<PAGE>
This is filed pursuant to Rule 497(e).
File Nos.: 33-18647 and 811-05398
<PAGE>
ALLIANCE VARIABLE PRODUCTS
SERIES FUND
May 3, 1999
Class A Shares
U.S. Government/High Grade Securities Portfolio
High Yield Portfolio
Total Return Portfolio
International Portfolio
Global Bond Portfolio
North American Government Income Portfolio
Global Dollar Government Portfolio
Utility Income Portfolio
Worldwide Privatization Portfolio
Quasar Portfolio
Real Estate Investment Portfolio
Class B Shares
Money Market Portfolio
Premier Growth Portfolio
Growth and Income Portfolio
Growth Portfolio
Technology Portfolio
This Prospectus describes the Portfolios that are available as underlying
investments through your variable contract. For information about your
variable contract, including information about insurance-related
expenses, see the Prospectus for your variable contract which
accompanies this Prospectus.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this
Prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK/RETURN SUMMARY........................................................ 3
Summary of Principal Risks............................................... 22
GLOSSARY................................................................... 25
DESCRIPTION OF THE PORTFOLIOS.............................................. 27
Investment Objectives and Policies....................................... 27
Description of Investment Practices...................................... 43
Additional Risk Considerations........................................... 55
MANAGEMENT OF THE PORTFOLIOS............................................... 61
PURCHASE AND SALE OF SHARES................................................ 64
How The Portfolios Value Their Shares.................................... 64
How To Purchase and Sell Shares.......................................... 64
DISTRIBUTION ARRANGEMENTS.................................................. 64
FINANCIAL HIGHLIGHTS....................................................... 65
APPENDIX A................................................................. 73
APPENDIX B................................................................. 77
</TABLE>
2
<PAGE>
Alliance Variable Products Series Fund's investment adviser is Alliance Capital
Management L.P., a global investment manager providing diversified services to
institutions and individuals through a broad line of investments including more
than 100 mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about Alliance Variable
Products Series Fund. You will find additional information about each Portfolio
of the Fund, including a detailed description of the risks of an investment in
each Portfolio, after this summary.
The Risk/Return Summary describes the Portfolios' objectives, principal
investment strategies and principal risks. Each Portfolio's summary includes a
discussion of some of the principal risks of investing in that Portfolio. A
further discussion of these and other risks starts on page 25.
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 and five years and
over the life of the Portfolio compare to those of a broad based
securities market index; and
. changes in the Portfolio's performance from year to year over the life
of the Portfolio.
If the Portfolio's returns reflected fees charged by your variable contract,
the returns shown in the table and bar charts for each Portfolio would be
lower.
A Portfolio's past performance, of course, does not necessarily indicate how it
will perform in the future.
Other important things for you to note:
. You may lose money by investing in the Portfolios.
. An investment in the Portfolios is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
3
<PAGE>
U.S. Government/High Grade Securities Portfolio
Objective: The Portfolio's investment objective is high current income
consistent with preservation of capital.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in U.S. Government securities, including mortgage-related securities,
repurchase agreements and forward contracts relating to U.S. Government
securities. The Portfolio also may invest in non-U.S. Government mortgage-
related and asset-backed securities. The average weighted maturity of the
Portfolio's investments varies between one year or less and 30 years.
Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, and market risk. Because the Portfolio may invest in
mortgage-related and asset-backed securities, it may be subject to the
risk that mortgage loans or other obligations will be prepaid when
interest rates decline, forcing the Portfolio to reinvest in securities
with lower interest rates. For this and other reasons, mortgage-related
and asset-backed securities may have significantly greater price and yield
volatility than traditional debt securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 8.22% 6.66% 6.55%
67% Lehman Brothers Government Bond Index
33% Lehman Brothers Corporate Bond Index.......... 9.34 7.17 7.43
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since inception return information is from September 17,
1992 for the Portfolio and September 30, 1992 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- ---- ---- --- --- ---
N/A N/A N/A N/A 9.2 -4.0 19.3 2.6 8.7 8.2
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 7.15%, 2nd quarter, 1995; and
Worst quarter was down 3.08%, 1st quarter, 1994.
4
<PAGE>
High Yield Portfolio
Objective: The Portfolio's investment objective is to earn the highest
level of current income without assuming undue risk by investing
principally in high-yielding fixed-income securities rated Baa or lower by
Moody's or BBB or lower by S&P, Duff & Phelps or Fitch or, if unrated, of
comparable quality.
Principal Investment Strategies and Risks: The Portfolio primarily invests
in high yield, below investment grade debt securities, commonly known as
"junk bonds." The Portfolio seeks to maximize current income by taking
advantage of market developments, yield disparities, and variations in the
creditworthiness of issuers.
Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, and market risk. Because the Portfolio invests in
lower-rated securities, it has significantly more risk than other types of
bond funds and its returns will be more volatile. The Portfolio's
investments in foreign securities have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio................................................. (3.69)% (0.43)%
First Boston High Yield Index............................. 0.58 % 1.89 %
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from October 27, 1997
for the Portfolio and October 31, 1997 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- --- --- --- --- ----
N/A N/A N/A N/A N/A N/A N/A N/A N/A -3.7
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 6.49%, 1st quarter, 1998; and
Worst quarter was down 11.29%, 3rd quarter, 1998.
5
<PAGE>
Total Return Portfolio
Objective: The Portfolio's investment objective is to achieve a high
return through a combination of current income and capital appreciation.
Principal Investment Strategies and Risks: The Portfolio primarily invests
in U.S. Government and agency obligations, bonds, fixed-income senior
securities (including short- and long-term debt securities and preferred
stocks to the extent their value is attributable to their fixed-income
characteristics), and common stocks.
Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, and market risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio...................................... 16.99% 14.20% 13.41%
60% S&P 500 Index
40% Lehman Brothers Government Corporate Bond
Index......................................... 20.95% 17.35% 16.13%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from December 28, 1992
for the Portfolio and December 31, 1992 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- ---- ---- ---- ---- ----
N/A N/A N/A N/A 9.7 -3.8 23.7 15.2 21.1 17.0
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 14.38%, 4th quarter, 1998; and
Worst quarter was down 7.01%, 3rd quarter, 1998.
6
<PAGE>
International Portfolio
Objective: The Portfolio's investment objective is to seek to obtain a
total return on its assets from long-term growth of capital principally
through a broad portfolio of marketable securities of established non-U.S.
companies (i.e., companies incorporated outside the U.S.), companies
participating in foreign economies with prospects for growth, and foreign
government securities.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of established non-U.S. companies, companies
participating in foreign economies with prospects for growth, including
U.S. companies having their principal activities and interests outside the
U.S., and foreign government securities. The Portfolio diversifies its
investments broadly among countries and normally invests in companies in
at least three foreign countries, although it may invest a substantial
portion of its assets in one or more foreign countries.
Among the principal risks of investing in the Portfolio are market risk,
foreign risk, and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 13.02% 7.98% 10.12%
MSCI World Index ................................. 24.34% 15.68% 17.32%
</TABLE>
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]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- ---- --- --- --- --- ----
N/A N/A N/A N/A 21.6 6.7 9.9 7.3 3.3 13.0
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.
7
<PAGE>
Global Bond Portfolio
Objective: The Portfolio's investment objective is to seek a high level of
return from a combination of current income and capital appreciation by
investing in a globally diversified portfolio of high-quality debt
securities denominated in the U.S. Dollar and a range of foreign
currencies.
Principal Investment Strategies and Risks: The Portfolio primarily invests
in debt securities of U.S. or foreign governments, and supranational
entities, U.S. and non-U.S. companies. The Fund's foreign investments are
generally denominated in foreign currencies.
The Portfolio normally invests at least 65% of its total assets in debt
securities of at least three countries and invests approximately 25% of its
total assets in U.S. Dollar-denominated debt securities. The average
weighted maturity of the Portfolio's investments in fixed-income securities
is expected to vary between one year or less and 10 years.
Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, market risk and leveraging risk. The Portfolio's
investments in foreign issuers have foreign risk and currency risk. To the
extent the Portfolio invests in lower-rated securities, your investment is
subject to more risk than a fund that invests primarily in higher-rated
securities. The Portfolio's use of derivatives strategies has derivatives
risk. In addition, the Fund is "non-diversified" meaning that it invests
more of its assets in a smaller number of issuers than many other funds.
Changes in the value of a single security may have a more significant
effect, either negative or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio........................................ 14.12% 7.62% 8.72%
Solomon World Government Bond Index (unhedged in
U.S. dollars)................................... 15.30% 7.85% 9.75%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from July 15, 1991 for
the Portfolio and July 31, 1991 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- ---- ---- ---- --- --- ----
N/A N/A N/A 4.9 11.2 -5.2 24.7 6.2 0.7 14.1
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 10.69%, 1st quarter, 1995; and
Worst quarter was down 4.27%, 1st quarter, 1999.
8
<PAGE>
North American Government Income Portfolio
Objective: The Portfolio's investment objective is to seek the highest
level of current income, consistent with what Alliance considers to be
prudent investment risk, that is available from a portfolio of debt
securities issued or guaranteed by the United States, Canada, or Mexico,
their political subdivisions (including Canadian provinces, but excluding
states of the United States), agencies, instrumentalities or authorities.
