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This Prospectus is filed pursuant to Rule 497(e).
File Nos. 33-18647 and 811-05398.
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Class A Prospectus
ALLIANCE VARIABLE PRODUCTS
SERIES FUND
May 3, 1999
Money Market Portfolio
Premier Growth Portfolio
International 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.
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
RISK/RETURN SUMMARY........................................................ 3
Summary of Principal Risks............................................... 7
Principal Risks by Portfolio............................................. 8
GLOSSARY................................................................... 9
DESCRIPTION OF THE PORTFOLIOS.............................................. 11
Investment Objectives and Policies....................................... 11
Description of Investment Practices...................................... 14
Additional Risk Considerations........................................... 19
MANAGEMENT OF THE PORTFOLIOS............................................... 23
PURCHASE AND SALE OF SHARES................................................ 24
How The Portfolios Value Their Shares.................................... 24
How To Purchase and Sell Shares.......................................... 24
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 24
FINANCIAL HIGHLIGHTS....................................................... 25
APPENDIX A................................................................. 27
</TABLE>
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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 7.
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.
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Money Market Portfolio
Objective: The Portfolio's investment objectives are in the following order
of priority--safety of principal, excellent liquidity and maximum current
income to the extent consistent with the first two objectives.
Principal Investment Strategies and Risks: The Portfolio is a "money market
fund" that seeks to maintain a stable net asset value of $1.00 per share.
The Portfolio invests in high-quality, U.S. Dollar denominated money market
securities.
Among the principal risks of investing in the Portfolio are interest rate
risk and credit risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
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<CAPTION>
Since
1 Year 5 Years Inception
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<S> <C> <C> <C>
Portfolio......................................... 4.98% 5.06% 4.70%
3-Month Treasury Bill............................. 5.05% 5.11% 4.69%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from December 30, 1992
for the Portfolio and December 31, 1992 for the Treasury Bill.
Bar Chart
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------
N/A N/A N/A N/A 2.3 3.3 5.0 4.7 5.1 5.0
You should consider an investment in the Portfolio as a long-term investment.
The Portfolio's returns will fluctuate over long and short periods. For
example, during the period shown in the bar chart, the Portfolio's:
Best quarter was up 1.29%, 4th quarter, 1997; and
Worst quarter was up 0.50%, 2nd quarter, 1993.
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Premier Growth Portfolio
Objective: The Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of U.S. companies. Unlike most equity funds, the
Portfolio focuses on a relatively small number of intensively researched
companies. Alliance selects the Portfolio's investments from a research
universe of more than 600 companies that have strong management, superior
industry positions, excellent balance sheets, and superior earnings growth
prospects.
Normally, the Portfolio invests in about 40-50 companies, with the 25 most
highly regarded of these companies usually constituting approximately 70%
of the Portfolio's net assets. During market declines, while adding to
positions in favored stocks, the Portfolio becomes somewhat more
aggressive, gradually reducing the number of companies represented in its
portfolio. Conversely, in rising markets, while reducing or eliminating
fully-valued positions, the Portfolio becomes somewhat more conservative,
gradually increasing the number of companies represented in its portfolio.
Through this approach, Alliance seeks to gain positive returns in good
markets while providing some measure of protection in poor markets. The
Portfolio also may invest up to 20% of its net assets in convertible
securities.
Among the principal risks of investing in the Portfolio is market risk.
Because the Portfolio invests in a smaller number of securities than many
other equity funds, your investment has the risk that changes in the value
of a single security may have a more significant effect, either negative
or positive, on the Portfolio's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
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<S> <C> <C> <C>
Portfolio......................................... 47.97% 27.85% 25.42%
S&P 500 Index..................................... 28.58% 24.06% 21.27%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from June 26, 1992 for
the Portfolio and June 30, 1992 for the Index.
Bar Chart
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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N/A N/A N/A N/A 12.6 (3.0) 44.9 22.7 33.9 48.0
You should consider an investment in the Portfolio as a long-term investment.
The Portfolio's returns will fluctuate over long and short periods. For
example, during the period shown in the bar chart, the Portfolio's:
Best quarter was up 29.72%, 4th quarter, 1998; and
Worst quarter was down 11.14%, 3rd quarter, 1998.
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International Portfolio
Objective: The Portfolio's investment objective is to seek to obtain a
total return on its assets from long-term growth of capital principally
through a broad portfolio of marketable securities of established non-U.S.
companies (i.e., companies incorporated outside the U.S.), companies
participating in foreign economies with prospects for growth, and foreign
government securities.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of established non-U.S. companies, companies
participating in foreign economies with prospects for growth, including
U.S. companies having their principal activities and interests outside the
U.S., and foreign government securities. The Portfolio diversifies its
investments broadly among countries and normally invests in companies in
at least three foreign countries, although it may invest a substantial
portion of its assets in one or more foreign countries.
