- -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income
Portfolio.............. X X X X X X
Conservative Investors
Portfolio.............. X X X X X X X
Growth Investors
Portfolio.............. X X X X X X X X
Growth Portfolio........ X X X X X X X
Technology Portfolio.... X X X X X X X
Quasar Portfolio........ X X X X X X X
</TABLE>

12
<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.

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.

13
<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.

Fitch is Fitch IBCA, Inc.

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.

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.

14
<PAGE>

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

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.

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.

15
<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;

. 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.

16
<PAGE>

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.

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.

17
<PAGE>

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 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.

18
<PAGE>

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.

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.

19
<PAGE>

. 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.

. 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

20
<PAGE>

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 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.

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

21
<PAGE>

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 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.

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.

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

22
<PAGE>

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, (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.

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

23
<PAGE>

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.

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

24
<PAGE>

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

25
<PAGE>

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.

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

26
<PAGE>

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.

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 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.

27
<PAGE>

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 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.

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

28
<PAGE>

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 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.

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

29
<PAGE>

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 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
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

30
<PAGE>

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.

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.

31
<PAGE>

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.

32
<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>
Growth and Income Portfolio....................................... .63%
Conservative Investors Portfolio.................................. .63%
Growth Investors Portfolio........................................ .34%
Growth Portfolio.................................................. .75%
Technology Portfolio.............................................. .81%
Quasar Portfolio.................................................. .73%
</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: Growth and Income
Portfolio (.63%); Conservative Investors Portfolio (.75%); Growth Investors
Portfolio (.75%); Growth Portfolio (.75%); Technology Portfolio (1.00%) and
Quasar Portfolio (1.00%).

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>
Growth and Income Paul C. Rissman; since Associated with Alliance
Portfolio inception; Senior Vice since prior to 1994
President of Alliance
Capital Management
Corporation (ACMC)**
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
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
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
Principal Occupation
Employee; Time Period; During
Portfolio Title With ACMC The Past Five Years*
--------- -------------------------- ------------------------
<C> <S> <C>
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
</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.

34
<PAGE>

PURCHASE AND SALE OF SHARES

How The Portfolios Value Their Shares

The Portfolios' net asset value or NAV 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.

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 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.

35
<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>
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>

- --------
See footnotes on page 39.

36
<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 39.

37
<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>
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>
- --------
See footnotes on page 39.

38
<PAGE>

<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>
- --------
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.

39
<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.

40
<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.

41
<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.

42
<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.

43
<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.