Principal Investment Strategies and Risks: The Portfolio primarily invests
in debt securities issued or guaranteed by: (i) the federal governments of
the United States, Canada, and Mexico; (ii) government-related entities in
the United States, Canada, and Mexico; and (iii) the provincial governments
of Canada and Mexico. The Portfolio also invests significantly in debt
securities issued by Argentine government entities. The Portfolio also may
invest in debt securities of other Central and South American countries.
These investments are investment grade securities generally denominated in
each country's currency, but at least 25% of the Portfolio's assets are in
U.S. Dollar-denominated securities. The average weighted maturity of the
Portfolio is expected to vary between one year or less and 30 years.
The Portfolio may use significant borrowings for leverage. The Portfolio also
may:
.use derivative strategies; and
.invest in variable, floating, and inverse floating rate instruments.
Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, market risk and leveraging risk. The Portfolio's
investments in debt securities of Canada, Mexico, and Argentina have
foreign risk and currency risk. Your investment also has the risk that
market changes or other events affecting these countries, including
potential instability and unpredictable economic conditions, may have a
more significant effect on the Portfolio's net asset value. In addition,
the Portfolio is "non-diversified" meaning that it invests more of its
assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either
negative or positive, on the Portfolio's net asset value.
9
<PAGE>
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio................................................. 4.07% 8.45%
Lehman Brothers Aggregate Bond Index...................... 8.69% 8.67%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from May 3, 1994 for
the Portfolio and April 30, 1994 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- --- ---- ---- --- ---
N/A N/A N/A N/A N/A N/A 22.7 18.7 9.6 4.1
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 9.35%, 2nd quarter, 1995; and
Worst quarter was down 13.66%, 4th quarter, 1994.
10
<PAGE>
Global Dollar Government Portfolio
Objective: The Portfolio's investment objectives are to seek a high level
of current income and, secondarily, capital appreciation.
Principal Investment Strategies and Risks: The Portfolio primarily invests
in sovereign debt obligations. The Portfolio invests substantially all of
its assets in lower-rated securities or unrated securities of equivalent
quality. The Portfolio limits its investments in sovereign debt obligations
of any one country to no more than 25% of its total assets.
The Portfolio may invest up to 35% of its total assets in U.S. and non-U.S.
corporate fixed-income securities. All of the Portfolio's investments in
sovereign debt obligations and fixed-income securities will be U.S. Dollar-
denominated. The Portfolio also may invest up to 30% of its assets in
emerging markets or developing countries, including Argentina, Brazil,
Mexico, Morocco, the Philippines, Russia, and Venezuela. The average
weighted maturity of the Portfolio's investments varies between nine and 30
years.
The Portfolio may use significant borrowings and reverse repurchase
agreements and dollar rolls for leverage. The Portfolio also may:
. use derivatives strategies;
. invest in structured securities;
. invest in fixed and floating rate loans to sovereign debt issuers;
. enter into repurchase agreements; and
. invest in variable, floating, and inverse floating rate securities.
Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, market risk, and leveraging risk. Because the Portfolio
invests in lower-rated securities, it has significantly more risk than
other types of bond funds and its returns will be more volatile. The
Portfolio's investments have foreign risk and currency risk. Because the
Portfolio invests in emerging markets and in developing countries, the
Portfolio's returns will be significantly more volatile and may differ
substantially from returns in the U.S. bond markets generally. Your
investment also has the risk that market changes or other factors affecting
emerging markets and developing countries, including political instability
and unpredictable economic conditions, may have a significant effect on the
Portfolio's net asset value. In addition, the Portfolio is "non-
diversified" meaning that it invests more of its assets in a smaller number
of issuers than may other funds. Changes in the value of a single security
may have a more significant effect, either negative or positive, on the
Portfolio's net asset value.
11
<PAGE>
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio............................................... (21.71)% 6.47%
J.P. Morgan Emerging Markets Bond Index................. (11.04)% 12.95%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from May 2, 1994 for
the Portfolio and April 30, 1994 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- --- ---- ---- ---- -----
N/A N/A N/A N/A N/A N/A 23.0 24.9 13.2 -21.7
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 12.81%, 2nd quarter, 1995; and
Worst quarter was down 27.11%, 3rd quarter, 1998.
12
<PAGE>
Utility Income Portfolio
Objective: The Portfolio's investment objective is to seek current income
and capital appreciation by investing primarily in equity and fixed-income
securities of companies in the utilities industry.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in income-producing equity securities. The Portfolio invests in securities
of utility companies in the electric, telecommunications, gas, and water
utility industries. The Portfolio may invest in both U.S. and foreign
utility companies, although the Portfolio will limit its investments in
issuers in any one foreign country to no more than 15% of its total assets.
The Portfolio may invest up to 35% of its net assets in lower-rated
securities and up to 30% of its net assets in convertible securities.
Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. Because the Portfolio invests a
substantial portion of its assets in companies in a specific industry,
there is the risk that factors affecting utility companies will have a
significant effect on the value of the Portfolio's investments. To the
extent the Portfolio invests in lower-rated securities, your investment is
subject to more credit risk than a Portfolio that invests in higher-rated
securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year Inception
------ ---------
<S> <C> <C>
Portfolio............................................... 23.91% 16.48%
Dow Jones Electric Utilities Index...................... 18.88% 16.22%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from May 10, 1994 for
the Portfolio and April 30, 1994 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- --- ---- --- ---- ----
N/A N/A N/A N/A N/A N/A 21.5 7.9 25.7 23.9
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 12.90%, 4th quarter, 1998; and
Worst quarter was down 3.39%, 1st quarter, 1997.
13
<PAGE>
Worldwide Privatization Portfolio
Objective: The Portfolio's investment objective is to seek long-term
capital appreciation.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of companies that are undergoing, or have undergone,
privatization. The Portfolio also invests in securities of companies that
will benefit from privatizations. The Portfolio takes advantage of
investment opportunities, historically inaccessible to U.S. individual
investors, that result from the privatization of state enterprises in both
established and developing economies. Because privatizations are integral
to a country's economic restructuring, securities sold in initial public
offerings often are attractively priced to secure the issuer's transition
to private sector ownership. In addition, these enterprises often dominate
their local markets and have the potential for significant managerial and
operational efficiency gains.
The Portfolio diversifies its investments among a number of countries and
normally invests in issuers based in four, and usually considerably more,
countries. The Portfolio may invest up to 30% of its total assets in any
one of France, Germany, Great Britain, Italy, and Japan and may invest all
of its assets in a single world region. The Portfolio also may invest up to
35% of its total assets in debt securities and convertible debt securities
of privatized companies.
Among the principal risks of investing in the Portfolio are market risk,
foreign risk, and currency risk. Investments in companies that are
undergoing, or have undergone, privatization could have more risk because
they have no operating history as private companies. In addition, the
Portfolio's investments in U.S. Dollar or foreign currency denominated
fixed-income securities have interest rate and credit risk. In addition,
the Portfolio is "non-diversified" meaning that it invests more of its
assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either
negative or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
1 Year Since inception
------ ---------------
<S> <C> <C>
Portfolio.......................................... 10.83% 12.10%
MSCI EAFE Index.................................... 20.00% 9.02%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from September 23,
1994 for the Portfolio and September 30, 1994 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- --- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 10.9 18.5 10.8 10.8
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 16.25%, 4th quarter, 1998; and
Worst quarter was down 16.18%, 3rd quarter, 1998.
14
<PAGE>
Quasar Portfolio
Objective: The Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies. Current income is incidental to
the Portfolio's objective.
Principal Investment Strategies and Risks: The Portfolio generally invests
in a widely diversified portfolio of equity securities spread among many
industries that offer the possibility of above-average earnings growth. The
Portfolio currently emphasizes investment in small-cap companies. The
Portfolio invests in well-known and established companies and in new and
unseasoned companies. The Portfolio can invest in the equity securities of
any company and industry and in any type of security with potential for
capital appreciation. When selecting securities, Alliance considers the
economic and political outlook, the values of specific securities relative
to other investments, trends in the determinants of corporate profits, and
management capabilities and practices. The Portfolio also may invest in
non-convertible bonds, preferred stocks, and foreign securities.
Among the principal risks of investing in the Portfolio is market risk.
Investments in smaller companies tend to be more volatile than investments
in large-cap or mid-cap companies. To the extent the Portfolio invests in
non-convertible bonds, preferred stocks, and foreign stocks, your
investment has interest rate risk, credit risk, foreign risk, and currency
risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................ (4.49)% 8.05%
Russell 2000 Index............................... (2.55)% 14.23%
</TABLE>
The average annual returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from August 15, 1996
for the Portfolio and July 31, 1996 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- --- --- --- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A 18.6 -4.5
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 15.56%, 4th quarter, 1998; and
Worst quarter was down 27.63%, 3rd quarter, 1998.
15
<PAGE>
Real Estate Investment Portfolio
Objective: The Portfolio's investment objective is total return from long-
term growth of capital and income principally through investing in equity
securities of companies that are primarily engaged in or related to the
real estate industry.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of real estate investment trusts or "REITs" and other
real estate industry companies. The Portfolio invests in real estate
companies that Alliance believes have strong property fundamentals and
management teams. The Portfolio seeks to invest in real estate companies
whose underlying portfolios are diversified geographically and by property
type. The Portfolio may invest up to 35% of its total assets in mortgage-
backed securities, which are securities that directly or indirectly
represent participations in or are collateralized by and payable from,
mortgage loans secured by real property.
Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. Because the Portfolio invests a
substantial portion of its assets in the real estate market, it has many of
the same risks as direct ownership of real estate including the risk that
the value of real estate could decline due to a variety of factors
affecting the real estate market. In addition, REITs are dependent on the
capability of their managers, may have limited diversification, and could
be significantly affected by changes in tax laws. Because the Portfolio
invests in mortgage-backed securities, it is subject to the risk that
mortgage loans will be prepaid when interest rates decline, forcing the
Portfolio to reinvest in securities with lower interest rates. For this and
other reasons, mortgage-backed securities may have significantly greater
price and yield volatility than traditional fixed-income securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................ (19.07)% (0.06)%
S&P 500 Index.................................... 28.58% 30.95%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from January 9, 1997
for the Portfolio and December 31, 1996 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- --- --- --- --- -----
N/A N/A N/A N/A N/A N/A N/A N/A N/A -19.1
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 14.84%, 3rd quarter, 1997; and
Worst quarter was down 11.50%, 3rd quarter, 1998.
16
<PAGE>
Money Market Portfolio
Objective: The Portfolio's investment objectives are in the following order
of priority--safety of principal, excellent liquidity and maximum current
income to the extent consistent with the first two objectives.
Principal Investment Strategies and Risks: The Portfolio is a "money market
fund" that seeks to maintain a stable net asset value of $1.00 per share.
The Portfolio invests in high-quality, U.S. Dollar denominated money market
securities.
Among the principal risks of investing in the Portfolio are interest rate
risk and credit risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio. The performance information in the table and bar
chart is the performance of the Portfolio's Class A shares adjusted to reflect
the higher expense ratio of the Class B Shares.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 4.73% 4.75% 4.37%
3-Month Treasury Bill............................. 5.05% 5.11% 4.69%
</TABLE>
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]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- --- --- --- --- ---
N/A N/A N/A N/A 2.0 3.0 4.7 4.5 4.9 4.7
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 1.23%, 4th quarter, 1997; and
Worst quarter was up 0.44%, 2nd quarter, 1993.
17
<PAGE>
Premier Growth Portfolio
Objective: The Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of U.S. companies. Unlike most equity funds, the
Portfolio focuses on a relatively small number of intensively researched
companies. Alliance selects the Portfolio's investments from a research
universe of more than 600 companies that have strong management, superior
industry positions, excellent balance sheets, and superior earnings growth
prospects.
Normally, the Portfolio invests in about 40-50 companies, with the 25 most
highly regarded of these companies usually constituting approximately 70%
of the Portfolio's net assets. During market declines, while adding to
positions in favored stocks, the Portfolio becomes somewhat more
aggressive, gradually reducing the number of companies represented in its
portfolio. Conversely, in rising markets, while reducing or eliminating
fully-valued positions, the Portfolio becomes somewhat more conservative,
gradually increasing the number of companies represented in its portfolio.
Through this approach, Alliance seeks to gain positive returns in good
markets while providing some measure of protection in poor markets. The
Portfolio also may invest up to 20% of its net assets in convertible
securities.
Among the principal risks of investing in the Portfolio is market risk.
Because the Portfolio invests in a smaller number of securities than many
other equity funds, your investment has the risk that changes in the value
of a single security may have a more significant effect, either negative
or positive, on the Portfolio's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio. The performance information in the table and bar
chart is the performance of the Portfolio's Class A shares adjusted to reflect
the higher expense ratio of the Class B Shares.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 47.72% 27.62% 25.18%
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]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- ---- ---- ---- ---- ----
N/A N/A N/A N/A 12.4 -3.2 44.6 22.5 33.6 47.7
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 29.66%, 4th quarter, 1998; and
Worst quarter was down 11.20%, 3rd quarter, 1998.
18
<PAGE>
Growth and Income Portfolio
Objective: The Portfolio's investment objective is reasonable current
income and reasonable opportunity for appreciation through investments
primarily in dividend-paying common stocks of good quality.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in dividend-paying common stocks of large, well-established "blue-chip"
companies. The Portfolio also may invest in fixed-income and convertible
securities and in securities of foreign issuers.
Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. The Portfolio's investments in foreign
securities have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio. The performance information in the table and bar
chart is the performance of the Portfolio's Class A shares adjusted to reflect
the higher expense ratio of the Class B Shares.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio....................................... 20.64% 20.93% 15.76%
S&P 500 Index................................... 28.58% 24.06% 20.81%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from January 14, 1991
for the Portfolio and December 31, 1990 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- ---- ---- ---- ---- ----
N/A N/A N/A 7.7 11.4 -0.6 35.5 23.8 28.6 20.6
You should consider an investment in the Portfolio as a long-term investment.
The Portfolio's returns will fluctuate over long and short periods. For
example, during the period shown in the bar chart, the Portfolio's:
Best quarter was up 23.61%, 4th quarter, 1998; and
Worst quarter was down 14.12%, 3rd quarter, 1998.
19
<PAGE>
Growth Portfolio
Objective: The Portfolio's investment objective is to provide long-term
growth of capital. Current income is incidental to the Portfolio's
objective.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of companies with favorable earnings outlooks and
whose long-term growth rates are expected to exceed that of the U.S.
economy over time. The Portfolio emphasizes investments in large- and mid-
cap companies. The Portfolio also may invest up to 25% of its total assets
in lower-rated fixed-income securities and convertible bonds, and generally
up to 15% of its total assets in foreign securities.
Among the principal risks of investing in the Portfolio is market risk.
Investments in mid-cap companies may be more volatile than investments in
large-cap companies. To the extent the Portfolio invests in lower-rated
fixed-income securities and convertible bonds, your investment may have
interest rate or credit risk. The Portfolio's investments in foreign
securities have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio. The performance information in the table and bar
chart is the performance of the Portfolio's Class A shares adjusted to reflect
the higher expense ratio of the Class B shares.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio........................................... 28.48% 29.49%
S&P 500 Index....................................... 28.58% 28.46%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from September 15,
1994 for the Portfolio and September 30, 1994 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A 35.0 28.2 29.8 28.5
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 32.41%, 4th quarter, 1998; and
Worst quarter was down 18.27%, 3rd quarter, 1998.
20
<PAGE>
Technology Portfolio
Objective: The Portfolio's objective is growth of capital. Current income
is incidental to the Portfolio's objective.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in securities of companies that use technology extensively in the
development of new or improved products or processes. Within this
framework, the Portfolio may invest in any company and industry and in any
type of security with potential for capital appreciation. It invests in
well-known, established companies or in new or unseasoned companies. The
Portfolio also may invest in debt securities and up to 10% of its total
assets in foreign securities.
Among the principal risks of investing in the Portfolio is market risk. In
addition, technology stocks, especially those of smaller, less-seasoned
companies, tend to be more volatile than the overall stock market. To the
extent the Portfolio invests in debt and foreign securities, your
investment has interest rate risk, credit risk, foreign risk, and currency
risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio. The performance information in the table and bar
chart is the performance of the Portfolio's Class A shares adjusted to reflect
the higher expense ratio of the Class B shares.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
1 Year Since Inception
------ ---------------
<S> <C> <C>
Portfolio......................................... 63.54% 24.43%
S&P 500 Index..................................... 28.58% 28.23%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1998. Since Inception return information is from January 11, 1996
for the Portfolio and December 31, 1995 for the Index.
[BAR CHART]
89 90 91 92 93 94 95 96 97 98
--- --- --- --- --- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A 6.2 63.5
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 39.97%, 4th quarter, 1998; and
Worst quarter was down 15.26%, 4th quarter, 1997.
21
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Portfolio will change with changes in the
values of that Portfolio's investments. Many factors can affect those values.
In this Summary, we describe the principal risks that may affect a Portfolio's
investments as a whole. The Portfolios could be subject to additional principal
risks because the types of investments made by each Portfolio can change over
time. This Prospectus has additional descriptions of the types of investments
that appear in bold type in the discussions under "Description of Investment
Practices" or "Additional Risk Considerations." These sections also include
more information about the Portfolios, their investments, and related risks.
. Interest Rate Risk This is the risk that changes in interest rates will
affect the value of a Portfolio's investments in debt securities, such
as bonds, notes, and asset-backed securities, or other income-producing
securities. Debt securities are obligations of the issuer to make
payments of principal and/or interest in future dates. Interest rate
risk is particularly applicable to Portfolios that invest in fixed-
income securities. Increases in interest rates may cause the value of a
Portfolio's investments to decline.
Even Portfolios that invest a substantial portion of their assets in
the highest quality debt securities, including U.S. Government
securities, are subject to interest rate risk. Interest rate risk
generally is greater for those Portfolios that invest a significant
portion of their assets in lower-rated securities or comparable unrated
securities.
Interest rate risk is generally greater for Portfolios that invest in
debt securities with longer maturities. This risk may be greater for
the Portfolios that invest a substantial portion of their assets in
mortgage-related or other asset-backed securities. The value of these
securities is affected more by changes in interest rates because when
interest rates rise, the maturities of these type of securities tend to
lengthen and the value of the securities decreases more significantly.