Among the principal risks of investing in the Portfolio are market risk,
foreign risk, and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 13.02% 7.98% 10.12%
MSCI World Index ................................. 24.34% 15.68% 17.32%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from December 28, 1992
for the Portfolio and December 31, 1992 for the Index.
Bar Chart
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
----------------------------------------------------------------------------
N/A N/A N/A N/A 21.6 6.7 9.9 7.3 3.3 13.0
You should consider an investment in the Portfolio as a long-term investment.
The Portfolio's returns will fluctuate over long and short periods. For
example, during the period shown in the bar chart, the Portfolio's:
Best quarter was up 18.03%, 4th quarter, 1998; and
Worst quarter was down 17.37%, 3rd quarter, 1998.
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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. 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 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.
. 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
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addition, foreign companies usually are not subject to the same degree
of regulation as U.S. companies. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases significantly,
from U.S. standards. Nationalization, expropriation or confiscatory
taxation, currency blockage, political changes, or diplomatic
developments could adversely affect a Portfolio's investments in a
foreign country. In the event of nationalization, expropriation, or
other confiscation, a Portfolio could lose its entire investment.
. Country or Geographic Risk This is the risk of investments in issuers
located in a particular country or geographic region. Market changes or
other factors affecting that country or region, including political
instability and unpredictable economic conditions, may have a
particularly significant effect on a Portfolio's net asset value.
The investments in emerging market countries are likely to involve
significant risks. These countries, such as Mexico, Argentina, Brazil,
Morocco, the Philippines, Russia, and Venezuela, have a history of
political and economic instability.
. Currency Risk This is the risk that fluctuations in the exchange rates
between the U.S. Dollar and foreign currencies may negatively affect
the value of a Portfolio's investments. Portfolios with foreign
investments are subject to this risk.
. 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.
. Focused Portfolio Risk Portfolios that invest in a limited number of
companies, may have more risk because changes in the value of a single
security may have a more significant effect, either negative or
positive, on the Portfolio's net asset value. Similarly, a Portfolio
may have more risk if it is "non-diversified" meaning that it can
invest more of its assets in a smaller number of companies than many
other funds.
PRINCIPAL RISKS BY PORTFOLIO
The following chart summarizes the principal risks of each Portfolio. Risks not
marked for a particular Portfolio may, however, still apply to some extent to
that Portfolio at various times.
<TABLE>
<CAPTION>
Interest Country or Focused
Rate Credit Market Foreign Geographic Currency Management Portfolio
PORTFOLIO Risk Risk Risk Risk Risk Risk Risk Risk
--------- -------- ------ ------ ------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Portfolio.. X X X
Premier Growth
Portfolio.............. X X X
International
Portfolio.............. X X X X X
</TABLE>
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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.
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.
Rule 144A securities are securities that may be resold under Rule 144A of the
Securities Act.
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.
High-quality commercial paper is commercial paper rated at least Prime-2 by
Moody's, A-2 by S&P, Fitch-2 by Fitch, or Duff 2 by Duff & Phelps.
Investment grade securities are fixed-income securities rated Baa and above by
Moody's or B and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or below by Moody's
or BB or below by S&P, Duff & Phelps or Fitch, or determined by Alliance to be
of equivalent quality, and are commonly referred to as "junk bonds."
Moody's is Moody's Investors Service, Inc.
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.
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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.
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DESCRIPTION OF THE PORTFOLIOS
This section of the Prospectus provides a more complete description of each
Portfolio's investment objectives, principal strategies and risks. Of course,
there can be no assurance that any Portfolio will achieve its investment
objective.
Please note that:
. Additional discussion of the Portfolios' investments, including the
risks of the investments, can be found in the discussion under
Description of Investment Practices following this section.
. The description of the principal risks for a Portfolio may include
risks described in the Summary of Principal Risks above. Additional
information about the risks of investing in the Portfolios can be found
in the discussion under Additional Risk Considerations.
. Additional descriptions of each Portfolio's strategies, investments and
risks can be found in the Portfolio's Statement of Additional
Information or SAI.
. Except as noted, (i) the Portfolio's investment objectives are
"fundamental" and cannot be changed without a shareholder vote, and
(ii) the Portfolio's investment policies are not fundamental and thus
can be changed without a shareholder vote.
Investment Objectives and Policies
Money Market Portfolio
The Portfolio's investment objectives are safety of principal, excellent
liquidity, and maximum current income to the extent consistent with the first
two objectives. As a money market fund, the Portfolio must meet the
requirements of Commission Rule 2a-7. The Rule imposes strict requirements on
the investment quality, maturity, and diversification of the Portfolio's
investments. Under Rule 2a-7, the Portfolio's investments must have a remaining
maturity of no more than 397 days and its investments must maintain an average
weighted maturity that does not exceed 90 days.