In addition, these types of securities are subject to prepayment when
interest rates fall, which generally results in lower returns because
the Portfolios must reinvest their assets in debt securities with lower
interest rates. Increased interest rate risk also is likely for a
Portfolio that invests in debt securities paying no current interest,
such as zero coupon, principal-only, and interest-only securities, or
paying non-cash interest in the form of other debt securities (payment-
in-kind securities).
. Credit Risk This is the risk that the issuer or the guarantor of a debt
security, or the counterparty to a derivatives contract, will be unable
or unwilling to make timely payments of interest or principal, or to
otherwise honor its obligations. The degree of risk for a particular
security may be reflected in its credit rating. Credit risk is greater
for Portfolios that invest in lower-rated securities. These debt
securities and similar unrated securities (commonly known as "junk
bonds") have speculative elements or are predominantly speculative
credit risks.
Credit risk is greater for Portfolios that invest in debt securities
issued in connection with corporate restructurings by highly leveraged
issuers and in debt securities not current in the payment of interest
or principal or are in default. Portfolios that invest in foreign
securities also are subject to increased credit risk because of the
difficulties of requiring foreign entities, including issuers of
sovereign debt obligations, to honor their contractual commitments, and
because a number of foreign governments and other issuers are already
in default.
. Market Risk This is the risk that the value of a Portfolio's
investments will fluctuate as the stock or bond markets fluctuate and
that prices overall will decline over shorter or longer-term periods.
All of the Portfolios are subject to this risk.
. Sector Risk This is the risk of investments in a particular industry
sector. Market or economic factors affecting that industry sector could
have a major effect on the value of a Portfolio's investments.
22
<PAGE>
. Capitalization Risk This is the risk of investments in small- to mid-
capitalization companies. Investments in mid-cap companies may be more
volatile than investments in large-cap companies. In addition, a
Portfolio's investments in smaller capitalization stocks may have
additional risks because these companies often have limited product
lines, markets, or financial resources.
. Foreign Risk This is the risk of investments in issuers located in
foreign countries. All Alliance Portfolios that invest in foreign
securities are subject to this risk. These Portfolios' investments in
foreign securities may experience more rapid and extreme changes in
value than if they invested solely in securities of U.S. companies. The
securities markets of many foreign countries are relatively small, with
a limited number of companies representing a small number of
securities. In addition, foreign companies usually are not subject to
the same degree of regulation as U.S. companies. Reporting, accounting,
and auditing standards of foreign countries differ, in some cases
significantly, from U.S. standards. Nationalization, expropriation or
confiscatory taxation, currency blockage, political changes, or
diplomatic developments could adversely affect a Portfolio's
investments in a foreign country. In the event of nationalization,
expropriation, or other confiscation, a Portfolio could lose its entire
investment.
. Country or Geographic Risk This is the risk of investments in issuers
located in a particular country or geographic region. Market changes or
other factors affecting that country or region, including political
instability and unpredictable economic conditions, may have a
particularly significant effect on a Portfolio's net asset value.
Political, social, and economic changes in a particular country could
result in increased risks for a Portfolio that invests a substantial
portion of its assets in sovereign debt obligations, including Brady
Bonds. The investments in emerging market countries are likely to
involve significant risks. These countries, such as Mexico, Argentina,
Brazil, Morocco, the Philippines, Russia, and Venezuela, have a history
of political and economic instability.
. Currency Risk This is the risk that fluctuations in the exchange rates
between the U.S. Dollar and foreign currencies may negatively affect
the value of a Portfolio's investments. Portfolios with foreign
investments are subject to this risk.
. Leveraging Risk When a Portfolio borrows money or otherwise leverages
its Portfolio, the value of an investment in that Portfolio will be
more volatile and all other risks will tend to be compounded. The
Portfolios may create leverage by using reverse repurchase agreements,
inverse floating rate instruments or derivatives, or by borrowing
money.
. Derivatives Risk The Portfolios may use derivatives, which are
financial contracts whose value depends on, or is derived from, the
value of an underlying asset, reference rate, or index. Alliance will
sometimes use derivatives as part of a strategy designed to reduce
other risks. Generally, however, the Portfolios use derivatives as
direct investments to earn income, enhance yield, and broaden Portfolio
diversification, which entail greater risk than if used solely for
hedging purposes. In addition to other risks such as the credit risk of
the counterparty, derivatives involve the risk of difficulties in
pricing and valuation and the risk that changes in the value of the
derivative may not correlate perfectly with relevant assets, rates, or
indices.
. Liquidity Risk Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing a Portfolio from
selling out of these illiquid securities at an advantageous price. The
Portfolios may be subject to greater liquidity risk if they use
derivatives or invest in securities having substantial interest rate
and credit risk. In addition, liquidity risk tends to increase to the
extent a Portfolio invests in securities whose sale may be restricted
by law or by contract.
. Management Risk Each Portfolio is subject to management risk because it
is an actively managed investment Portfolio. Alliance will apply its
investment techniques and risk analyses in making
23
<PAGE>
investment decisions for the Portfolios, but there can be no guarantee
that its decisions will produce the desired results. In some cases,
derivative and other investment techniques may be unavailable or
Alliance may determine not to use them, possibly even under market
conditions where their use could benefit a Portfolio.
. Focused Portfolio Risk Portfolios that invest in a limited number of
companies, may have more risk because changes in the value of a single
security may have a more significant effect, either negative or
positive, on the Portfolio's net asset value. Similarly, a Portfolio
may have more risk if it is "non-diversified" meaning that it can
invest more of its assets in a smaller number of companies than many
other funds.
. Allocation Risk Those Portfolios that allocate their investments
between equity and debt securities may have a more significant risk
that poor performance of one asset class will have a greater effect on
the Portfolio's net asset value.
24
<PAGE>
GLOSSARY
This Prospectus uses the following terms.
Types of Securities
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are fixed-income securities that are convertible into
common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Equity securities include (i) common stocks, partnership interests, business
trust shares and other equity or ownership interests in business enterprises,
and (ii) securities convertible into, and rights and warrants to subscribe for
the purchase of, such stocks, shares and interests.
Fixed-income securities are debt securities and preferred stocks, including
floating rate and variable rate instruments.
Foreign government securities are securities issued or guaranteed, as to
payment of principal and interest, by foreign governments, quasi-governmental
entities, or governmental agencies or other entities.
Interest-only or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the principal-
only or PO class, that receives only the principal payments on the underlying
debt obligation. POs are similar to, and are sometimes referred to as, zero
coupon securities, which are debt securities issued without interest coupons.
Mortgage-related securities are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental, government-
related, and private organizations. These securities include:
. ARMS, which are adjustable-rate mortgage securities;
. SMRS, which are stripped mortgage-related securities;
. CMOs, which are collateralized mortgage obligations;
. GNMA certificates, which are securities issued by the Government
National Mortgage Association or GNMA;
. FNMA certificates, which are securities issued by the Federal National
Mortgage Association or FNMA; and
. FHLMC certificates, which are securities issued by the Federal Home Loan
Mortgage Corporation or FHLMC.
Qualifying bank deposits are certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks that have total assets of more than
$1 billion and are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold under Rule 144A of the
Securities Act.
Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions, and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
25
<PAGE>
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Rating Agencies, Rated Securities and Indexes
Duff & Phelps is Duff & Phelps Credit Rating Company.
EAFE Index is Morgan Stanley Capital International Europe, Australasia and Far
East ("EAFE") Index.
Fitch is Fitch IBCA, Inc.
High-quality commercial paper is commercial paper rated at least Prime-2 by
Moody's, A-2 by S&P, Fitch-2 by Fitch, or Duff 2 by Duff & Phelps.
Investment grade securities are fixed-income securities rated Baa and above by
Moody's or B and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or below by Moody's
or BB or below by S&P, Duff & Phelps or Fitch, or determined by Alliance to be
of equivalent quality, and are commonly referred to as "junk bonds."
Moody's is Moody's Investors Service, Inc.
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
S&P is Standard & Poor's Ratings Services.
S&P 500 Index is S&P's 500 Composite Stock Price Index, a widely recognized
unmanaged index of market activity.
Other
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Duration is a measure that relates the price volatility of a security to
changes in interest rates. The duration of a debt security is the weighted
average term to maturity, expressed in years, of the present value of all
future cash flows, including coupon payments and principal repayments. Thus, by
definition, duration is always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
Non-U.S. Company is an entity that (i) is organized under the laws of a foreign
country and conducts business in a foreign country, (ii) derives 50% or more of
its total revenues from business in foreign countries, or (iii) issues equity
or debt securities that are traded principally on a stock exchange in a foreign
country.
Securities Act is the Securities Act of 1933, as amended.
World Bank is the commonly used name for the International Bank for
Reconstruction and Development.
26
<PAGE>
DESCRIPTION OF THE PORTFOLIOS
This section of the Prospectus provides a more complete description of each
Portfolio's investment objectives, principal strategies and risks. Of course,
there can be no assurance that any Portfolio will achieve its investment
objective.
Please note that:
. Additional discussion of the Portfolios' investments, including the
risks of the investments, can be found in the discussion under
Description of Investment Practices following this section.