The Portfolio pursues its objectives by investing in high-quality U.S. Dollar-
denominated money market securities. The Portfolio may invest in:
. marketable obligations issued or guaranteed by the U. S. Government or
one of its agencies or instrumentalities;
. certificates of deposit and bankers' acceptances and interest-bearing
savings deposits issued or guaranteed by banks or savings and loan
associations (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks) having total assets of more than $1
billion;
. high-quality commercial paper issued by U.S. or foreign companies
(rated or determined by Alliance to be of comparable quality) and
participation interests in loans extended to such companies; and
. repurchase agreements collateralized by the types of liquid securities
listed above.
The Portfolio buys and sells securities based on its objective of maximizing
current income to the extent consistent with safety of principal and liquidity.
Alliance evaluates investments based on credit analysis and the interest rate
outlook.
The Portfolio may invest in money market instruments issued by foreign branches
of foreign banks. To the extent the Portfolio makes such investments,
consideration will be given to their domestic marketability, the lower reserve
requirements generally mandated for overseas banking operations, the possible
impact of interruptions in the flow of international currency transactions,
potential political and social instability or
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expropriation, imposition of foreign taxes, the lower level of government
supervision of issuers, the difficulty in enforcing contractual obligations,
and the lack of uniform accounting and financial reporting standards.
The Portfolio limits its investment in illiquid securities to 10% of its total
assets. Illiquid securities include restricted securities, except restricted
securities determined by the Adviser to be liquid in accordance with procedures
adopted by the Trustees of the Portfolio.
The Portfolio does not invest more than 25% of its assets in securities of
issuers in any one industry except for U.S. Government securities or
certificates of deposit and bankers' acceptances issued or guaranteed by, or
interest-bearing savings deposits maintained at, banks and savings institutions
and loan associations (including foreign branches of U.S. banks and U.S.
branches of foreign banks).
The Portfolio's primary risks are interest rate risk and credit risk. Because
the Portfolio invests in short-term securities, a decline in interest rates
will affect the Portfolio's yield as these securities mature or are sold and
the Portfolio purchases new short-term securities with a lower yield.
Generally, an increase in interest rates causes the value of a debt instrument
to decrease. The change in value for shorter-term securities is usually smaller
than for securities with longer maturities. Because the Portfolio invests in
securities with short maturities and seeks to maintain a stable net asset value
of $1.00 per share, it is possible, though unlikely, that an increase in
interest rates would change the value of your investment.
Credit risk is the possibility that a security's credit rating will be
downgraded or that the issuer of the security will default (fail to make
scheduled interest and principal payments). The Portfolio invests in highly-
rated securities to minimize credit risk.
The Portfolio's investments in illiquid securities also may be subject to
liquidity risk, which is the risk that, under certain circumstances, particular
investments may be difficult to sell at an advantageous price. Illiquid
restricted securities also are subject to the risk that the Portfolio may be
unable to sell the security due to legal or contractual restrictions on resale.
The Portfolio's investments in U.S. Dollar-denominated obligations of foreign
banks, foreign branches of U.S. banks, U.S. branches of foreign banks, and
commercial paper of foreign companies may be subject to foreign risk. Foreign
securities issuers are usually not subject to the same degree of regulation as
U.S. issuers. Reporting, accounting, and auditing standards of foreign
countries differ, in some cases, significantly from U.S. standards. Foreign
risk includes nationalization, expropriation or confiscatory taxation,
political changes or diplomatic developments that could adversely affect the
Portfolio's investments.
Premier Growth Portfolio
The Portfolio seeks long-term growth of capital by investing predominantly in
the equity securities of a limited number of large, carefully selected, high-
quality U.S. companies that are judged likely to achieve superior earnings
growth. As a matter of fundamental policy, the Portfolio normally invests at
least 85% of its total assets in the equity securities of U.S. companies. A
U.S. company is a company that is organized under United States law, has its
principal office in the United States and issues equity securities that are
traded principally in the United States. Normally, about 40-50 companies will
be represented in the Portfolio, with the 25 most highly regarded of these
companies usually constituting approximately 70% of the Portfolio's net assets.
The Portfolio is thus atypical from most equity mutual funds in its focus on a
relatively small number of intensively researched companies. The Portfolio is
designed for those seeking to accumulate capital over time with less volatility
than that associated with investment in smaller companies.
Alliance's investment strategy for the Portfolio emphasizes stock selection and
investment in the securities of a limited number of issuers. Alliance relies
heavily upon the fundamental analysis and research of its large internal
research staff, which generally follows a primary research universe of more
than 600 companies that have strong management, superior industry positions,
excellent balance sheets and superior earnings growth
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prospects. An emphasis is placed on identifying companies whose substantially
above average prospective earnings growth is not fully reflected in current
market valuations.
In managing the Portfolio, Alliance seeks to utilize market volatility
judiciously (assuming no change in company fundamentals), striving to
capitalize on apparently unwarranted price fluctuations, both to purchase or
increase positions on weakness and to sell or reduce overpriced holdings. The
Portfolio normally remains nearly fully invested and does not take significant
cash positions for market timing purposes. During market declines, while adding
to positions in favored stocks, the Portfolio becomes somewhat more aggressive,
gradually reducing the number of companies represented in its portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Portfolio becomes somewhat more conservative, gradually
increasing the number of companies represented in its portfolio. Alliance thus
seeks to gain positive returns in good markets while providing some measure of
protection in poor markets.
Alliance expects the average market capitalization of companies represented in
the Portfolio normally to be in the range, or in excess, of the average market
capitalization of companies included in the S&P 500 Index.
The Portfolio also may:
. invest up to 15% of its total assets in foreign securities;
. purchase and sell exchange-traded index options and stock index futures
contracts;
. write covered exchange-traded call options on its securities of up to
15% of its total assets, and purchase and sell exchange-traded call and
put options on common stocks written by others of up to, for all
options, 10% of its total assets;
. make short sales "against the box" of up to 15% of its net assets; and
. invest up to 10% of its total assets in illiquid securities.
Because the Portfolio invests in a smaller number of securities than many other
equity Portfolios, your investment also has the risk that changes in the value
of a single security may have a more significant effect, either negative or
positive, on the Portfolio's net asset value.
International Portfolio
The Portfolio's investment objective is to seek to obtain a total return on its
assets from long-term growth of capital principally through a broad portfolio
of marketable securities of established non-U.S. companies (e.g., companies
incorporated outside the U.S.), companies participating in foreign economies
with prospects for growth, and foreign government securities. The Portfolio
also invests in U.S. companies that have their principal activities and
interests outside the U.S. Normally, the Portfolio will invest more than 80% of
its assets in these types of companies.
The Portfolio expects to invest primarily in common stocks of established non-
U.S. companies that Alliance believes have potential for capital appreciation
or income or both. The Portfolio also may invest in any other type of security,
including convertible securities, preferred stocks, debt securities of foreign
issuers, or U.S. Government securities.
The Portfolio intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest a
substantial portion of its assets in one or more of these countries. The
Portfolio may invest in companies, wherever organized, that Alliance judges
have their principal activities and interests outside the U.S. These companies
may be located in developing countries, which involves exposure to economic
structures that are generally less diverse and mature, and to political systems
which can be expected to have less stability, than those of developed
countries.
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The Portfolio also may:
. purchase or sell forward foreign currency exchange contracts of up to
50% of its assets;
. invest in warrants;
. make loans of portfolio securities of up to 30% of its total assets;
. invest in illiquid securities of up to 10% of its total assets; and
. enter into repurchase agreements of up to seven days' duration for up
to 10% of the Portfolio's total assets.
Investments in non-U.S. countries may have more risk because they tend to be
more volatile than the U.S. stock market. To the extent that the Portfolio
invests a substantial amount of its assets in a particular foreign country, an
investment in the Portfolio has the risk that market changes or other events
affecting that country, including political instability and unpredictable
economic conditions, may have a more significant effect on the Portfolio's net
asset value.
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
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on an underlying asset, rate or index) at a specified price (the
exercise price) during a period of time or on a specified date. A call
option entitles the holder to purchase, and a put option entitles the
holder to sell, the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index). Likewise, when an option
is exercised the writer of the option is obligated to sell (in the case
of a call option) or to purchase (in the case of a put option) the
underlying asset (or settle for cash an amount based on an underlying
asset, rate or index).
. Futures--A futures contract is an agreement that obligates the buyer to
buy and the seller to sell a specified quantity of an underlying asset
(or settle for cash the value of a contract based on an underlying
asset, rate or index) at a specific price on the contract maturity
date. Futures contracts are standardized, exchange-traded instruments
and are fungible (i.e., considered to be perfect substitutes for each
other). This fungibility allows futures contracts to be readily offset
or cancelled through the acquisition of equal but opposite positions,
which is the primary method in which futures contracts are liquidated.
A cash-settled futures contract does not require physical delivery of
the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered
into and its maturity date.
. Forwards--A forward contract is an obligation by one party to buy, and
the other party to sell, a specific quantity of an underlying commodity
or other tangible asset for an agreed upon price at a future date.
Forward contracts are customized, privately negotiated agreements
designed to satisfy the objectives of each party. A forward contract
usually results in the delivery of the underlying asset upon maturity
of the contract in return for the agreed upon payment.
. 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.
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
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controls to monitor the transactions entered into, the ability to
assess the risk that a derivative adds to a Portfolio, and the ability
to forecast price, interest rate, or currency exchange rate movements
correctly.