. The description of the principal risks for a Portfolio may include
risks described in the Summary of Principal Risks above. Additional
information about the risks of investing in the Portfolios can be found
in the discussion under Additional Risk Considerations.
. Additional descriptions of each Portfolio's strategies, investments and
risks can be found in the Portfolio's Statement of Additional
Information or SAI.
. Except as noted, (i) the Portfolio's investment objectives are
"fundamental" and cannot be changed without a shareholder vote, and
(ii) the Portfolio's investment policies are not fundamental and thus
can be changed without a shareholder vote.
Investment Objectives and Policies
U.S. Government/High Grade Securities Portfolio
The Portfolio's investment objective is a high level of current income
consistent with preservation of capital. The Portfolio invests primarily (i) in
U.S. Government securities, including mortgage-related securities, repurchase
agreements and forward contracts relating to U.S. Government securities, and
(ii) in other high-grade debt securities rated AAA, AA, A by S&P, Duff & Phelps
or Fitch, Aaa, Aa or A by Moody's, or, if unrated, of equivalent quality. As a
matter of fundamental policy, the Portfolio invests at least 65% of its total
assets in these types of securities. The Portfolio may invest up to 35% of its
total assets in investment grade corporate debt securities (rated BBB or higher
by S&P, Duff & Phelps or Fitch or Baa or higher by Moody's, or, if unrated, of
equivalent quality) and CMOs. The average weighted maturity of the Fund's
investments varies between one year or less and 30 years.
The Portfolio may utilize certain other investment techniques, including
options and futures contracts, intended to enhance income and reduce market
risk.
The Portfolio also may:
. purchase and sell futures contracts for hedging purposes;
. enter into forward commitments for up to 30% of its total assets;
. invest in qualifying bank deposits;
. invest up to 10% of its total assets in illiquid securities;
. purchase call and put options on futures contracts or on securities for
hedging purposes; and
. enter into repurchase agreements.
High Yield Portfolio
The Portfolio's investment objective is to earn the highest level of current
income available without assuming undue risk by investing principally in high-
yielding debt securities. The Portfolio pursues this objective by investing
primarily in a diversified mix of high-yield, below investment grade fixed-
income securities, known
27
<PAGE>
as "junk bonds." As a secondary objective, the Portfolio will seek capital
appreciation, but only when consistent with its primary objective. Capital
appreciation may result, for example, from an improvement in the credit
standing of an issuer whose securities are held by the Portfolio or from a
general decline in interest rates or a combination of both. Conversely, capital
depreciation may result, for example, from a lowered credit standing or a
general rise in interest rates, or a combination of both.
The Portfolio normally invests at least 65% of its total assets in high yield
fixed-income securities rated Baa or lower by Moody's, BBB or lower by S&P,
Duff & Phelps or Fitch, or, if unrated, of equivalent quality. The Portfolio
normally does not invest in securities rated below CCC by each of Moody's, S&P,
Duff & Phelps and Fitch or, if unrated, of comparable quality.
As of December 31, 1998, the Portfolio's investments were rated (or equivalent
quality):
. A-1+ 13.62%
. Ba or BB 5.78%
. B 70.63%
. CCC 0.01%
. Unrated 9.96%
When the spreads between the yields derived from lower-rated securities and
those derived from higher-rated issues are relatively narrow, the Portfolio may
invest in the higher-rated issues since they may provide similar yields with
somewhat less risk. Fixed-income securities appropriate for the Portfolio may
include both convertible and non-convertible debt securities and preferred
stock.
The Portfolio also may:
. invest in foreign securities;
. invest in U.S. Government securities;
. invest in municipal securities of up to 20% of its assets;
. invest in mortgage-related and asset-backed securities;
. enter into forward commitments for up to 30% of its total assets;
. write covered call options listed on national securities exchanges and
on foreign currencies in an amount not exceeding 25% of its total
assets;
. write covered put options listed on national securities exchanges and
on foreign currencies provided that the amount of portfolio securities
subject to outstanding options does not exceed 15% of its total assets;
. purchase put or call options on fixed-income securities, securities
indices and foreign currencies;
. enter into futures contracts and options on futures contracts;
. invest up to 10% of its total assets in illiquid securities;
. make secured loans of portfolio securities of up to 30% of its net
assets; and
. enter into repurchase agreements.
Total Return Portfolio
The Portfolio's investment objective is to achieve a high return through a
combination of current income and capital appreciation. The Portfolio invests
in U.S. Government and agency obligations, bonds, fixed-income senior
securities (including short- and long-term debt securities and preferred stocks
to the extent their value is attributable to their fixed-income
characteristics), preferred and common stocks in such proportions and of such
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type as are deemed best adapted to the current economic and market outlooks.
The percentage of the Portfolio's assets invested in each type of security at
any time shall be in accordance with the judgment of Alliance. The Portfolio
may enter into forward commitments for up to 30% of its total assets and invest
up to 10% of its total assets in illiquid securities.
International Portfolio
The Portfolio's investment objective is to seek to obtain a total return on its
assets from long-term growth of capital principally through a broad portfolio
of marketable securities of established non-U.S. companies (e.g., companies
incorporated outside the U.S.), companies participating in foreign economies
with prospects for growth, and foreign government securities. The Portfolio
also invests in U.S. companies that have their principal activities and
interests outside the U.S. Normally, the Portfolio will invest more than 80% of
its assets in these types of companies.
The Portfolio expects to invest primarily in common stocks of established non-
U.S. companies that Alliance believes have potential for capital appreciation
or income or both. The Portfolio also may invest in any other type of security,
including convertible securities, preferred stocks, debt securities of foreign
issuers, or U.S. Government securities.
The Portfolio intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest a
substantial portion of its assets in one or more of these countries. The
Portfolio may invest in companies, wherever organized, that Alliance judges
have their principal activities and interests outside the U.S. These companies
may be located in developing countries, which involves exposure to economic
structures that are generally less diverse and mature, and to political systems
which can be expected to have less stability, than those of developed
countries.
The Portfolio also may:
. purchase or sell forward foreign currency exchange contracts of up to
50% of its assets;
. invest in warrants;
. make loans of portfolio securities of up to 30% of its total assets;
. invest in illiquid securities of up to 10% of its total assets; and
. enter into repurchase agreements of up to seven days' duration for up
to 10% of the Portfolio's total assets.
Investments in non-U.S. countries may have more risk because they tend to be
more volatile than the U.S. stock market. To the extent that the Portfolio
invests a substantial amount of its assets in a particular foreign country, an
investment in the Portfolio has the risk that market changes or other events
affecting that country, including political instability and unpredictable
economic conditions, may have a more significant effect on the Portfolio's net
asset value.
Global Bond Portfolio
The Portfolio's investment objective is to seek a high level of return from a
combination of current income and capital appreciation by investing in a
globally diversified portfolio of high-quality debt securities denominated in
the U.S. Dollar and a range of foreign currencies. The Portfolio normally
invests approximately 25% of its total assets in U.S. Dollar-denominated debt
securities. The average weighted maturity of the Portfolio's investments in
fixed-income securities is expected to vary between one year or less and 10
years.
In the past, debt securities offered by certain foreign governments have
provided higher investment returns than U.S. government debt securities. The
relative performance of various countries' fixed-income markets historically
has reflected wide variations relating to the unique characteristics of each
country's economy. Year-
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to-year fluctuations in certain markets have been significant, and negative
returns have been experienced in various markets from time to time. Alliance
and the Portfolio's Sub-Adviser, AIGAM International Limited, believe that
investment in a composite of foreign fixed-income markets and in the U.S.
government and corporate bond market is less risky than a portfolio invested
exclusively in foreign debt securities, and provides investors with more
opportunities for attractive total return than a portfolio invested exclusively
in U.S. debt securities.
The Portfolio invests only in securities of issuers in countries whose
governments are deemed stable by Alliance and the Sub-Adviser. Their
determination that a particular country should be considered stable depends on
their evaluation of political and economic developments affecting the country
as well as recent experience in the markets for foreign government securities
of the country. The Adviser does not believe that the credit risk inherent in
the obligations of stable foreign governments is significantly greater than
that of U.S. government debt securities.
The Portfolio intends to spread investment risk among the capital markets of a
number of countries and will invest in securities of the governments of, and
companies based in, at least three, and normally considerably more, of these
countries. The percentage of the Portfolio's assets invested in the debt
securities of the government of, or a company based in, a particular country or
denominated in a particular currency varies depending on the relative yields of
the securities, the economies of the countries in which the investments are
made and the countries' financial markets, the interest rate climate of these
countries and the relationship of the countries' currencies to the U.S. Dollar.
Currency is judged on the basis of fundamental economic criteria (e.g.,
relative inflation levels and trends, growth rate forecasts, balance of
payments status, and economic policies) as well as technical and political
data.
The Portfolio seeks to minimize investment risk by limiting its portfolio
investments to high-quality debt securities and invests in:
. U.S. Government securities;
. foreign government or supranational organization debt securities;
. corporate debt obligations; and
. commercial paper of banks and bank holding companies.
The Portfolio expects to invest in debt securities denominated in the Euro. The
Portfolio also may engage in certain hedging strategies, including the purchase
and sale of forward foreign currency exchange contracts and other hedging
techniques. The Portfolio may invest up to 10% of its total assets in illiquid
securities.
North American Government Income Portfolio
The Portfolio's investment objective is the highest level of current income,
consistent with what Alliance considers to be prudent investment risk, that is
available from a portfolio of debt securities issued or guaranteed by the
governments of the United States, Canada, and Mexico, their political
subdivisions (including Canadian provinces but excluding states of the United
States), agencies, instrumentalities or authorities ("Government securities").
The Portfolio invests in investment grade securities denominated in the U.S.
Dollar, the Canadian Dollar, and the Mexican Peso and expects to maintain at
least 25% of its assets in securities denominated in the U.S. Dollar. In
addition, the Portfolio may invest up to 25% of its total assets in debt
securities issued by governmental entities of Argentina ("Argentine Government
securities").
The Portfolio invests at least 65%, and normally substantially more, of its
assets in Government securities and income-producing securities. The average
weighted maturity of the Portfolio's fixed-income securities is expected to
vary between one year or less and 30 years. The Portfolio maintains borrowings
of approximately one-third of its net assets.
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The Portfolio expects that it will not retain a debt security that is
downgraded below BBB or Baa, or, if unrated, determined by Alliance to have
undergone similar credit quality deterioration. The Portfolio may conclude,
under certain circumstances, such as the downgrading to below investment grade
of all of the securities of a governmental issuer in one of the countries in
which the Portfolio has substantial investments, that it is in the best
interests of the shareholders to retain its holdings in securities of that
issuer.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations
and the growing coordination of their fiscal and monetary policies, will over
the long term benefit the economic performance of all three countries and
promote greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso.
Alliance will actively manage the Portfolio's assets in relation to market
conditions and general economic conditions and adjust the Portfolio's
investments in an effort to best enable the Portfolio to achieve its investment
objective. Thus, the percentage of the Portfolio's assets invested in a
particular country or denominated in a particular currency will vary in
accordance with Alliance's assessment of the relative yield and appreciation
potential of such securities and the relationship of the country's currency to
the U.S. Dollar. To the extent that its assets are not invested in Government
securities, however, the Portfolio may invest the balance of its total assets
in investment grade debt securities issued by, and denominated in the local
currencies of, governments of countries located in Central and South America or
any of their political subdivisions, agencies, instrumentalities or
authorities, provided that such securities are denominated in their local
currencies. The Portfolio limits its investments in debt securities issued by
the governmental entities of any one country, except for Argentine Government
securities, to 10% of its total assets.
The Portfolio also may:
. enter into futures contracts and purchase and write options on futures
contracts for hedging purposes of up to 50% of its total assets with
initial margins deposits of up to 5% of its total assets;
. purchase and write put and call options on foreign currencies;
. purchase or sell forward foreign currency exchange contracts;
. write covered put and call options and purchase put and call options on
U.S. Government and foreign government securities traded on U.S. and
foreign securities exchanges, and write put and call options for cross-
hedging purposes;
. enter into interest rate swaps (involving payments in the same currency
or in different currencies), caps, and floors;
. enter into forward commitments for up to 30% of its total assets;
. enter into standby commitments;
. invest in zero coupon securities;
. invest in variable, floating, and inverse floating rate instruments;
. make secured loans of its portfolio securities of up to 20% of net
assets;
. invest up to 15% of its total assets in illiquid securities; and
. enter into repurchase agreements.
Global Dollar Government Portfolio
The Portfolio's investment objective is a high level of current income. Its
secondary investment objective is capital appreciation. In seeking to achieve
these objectives, the Portfolio invests at least 65% of its total assets in
sovereign debt obligations. The Portfolio's investments in sovereign debt
obligations will emphasize
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obligations referred to as "Brady Bonds," which are issued as part of debt
restructurings and collateralized in full as to principal due at maturity by
zero coupon U.S. Government securities.
The Portfolio also may invest up to 35% of its total assets in U.S. and non-
U.S. corporate fixed-income securities. The Portfolio will limit its
investments in sovereign debt obligations and U.S. and non-U.S. corporate
fixed-income securities to U.S. Dollar-denominated securities. Alliance expects
the average weighted maturity of the Portfolio's investments will be
approximately:
. for U.S. fixed-income securities, nine to 15 years;
. for non-U.S. fixed-income securities, 15 to 25 years; and
. for sovereign debt obligations longer than 25 years.
Substantially all of the Portfolio's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for non-
subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by S&P,
Duff & Phelps and Fitch) and unrated securities of equivalent investment
quality. These securities may have extremely poor prospects of ever attaining
any real investment standing and a current identifiable vulnerability to
default, be unlikely to have the capacity to pay interest and repay principal
when due in the event of adverse business, financial or economic conditions,
and be in default or not current in the payment of interest or principal.
The Portfolio also may invest in investment grade securities. Unrated
securities will be considered for investment by the Portfolio when Alliance
believes that the financial condition of the issuers of such obligations and
the protection afforded by the terms of the obligations themselves limit the
risk to the Portfolio to a degree comparable to that of rated securities which
are consistent with the Portfolio's investment objectives and policies.
As of December 31, 1998, securities ratings (or equivalent quality) of the
Portfolio's securities were:
. Baa or BBB 6.0%
. Ba or BB 50.6%
. B 40.9%
. CC 2.0%
. Unrated 0.5%
The Portfolio's investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities emphasize countries that are considered at
the time of purchase to be emerging markets or developing countries by the
World Bank. The Portfolio may invest up to 30% of its total assets in
securities or obligations of Argentina, Brazil, Mexico, Morocco, the
Philippines, Russia and Venezuela. Alliance expects that these countries are
now, or are expected at a future date to be, the principal participants in debt
restructuring programs (including, in the case of Argentina, Mexico, the
Philippines and Venezuela, issuers of currently outstanding Brady Bonds) that,
in Alliance's opinion, will provide the most attractive investment
opportunities for the Portfolio. The Portfolio will limit investments in the
sovereign debt obligations of each country (or of any other single foreign
country) to less than 25% of its total assets.
Alliance anticipates that other countries that will provide investment
opportunities for the Portfolio include, among others, Bolivia, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Nigeria, Panama, Peru, Poland, Thailand,
Turkey and Uruguay. The Portfolio will limit its investments in the sovereign
debt obligations and corporate fixed-income securities of issuers in any other
single foreign country to not more than 10% of its total assets.
The Portfolio also may:
. invest in structured securities of up to 25% of its total assets;
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. invest in fixed and floating rate loans that are arranged through
private negotiations between an issuer of sovereign debt obligations and
one or more financial institutions and in participations in and
assignments of these types of loans;
. invest up to 10% of its total assets in other investment companies whose
investment objectives and policies are consistent with those of the
Portfolio;
. invest in warrants;
. enter into interest rate swaps, caps and floors;
. enter into forward commitments for up to 30% of its total assets;
. enter into standby commitment agreements;
. make short sales of securities "against the box" or maintain a short
position of up to 10% of its net assets;
. write put and call options on securities of the types in which it is
permitted to invest and write call options for cross-hedging purposes;
. write privately negotiated options on securities;
. purchase and sell exchange-traded options on any securities index of the
types of securities in which it may invest;
. invest in variable, floating, and inverse floating rate instruments;
. enter into reverse repurchase agreements and dollar rolls;
. invest in loan participations and assignments up to 25% of its total
assets;
. make secured loans of its portfolio securities of up to 30% of its net
assets;
. invest in illiquid securities of up to 15% of its total assets; and
. enter into repurchase agreements.
While it does not currently intend to do so, the Portfolio reserves the right
to borrow an amount not to exceed one-third of the Portfolio's net assets.
Utility Income Portfolio
The Portfolio's investment objective is to seek current income and capital
appreciation by investing primarily in equity and fixed-income securities of
companies in the utilities industry. As a fundamental policy, the Portfolio
normally invests at least 65% of its total assets in securities of companies in
the utilities industry.
The Portfolio seeks to take advantage of the characteristics and historical
performance of securities of utility companies, many of which pay regular
dividends and increase their common stock dividends over time. The Portfolio
considers a company to be in the utilities industry if, during the most recent
twelve-month period, at least 50% of the company's gross revenues, on a
consolidated basis, were derived from its utilities activities.
The Portfolio may invest in securities of both U.S. and foreign issuers,
although the Portfolio will invest no more than 15% of its total assets in
issuers in any one foreign country. The Portfolio invests at least 65% of its
total assets in income-producing securities, but there is otherwise no limit on
the allocation of the Portfolio's investments between equity securities and
fixed-income securities. The Portfolio may invest up to 35% of its net assets
in lower-rated securities. The Portfolio will not retain a security that is
downgraded below B or determined by Alliance to have undergone similar credit
quality deterioration following purchase.
The Portfolio may invest up to 35% of its total assets in equity and fixed-
income securities of domestic and foreign corporate and governmental issuers
other than utility companies. These securities include U.S.
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Government securities and repurchase agreements for those securities, foreign
government securities, corporate fixed-income securities of domestic issuers,
corporate fixed-income securities of foreign issuers denominated in foreign
currencies or in U.S. Dollars (in each case including fixed-income securities
of an issuer in one country denominated in the currency of another country),
qualifying bank deposits, and prime commercial paper.