. Credit Risk--This is the risk that a loss may be sustained by a
Portfolio as a result of the failure of a derivative counterparty to
comply with the terms of the derivative contract. The credit risk for
exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily
payment system (i.e., margin requirements) operated by the clearing
house in order to reduce overall credit risk. For privately negotiated
derivatives, there is no similar clearing agency guarantee. Therefore,
the Portfolios consider the creditworthiness of each counterparty to a
privately negotiated derivative in evaluating potential credit risk.
. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
. Leverage Risk--Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a 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").
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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 Securities. In purchasing an option on securities, a Portfolio would
be in a position to realize a gain if, during the option period, the price of
the underlying securities increased (in the case of a call) or decreased (in
the case of a put) by an amount in excess of the premium paid; otherwise the
Portfolio would experience a loss not greater than the premium paid for the
option. Thus, a Portfolio would realize a loss if the price of the underlying
security declined or remained the same (in the case of a call) or increased or
remained the same (in the case of a put) or otherwise did not increase (in the
case of a put) or decrease (in the case of a call) by more than the amount of
the premium. If a put or call option purchased by a Portfolio were permitted to
expire without being sold or exercised, its premium would represent a loss to
the Portfolio.
A Portfolio may write a put or call option in return for a premium, which is
retained by the Portfolio whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Portfolios will write uncovered call or put options on securities. A call
option written by a Portfolio is "covered" if the Portfolio owns the underlying
security, has an absolute and immediate right to acquire that security upon
conversion or exchange of another security it holds, or holds a call option on
the underlying security with an exercise price equal to or less than that of
the call option it has written. A put option written by a Portfolio is covered
if the Portfolio holds a put option on the underlying securities with an
exercise price equal to or greater than that of the put option it has written.
The risk involved in writing an uncovered call option is that there could be an
increase in the market value of the underlying security, and a Portfolio could
be obligated to acquire the underlying security at its current price and sell
it at a lower price. The risk of loss from writing an uncovered put option is
limited to the exercise price of the option.
A Portfolio may write a call option on a security that it does not own in order
to hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Portfolio would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in cross-
hedging may be greater than the correlation risk involved with other hedging
strategies.
Some of the Portfolios generally purchase or write privately negotiated options
on securities. A Portfolio that does so will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance. Privately
negotiated 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
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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.
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 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.
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.
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If the price of the security sold short increases between the time of the short
sale and the time a Portfolio replaces the borrowed security, the Portfolio
will incur a loss; conversely, if the price declines, the Portfolio will
realize a short-term capital gain. Any gain will be decreased, and any loss
increased, by the transaction costs described above. Although a Portfolio's
gain is limited to the price at which it sold the security short, its potential
loss is theoretically unlimited.
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.
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%. 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.
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In seeking to achieve a Portfolio's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Portfolio.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Portfolio whose investment portfolio includes
foreign securities may experience greater price volatility and significantly
lower liquidity than a portfolio invested solely in securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase
the cost and expenses of a Portfolio. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
A Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require a Portfolio to adopt special procedures or seek local
governmental approvals or other 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
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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.
The International Portfolio may invest a substantial amount of its assets in
issuers located in the United Kingdom and Japan. Please refer to Appendix B for
a discussion of risks associated with investments in these countries.
Investment in Smaller, Emerging Companies. The foreign securities in which
certain Portfolios may invest may include securities of smaller, emerging
companies. Investment in such companies involves greater risks than is
customarily associated with securities of more established companies. Companies
in the earlier stages of their development often have products and management
personnel which have not been thoroughly tested by time or the marketplace;
their financial resources may not be as substantial as those of more
established companies. The securities of smaller companies may have relatively
limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger companies or broad market indices. The
revenue flow of such companies may be erratic and their results of operations
may fluctuate widely and may also contribute to stock price volatility.
Extreme Governmental Action; Less Protective Laws. In contrast with investing
in the United States, foreign investment may involve in certain situations
greater risk of nationalization, expropriation, confiscatory taxation, currency
blockage or other extreme governmental action which could adversely impact a
Portfolio's investments. In the event of certain such actions, a Portfolio
could lose its entire investment in the country involved. In addition, laws in
various foreign countries governing, among other subjects, business
organization and practices, securities and securities trading, bankruptcy and
insolvency may provide less protection to investors such as a Portfolio than
provided under U.S. laws.
Investment in the Banking Industry. Sustained increases in interest rates can
adversely affect the availability and cost of funds for a bank's lending
activities, and a deterioration in general economic conditions could increase
the exposure to credit losses. The banking industry is also subject to the
effects of the concentration of loan portfolios in particular businesses such
as real estate, energy, agriculture or high technology-related companies;
competition within those industries as well as with other types of financial
institutions; and national and local governmental regulation. In addition, a
Portfolio's investments in commercial banks located in several foreign
countries are subject to additional risks due to the combination in such banks
of commercial banking and diversified securities activities. As discussed
above, however, a Portfolio will seek to minimize their exposure to such risks
by investing only in debt securities which are determined to be of high
quality.
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.
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
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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.
22
<PAGE>
MANAGEMENT OF THE PORTFOLIOS
Investment Adviser
Each Portfolio's Adviser is Alliance Capital Management, L.P., 1345 Avenue of
the Americas, New York, New York 10105. Alliance is a leading international
investment manager supervising client accounts with assets as of December 31,
1998, totaling more than $286 billion (of which approximately $118 billion
represented the assets of investment companies). Alliance's clients are
primarily major corporate employee benefit funds, public employee retirement
systems, investment companies, foundations, and endowment funds. The 54
registered investment companies, with more than 118 separate portfolios,
managed by Alliance currently have over 3.6 million shareholder accounts. As of
December 31, 1998, Alliance was retained as an investment manager for employee
benefit plan assets of 35 of the FORTUNE 100 companies.
Alliance provides investment advisory services and order placement facilities
for the Portfolios. For these advisory services, for the fiscal year ended
December 31, 1998 the Portfolios paid Alliance as a percentage of average net
assets:
<TABLE>
<CAPTION>
Fee as a
percentage of
average
Portfolio net assets *
--------- -------------
<S> <C>
Money Market Portfolio............................................ .50%
Premier Growth Portfolio.......................................... .97%
International Portfolio........................................... .67%
</TABLE>
- --------
* Fees are stated net of waivers and/or reimbursements. Absent fee waivers
and/or reimbursement, the fee paid to Alliance by the following Portfolios
as a percentage of average net assets, would have been: Money Market
Portfolio (.50%); Premier Growth Portfolio (1.00%) and International
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>
Money Market Portfolio Raymond J. Papera; since Associated with Alliance
1997; Senior Vice since prior to 1994
President of Alliance
Capital Management
Corporation (ACMC)**
Premier Growth Alfred Harrison; since Associated with Alliance
Portfolio inception; Director and Vice since prior to 1994
Chairman of ACMC
International Portfolio Steven Beinhacker; since Associated with Alliance
1996; Senior Vice President since prior to 1994
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.
23
<PAGE>
PURCHASE AND SALE OF SHARES
How The Portfolios Value Their Shares
The Portfolios' net asset value or NAV (except for the Money Market Portfolio)
is calculated at 4:00 p.m., Eastern time, each day the Exchange is open for
business. To calculate NAV, a Portfolio's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. The Portfolios' value their securities at
their current market value determined on the basis of market quotations or, if
such quotations are not readily available, such other methods as the
Portfolios' Directors or Trustees believe accurately reflect fair market value.
Some of the Portfolios invest in securities that are primarily listed on
foreign exchanges and trade on weekends or other days when the fund does not
price its shares. These Portfolios' NAVs may change on days when shareholders
will not be able to purchase or redeem the Portfolios' shares.
The Money Market Portfolio's NAV is expected to be constant at $1.00 share,
although this value is not guaranteed. The NAV is calculated at 4:00 pm,
Eastern time, each day the Exchange is open for business. The Portfolio values
its securities at their amortized cost. This method involves valuing an
instrument at its cost and thereafter applying a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the investment.
Your order for purchase or sale of shares is priced at the next NAV calculated
after your order is received by the Portfolio.
How To Purchase and Sell Shares
The Portfolios offer their shares through the separate accounts of life
insurance companies. You may only purchase and sell shares through these
separate accounts. See the Prospectus of the separate account of the
participating insurance company for information on the purchase and sale of the
Portfolios' shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Money Market Portfolio declares income dividends each business day at 4:00
p.m., Eastern time. The dividends are paid monthly via automatic investment in
additional full and fractional shares. As these additional shares are entitled
to income, a compounding of income occurs.
The other Portfolios declare dividends on their shares at least annually. The
income and capital gains distribution will be made in shares of each Portfolio.
See the Prospectus of the separate account of the participating insurance
company for federal income tax information.
Investment income received by a Portfolio from sources within foreign countries
may be subject to foreign income taxes withheld at the source. Provided that
certain code requirements are met, a Portfolio may "pass-through" to its
shareholders credits or deductions to foreign income taxes paid.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolio's financial performance for the period of the Portfolio's operations.
Certain information reflects financial results for a single share of each
Portfolio. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Portfolio (assuming
reinvestment of all dividends and distributions). The information has been
audited by Ernst & Young LLP, the Fund's independent auditor, whose report,
along with each Portfolio's financial statements, is included in the SAI, which
is available upon request.