The Portfolio also may:
. invest up to 30% of its net assets in convertible securities;
.invest up to 5% of its net assets in rights or warrants;
. invest in depositary receipts, securities of supranational entities
denominated in the currency of any country, securities denominated in
the Euro, and "semi-governmental securities";
. write covered call and put options, purchase call and put options on
securities of the types in which it is permitted to invest that are
exchange-traded and over-the-counter, and write uncovered call options
for cross-hedging purposes;
. purchase and sell exchange-traded options on any securities index
composed of the types of securities in which it may invest;
. enter into contracts for the purchase or sale for future delivery of
fixed-income securities or foreign currencies, or contracts based on
financial indices, including an index of U.S. Government securities,
foreign government securities, corporate fixed-income securities, or
common stock, and may purchase and write options on futures contracts;
. purchase and write call and put options on foreign currencies traded on
U.S. and foreign exchanges or over-the-counter for hedging purposes;
. purchase or sell forward foreign currency exchange contracts;
. enter into interest rate swaps (in the same or different currencies) and
purchase or sell interest rate caps and floors;
. enter into forward commitments for up to 30% of its total assets;
. enter into standby commitment agreements;
. make short sales "against the box" of securities or maintain a short
position of up to 10% of its net assets;
. make secured loans of portfolio securities of up to 20% of its total
assets;
. invest up to 15% of its total assets in illiquid securities; and
. enter into repurchase agreements for U.S. Government securities.
The Portfolio's principal risks include its investing primarily in electric
utility companies. Factors affecting that industry sector can have a
significant effect on the Portfolio's net asset value. The U.S. utilities
industry has experienced significant changes in recent years. Electric utility
companies in general have been favorably affected by lower fuel costs, the full
or near completion of major construction programs and lower financing costs. In
addition, many utility companies have generated cash flows in excess of current
operating expenses and construction expenditures, permitting some degree of
diversification into unregulated businesses. Regulatory changes, however, could
increase costs or impair the ability of nuclear and conventionally fueled
generating facilities to operate their facilities and reduce their ability to
make dividend payments of their securities. Rates of return of utility
companies generally are subject to review and limitation by state public
utilities commissions and tend to fluctuate with marginal financing costs. Rate
changes ordinarily lag behind changes in financing costs and can favorably or
unfavorably affect the earnings or dividend pay-outs of utilities stocks
depending upon whether the rates and costs are declining or rising.
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Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs, costs associated with
compliance with environmental and nuclear safety regulations, service
interruptions, economic slowdowns, surplus capacity, competition and regulatory
changes. There can also be no assurance that regulatory policies or accounting
standards changes will not negatively affect utility companies' earnings or
dividends. Utility companies are subject to regulation by various authorities
and may be affected by the imposition of special tariffs and changes in tax
laws. To the extent that rates are established or reviewed by governmental
authorities, utility companies are subject to the risk that such authorities
will not authorize increased rates. Because of the Portfolio's policy of
concentrating its investments in utility companies, the Portfolio is more
susceptible than most other mutual funds to economic, political or regulatory
occurrences affecting the utilities industry.
Foreign utility companies, like those in the U.S., are generally subject to
regulation, although the regulation may or may not be comparable to domestic
regulations. Foreign utility companies in certain countries may be more heavily
regulated by their respective governments than utility companies located in the
U.S. As in the U.S., utility companies generally are required to seek
government approval for rate increases. In addition, many foreign utility
companies use fuels that cause more pollution than those used in the U.S. and
may yet be required to invest in pollution control equipment. Foreign utility
regulatory systems vary from country to country and may evolve in ways
different from regulation in the U.S. The percentage of the Portfolio's assets
invested in issuers of particular countries will vary.
Increases in interest rates may cause the value of the Portfolio's investments
to decline and the decrease in value may not be offset by higher interest rate
income. The Portfolio's investments in lower-rated securities may be subject to
more credit risk than a Portfolio that invests in higher-rated securities.
Worldwide Privatization Portfolio
The Portfolio's investment objective is to seek long-term capital appreciation.
As a fundamental policy, the Portfolio invests at least 65% of its total assets
in equity securities issued by enterprises that are undergoing, or have
undergone, privatization (as described below), although normally significantly
more of its assets will be invested in such securities. The balance of its
investments will include securities of companies believed by Alliance to be
beneficiaries of privatizations. The Portfolio is designed for investors
desiring to take advantage of investment opportunities, historically
inaccessible to U.S. individual investors, that are created by privatizations
of state enterprises in both established and developing economies. These
companies include those in Western Europe and Scandinavia, Australia, New
Zealand, Latin America, Asia and Eastern and Central Europe and, to a lesser
degree, Canada and the United States.
The Portfolio's investments in enterprises undergoing privatization may
comprise three distinct situations. First, the Portfolio may invest in the
initial offering of publicly traded equity securities (an "initial equity
offering") of a government- or state-owned or controlled company or enterprise
(a "state enterprise"). Secondly, the Portfolio may purchase securities of a
current or former state enterprise following its initial equity offering.
Finally, the Portfolio may make privately negotiated purchases of stock or
other equity interests in a state enterprise that has not yet conducted an
initial equity offering. Alliance believes that substantial potential for
capital appreciation exists as privatizing enterprises rationalize their
management structures, operations and business strategies in order to compete
efficiently in a market economy, and the Portfolio will thus emphasize
investments in such enterprises.
Privatization is a process through which the ownership and control of companies
or assets changes in whole or in part from the public sector to the private
sector. Through privatization a government or state divests or transfers all or
a portion of its interest in a state enterprise to some form of private
ownership. Governments and states with established economies, including France,
Great Britain, Germany and Italy, and those with developing economies,
including Argentina, Mexico, Chile, Indonesia, Malaysia, Poland and Hungary,
are engaged in privatizations. The Portfolio will invest in any country
believed to present attractive investment opportunities.
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A major premise of the Portfolio's approach is that the equity securities of
privatized companies offer opportunities for significant capital appreciation.
In particular, because privatizations are integral to a country's economic
restructuring, securities sold in initial equity offerings often are priced
attractively to secure the issuer's successful transition to private sector
ownership. Additionally, these enterprises often dominate their local markets
and typically have the potential for significant managerial and operational
efficiency gains.
The Portfolio diversifies its investments among a number of countries and
normally invests in issuers based in at least four, and usually considerably
more, countries. The Portfolio invests up to 15% of its total assets in issuers
in any one foreign country, except that the Portfolio may invest up to 30% of
its total assets in issuers in any one of France, Germany, Great Britain, Italy
and Japan. The Portfolio may invest all of its assets within a single region of
the world.
The Portfolio may invest up to 35% of its total assets in debt securities and
convertible debt securities of issuers whose common stocks are eligible for
purchase by the Portfolio. The Portfolio invests up to 5% of its net assets in
lower-rated securities. The Portfolio will not retain a non-convertible
security that is downgraded below C or determined by Alliance to have undergone
similar credit quality deterioration following purchase.
The Portfolio also may:
. invest up to 20% of its total assets in rights or warrants;
. write covered call and put options, purchase put and call options on
securities of the types in which it is permitted to invest and on
exchange-traded index options, and write uncovered options for cross-
hedging purposes;
. enter into contracts for the purchase or sale for future delivery of
fixed-income securities or foreign currencies, or contracts based on
financial indices, including any index of U.S. Government securities,
foreign government securities, or common stock and may purchase and
write options on future contracts;
. purchase and write put and call options on foreign currencies for
hedging purposes;
. purchase or sell forward foreign currency contracts;
. enter into forward commitments;
. enter into standby commitment agreements;
. enter into currency swaps for hedging purposes;
. make short sales "against the box" of securities or maintain a short
position of up to 10% of its net assets;
. make secured loans of portfolio securities of up to 30% of its total
assets;
. invest up to 15% of its total assets in illiquid securities; and
. enter into repurchase agreements for U.S. Government securities.
Investments in non-U.S. companies and smaller companies may have more risk
because they tend to be more volatile than the overall stock market. The
Portfolio's investments in debt securities and convertible securities have
interest risk and credit risk.
Quasar Portfolio
The Portfolio's investment objective is to seek growth of capital by pursuing
aggressive investment policies. The Portfolio invests for capital appreciation
and only incidentally for current income. The Portfolio's practice of selecting
securities based on the possibility of appreciation cannot, of course, ensure
against a loss in value.
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Moreover, because the Portfolio's investment policies are aggressive, an
investment in the Portfolio is risky and investors who want assured income or
preservation of capital should not invest in the Portfolio.
The Portfolio invests in any company and industry and in any type of security
with potential for capital appreciation. It invests in well-known and
established companies and in new and unseasoned companies. When selecting
securities for the Portfolio, Alliance considers the economic and political
outlook, the values of specific securities relative to other investments,
trends in the determinants of corporate profits and management capability and
practices.
The Portfolio invests principally in equity securities, but it also invests to
a limited degree in non-convertible bonds and preferred stocks. The Portfolio
invests in listed and unlisted U.S. and foreign securities. The Portfolio
periodically invests in special situations, which occur when the securities of
a company are expected to appreciate due to a development particularly or
uniquely applicable to that company regardless of general business conditions
or movements of the market as a whole.