<TABLE>
<CAPTION>
Money Market Portfolio
----------------------------------------------------
Year Ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------
Income From Investment
Operations
Net investment income... .05 .05(a) .05(a) .05(a) .03(a)
-------- ------- ------- ------- ------
Less: Dividends
Dividends from net
investment income...... (.05) (.05) (.05) (.05) (.03)
-------- ------- ------- ------- ------
Net asset value, end of
year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======
Total Return
Total investment return
based on net asset
value(c)............... 4.98% 5.11% 4.71% 4.97% 3.27%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)........ $119,574 $67,584 $64,769 $28,092 $6,899
Ratios to average net
assets of:
Expenses, net of
waivers and
reimbursements....... .68% .64% .69% .95% .95%
Expenses, before
waivers and
reimbursements....... .68% .64% .69% 1.07% 4.46%
Net investment
income............... 4.84% 5.00%(a) 4.64%(a) 4.85%(a) 3.98%(a)
</TABLE>
<TABLE>
<CAPTION>
Premier Growth Portfolio
------------------------------------------------
Year Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year................... $ 20.99 $ 15.70 $ 17.80 $ 12.37 $ 12.79
---------- -------- ------- ------- -------
Income From Investment
Operations
Net investment income
(loss)(a)(b).............. (.01) .04 .08 .09 .03
Net realized and unrealized
gain (loss) on investment
transactions.............. 10.08 5.27 3.29 5.44 (.41)
---------- -------- ------- ------- -------
Net increase (decrease) in
net asset value from
operations................ 10.07 5.31 3.37 5.53 (.38)
---------- -------- ------- ------- -------
Less: Dividends and
Distributions
Dividends from net
investment income......... (.03) (.02) (.10) (.03) (.01)
Distributions from net
realized gains............ -0- -0- (5.37) (.07) (.03)
---------- -------- ------- ------- -------
Total dividends and
distributions............. (.03) (.02) (5.47) (.10) (.04)
---------- -------- ------- ------- -------
Net asset value, end of
year...................... $ 31.03 $ 20.99 $ 15.70 $ 17.80 $ 12.37
========== ======== ======= ======= =======
Total Return
Total investment return
based on net asset
value(c).................. 47.97% 33.86% 22.70% 44.85% (2.96)%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)........... $1,247,254 $472,326 $96,434 $29,278 $37,669
Ratios to average net
assets of:
Expenses, net of waivers
and reimbursements...... 1.06% .95% .95% .95% .95%
Expenses, before waivers
and reimbursements...... 1.09% 1.10% 1.23% 1.19% 1.40%
Net investment income
(loss)(a)............... (.04)% .21% .52% .55% .42%
Portfolio turnover rate.... 31% 27% 32% 97% 38%
</TABLE>
- --------
See footnotes on page 26.
25
<PAGE>
<TABLE>
<CAPTION>
International Portfolio
------------------------------------------
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 15.02 $ 14.89 $ 14.07 $ 12.88 $12.16
------- ------- ------- ------- ------
Income From Investment Operations
Net investment income(a)(b)....... .17 .13 .19 .18 .10
Net realized and unrealized gain
on investments and foreign
currency transactions............ 1.80 .39 .83 1.08 .72
------- ------- ------- ------- ------
Net increase in net asset value
from operations.................. 1.97 .52 1.02 1.26 .82
------- ------- ------- ------- ------
Less: Dividends and Distributions
Dividends from net investment
income........................... (.33) (.15) (.08) (.03) (.02)
Distributions from net realized
gains............................ (.49) (.24) (.12) (.04) (.08)
------- ------- ------- ------- ------
Total dividends and
distributions.................... (.82) (.39) (.20) (.07) (.10)
------- ------- ------- ------- ------
Net asset value, end of year...... $ 16.17 $ 15.02 $ 14.89 $ 14.07 $12.88
======= ======= ======= ======= ======
Total Return
Total investment return based on
net asset value(c)............... 13.02% 3.33% 7.25% 9.86% 6.70%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)......................... $65,052 $60,710 $44,324 $16,542 $7,276
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................. .95% .95% .95% .95% .95%
Expenses, before waivers and
reimbursements................. 1.37% 1.42% 1.91% 2.99% 7.26%
Net investment income(a)........ 1.08% .87% 1.29% 1.41% .90%
Portfolio turnover rate........... 117% 134% 60% 87% 95%
</TABLE>
- --------
Footnotes:
(a) Net of expenses reimbursed or waived by the Adviser.
(b) Based on average shares outstanding.
(c) 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.
26
<PAGE>
APPENDIX A
GENERAL INFORMATION ABOUT
THE UNITED KINGDOM AND JAPAN
General Information About the United Kingdom
Investment in securities of United Kingdom issuers involves certain
considerations not present with investment in securities of U.S. issuers. As
with any investment not denominated in the U.S. Dollar, the U.S. Dollar value
of a Portfolio's investment denominated in the British pound sterling will
fluctuate with pound sterling-dollar exchange rate movements. Between 1972,
when the pound sterling was allowed to float against other currencies, and the
end of 1992, the pound sterling generally depreciated against most major
currencies, including the U.S. Dollar. Between September and December 1992,
after the United Kingdom's exit from the Exchange Rate Mechanism of the
European Monetary System, the value of the pound sterling fell by almost 20%
against the U.S. Dollar. The pound sterling has since recovered due to interest
rate cuts throughout Europe and an upturn in the economy of the United Kingdom.
The average exchange rate of the U.S. Dollar to the pound sterling was 1.50 in
1993 and 1.66 in 1998. On April 15, 1999 the U.S. Dollar-pound sterling
exchange rate was 1.61.
The United Kingdom's largest stock exchange is the London Stock Exchange, which
is the third largest exchange in the world. As measured by the FT-SE 100 index,
the performance of the 100 largest companies in the United Kingdom reached
5,882.6 at the end of 1998, up approximately 15% from the end of 1997. The FT-
SE 100 index closed at 6466.1 on April 15, 1999.
The Economic and Monetary Union ("EMU") became effective on January 1, 1999.
When fully implemented in 2002, the EMU will establish a common currency for
European countries that meet the eligibility criteria and choose to
participate. Although the United Kingdom meets the eligibility criteria, the
government has not taken any action to join the EMU.
From 1979 until 1997 the Conservative Party controlled Parliament. In the May
1, 1997 general elections, however, the Labour Party, led by Tony Blair, won a
majority in Parliament, holding 418 of 658 seats in the House of Commons. Mr.
Blair, who was appointed Prime Minister, has launched a number of reform
initiatives, including an overhaul of the monetary policy framework intended to
protect monetary policy from political forces by vesting responsibility for
setting interest rates in a new Monetary Policy Committee headed by the
Governor of the Bank of England, as opposed to the Treasury. Prime Minister
Blair has also undertaken a comprehensive restructuring of the regulation of
the financial services industry.
General Information About Japan
Investment in securities of Japanese issuers involves certain considerations
not present with investment in securities of U.S. issuers. As with any
investment not denominated in the U.S. Dollar, the U.S. Dollar value of each
Portfolio's investments denominated in the Japanese yen will fluctuate with
yen-dollar exchange rate movements. Between 1985 and 1995, the Japanese yen
generally appreciated against the U.S. Dollar, but has since fallen from its
post-World War II high (in 1995) against the U.S. Dollar.
Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section
of which is reserved for larger, established companies. As measured by the
TOPIX, a capitalization-weighted composite index of all common stocks listed in
the First Section, the performance of the First Section reached a peak in 1989.
Thereafter, the TOPIX declined approximately 50% through the end of 1997. On
December 31, 1998 the TOPIX closed at 1086.99, down approximately 7% from the
end of 1997. Certain valuation measures, such as price-to-book value and price-
to-cash flow ratios, indicate that the Japanese stock market is near its lowest
level in the last twenty years relative to other world markets.
27
<PAGE>
In recent years, Japan has consistently recorded large current account trade
surpluses with the U.S. that have caused difficulties in the relations between
the two countries. On October 1, 1994, the U.S. and Japan reached an agreement
that may lead to more open Japanese markets with respect to trade in certain
goods and services. In June 1995, the two countries agreed in principle to
increase Japanese imports of American automobiles and automotive parts.
Nevertheless it is expected that the continuing friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.
Each Portfolio's investments in Japanese issuers will be subject to uncertainty
resulting from the instability of recent Japanese ruling coalitions. From 1955
to 1993, Japan's government was controlled by a single political party. Between
August 1993 and October 1996 Japan was ruled by a series of four coalition
governments. As the result of a general election on October 20, 1996, however,
Japan returned to a single-party government led by Ryutaro Hashimoto, a member
of the Liberal Democratic Party ("LDP"). While the LDP does not control a
majority of the seats in the parliament, subsequent to the 1996 elections it
established a majority in the House of Representatives as individual members
joined the ruling party. The popularity of the LDP declined, however, due to
the dissatisfaction with Mr. Hashimoto's leadership. In the July 1998 House of
Councillors election, the LDP's representation fell to 103 seats from 120
seats. As a result of the LDP's defeat, Mr. Hashimoto resigned as prime
minister and leader of the LDP. Mr. Hashimoto was replaced by Keizo Obuchi. On
January 14, 1999, the LDP formed a coalition government with a major opposition
party. As a result, Mr. Obuchi's administration strengthened its position in
the parliament, where it increased its majority in the House of Representatives
and reduced its shortfall in the House of Councillors. For the past several
years, Japan's banking industry has been weakened by a significant amount of
problem loans. Japan's banks also have significant exposure to the current
financial turmoil in other Asian markets. Following the insolvency of one of
Japan's largest banks in November 1997, the government proposed several plans
designed to strengthen the weakened banking sector. In October 1998, the
Japanese parliament approved several new laws that have made $508 billion in
public funds available to increase the capital of Japanese banks, to guarantee
depositors' accounts and to nationalize the weakest banks. It is unclear
whether these new laws will achieve their intended effect.
28
<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.
29