The Portfolio also may:
. make short sales of securities "against the box" but not more than 15%
of its net assets may be deposited on short sales;
. write covered call options of up to 15% of its total assets and
purchase and sell put and call options written by others of up to, for
all options, 10% of its total assets; and
. invest up to 15% of its assets in illiquid securities.
Investments in smaller companies may have more risk because they tend to be
more volatile than the overall stock market. The Portfolio's investments in
non-convertible bonds, preferred stocks, and foreign stocks may have credit
risk and foreign risk.
Real Estate Investment Portfolio
The Portfolio's investment objective is to seek a total return on its assets
from long-term growth of capital and from income principally through investing
in a portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
The Portfolio normally invests at least 65% of its total assets in equity
securities of real estate investment trusts, or REITs, and other real estate
industry companies. A "real estate industry company" is a company that derives
at least 50% of its gross revenues or net profits from the ownership,
development, construction, financing, management or sale of commercial,
industrial or residential real estate or interests in these properties. The
Portfolio invests in equity securities that include common stock, shares of
beneficial interest of REITs, and securities with common stock characteristics,
such as preferred stock or convertible securities ("Real Estate Equity
Securities").
The Portfolio may invest up to 35% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized by
and payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real estate mortgage
investment conduit ("REMIC") certificates and CMOs and (b) short-term
investments. These instruments are described below. The Portfolio will not
invest in the lowest tranche of CMOs and REMIC certificates.
In selecting Real Estate Equity Securities, Alliance's analysis will focus on
determining the degree to which the company involved can achieve sustainable
growth in cash flow and dividend paying capability. Alliance believes that the
primary determinant of this capability is the economic viability of property
markets in which the company operates and that the secondary determinant of
this capability is the ability of management to add
value through strategic focus and operating expertise. The Portfolio will
purchase Real Estate Equity Securities when, in the judgment of Alliance, their
market price does not adequately reflect this potential. In making this
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determination, Alliance will take into account fundamental trends in underlying
property markets as determined by proprietary models, site visits conducted by
individuals knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and stability, the
relationship between asset value and market price of the securities, dividend
payment history, and such other factors which Alliance may determine from time
to time to be relevant. Alliance will attempt to purchase for the Portfolio
Real Estate Equity Securities of companies whose underlying portfolios are
diversified geographically and by property type.
The Portfolio may invest without limitation in shares of REITs. REITs are
pooled investment vehicles that invest primarily in income producing real
estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs, or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Similar to investment companies such as the Portfolio, REITs are not
taxed on income distributed to shareholders provided they comply with several
requirements of the Code. The Portfolio will indirectly bear its proportionate
share of expenses incurred by REITs in which the Portfolio invests in addition
to the expenses incurred directly by the Portfolio.
The Portfolio's investment strategy with respect to Real Estate Equity
Securities is based on the premise that property market fundamentals are the
primary determinant of growth underlying the performance of Real Estate Equity
Securities. Value and management further distinguishes the most attractive Real
Estate Equity Securities. The Portfolio's research and investment process is
designed to identify those companies with strong property fundamentals and
strong management teams. This process is comprised of real estate market
research, specific property inspection, and securities analysis. Alliance
believes that this process will result in a portfolio that will consist of Real
Estate Equity Securities of companies that own assets in the most desirable
markets across the country, diversified geographically and by property type.
To implement the Portfolio's research and investment process, Alliance has
retained the consulting services of CB Richard Ellis, Inc. ("CBRE"), a publicly
held company and the largest real estate services company in the United States.
CBRE business includes real estate brokerage, property and facilities
management, and real estate finance and investment advisory activities. The
universe of property-owning real estate industry firms consists of
approximately 142 companies of sufficient size and quality to merit
consideration for investment by the Portfolio. As consultant to Alliance, CBRE
provides access to its proprietary model, REIT-Score, which analyzes the
approximately 18,000 properties owned by these 142 companies. Using proprietary
databases and algorithms, CBRE analyzes local market rent, expense, and
occupancy trends, market specific transaction pricing, demographic and economic
trends, and leading indicators of real estate supply such as building permits.
Over 1,000 asset-type specific geographic markets are analyzed and ranked on a
relative scale by CBRE in compiling its REIT-Score database. The relative
attractiveness of these real estate industry companies is similarly ranked
based on the composite rankings of the properties they own.
Once the universe of real estate industry companies has been distilled through
the market research process, CBRE's local market presence provides the
capability to perform site specific inspections of key properties. This
analysis examines specific location, condition, and sub-market trends. CBRE's
use of locally based real estate professionals provides Alliance with a window
on the operations of the portfolio companies as information can immediately be
put in the context of local market events. Only those companies whose specific
property portfolios reflect the promise of their general markets will be
considered for initial and continued investment by the Portfolio.
Alliance further screens the universe of real estate industry companies by
using rigorous financial models and by engaging in regular contact with
management of targeted companies. Each management's strategic plan and ability
to execute the plan are determined and analyzed. Alliance makes extensive use
of CBRE's network of industry analysts in order to assess trends in tenant
industries. This information is then used to further interpret management's
strategic plans. Financial ratio analysis is used to isolate those companies
with the ability to
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make value-added acquisitions. This information is combined with property
market trends and used to project future earnings potential.
The Portfolio may invest in short-term investments including: corporate
commercial paper and other short-term commercial obligations, in each case
rated or issued by companies with similar securities outstanding that are rated
Prime-1, Aa or better by Moody's or A-1, AA or better by S&P; obligations
(including certificates of deposit, time deposits, demand deposits and bankers'
acceptances) of banks with securities outstanding that are rated Prime-1, Aa or
better by Moody's or A-1, AA or better by S&P; and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities with
remaining maturities not exceeding 18 months.
The Portfolio may invest in debt securities rated BBB or higher by S&P or Baa
or higher by Moody's or, if not rated, of equivalent credit quality as
determined by Alliance. The Portfolio expects that it will not retain a debt
security that is downgraded below BBB or Baa or, if unrated, determined by
Alliance to have undergone similar credit quality deterioration, subsequent to
purchase by the Portfolio.
The Portfolio also may:
. invest up to 10% of its net assets in rights or warrants;
. invest up to 15% of its net assets in convertible securities of
companies whose common stocks are eligible for purchase by the
Portfolio;
. enter into forward commitments for up to 30% of its total assets;
. enter into standby commitment agreements;
. make short sales of securities or maintain a short position provided
that not more than 25% of the Portfolio's net assets are held as
collateral for such sales;
. invest up to 15% of its net assets in illiquid securities;
. make loans of portfolio securities of up to 25% of its total assets;
and
. enter into repurchase agreements of up to seven days' duration.
Because the Portfolio invests a substantial portion of its assets in the real
estate market, it has many of the same risks as direct ownership of real
estate. For example, the value of real estate could decline due to a variety of
factors affecting the real estate market generally, such as overbuilding,
increases in interest rates, or declines in rental rates. In addition, REITs
are dependent on the capability of their managers, may have limited
diversification, and could be significantly affected by changes in tax laws.
The Portfolio's investments in mortgage-backed securities have prepayment risk,
which is the risk that mortgage loans will be repaid when interest rates
decline and the Portfolio will have to reinvest in securities with lower
interest rates. This risk causes mortgage-backed securities to have
significantly greater price and yield volatility than traditional fixed-income
securities. The Portfolio's investments in REMICs, CMOs and other types of
mortgage-backed securities may be subject to special risks that are described
under "Description of Investment Practices."
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.
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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 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
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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 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.
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Growth and Income Portfolio
The Portfolio seeks reasonable current income and reasonable appreciation
through investments primarily in dividend-paying common stocks of good quality.
The Portfolio also may invest in fixed-income securities and convertible
securities.
The Portfolio also may try to realize income by writing covered call options
listed on domestic securities exchanges. The Portfolio also invests in foreign
securities. Since the purchase of foreign securities entails certain political
and economic risks, the Portfolio restricts its investments in these securities
to issues of high quality. The Portfolio also may purchase and sell financial
forward and futures contracts and options on these securities for hedging
purposes. The Portfolio may invest up to 10% of its total assets in illiquid
securities.
Growth Portfolio
The Portfolio's investment objective is to provide long-term growth of capital.
Current income is only an incidental consideration. The Portfolio seeks to
achieve its objective by investing primarily in equity securities of companies
with favorable earnings outlooks, which have long-term growth rates that are
expected to exceed that of the U.S. economy over time.
The Portfolio may also invest in convertible securities and other fixed-income
securities. The Portfolio may invest up to 25% of its total assets in lower-
rated fixed-income securities rated at the time of purchase as below investment
grade, that is, securities rated Ba or lower by Moody's or BB or lower by S&P,
Duff & Phelps or Fitch or, if unrated, of comparable quality. From time to
time, however, the Portfolio may invest in securities rated in the lowest
grades (i.e., C by Moody's or D or equivalent by S&P, Duff & Phelps or Fitch),
or securities of comparable quality if there are prospects for an upgrade or a
favorable conversion into equity securities. If the credit rating of a security
held by the Portfolio falls below its rating at the time of purchase (or
Alliance determines that the credit quality of the security has deteriorated),
the Portfolio may continue to hold the security if such investment is
considered appropriate under the circumstances.
The Portfolio also may:
. invest in zero coupon and payment-in-kind bonds;
. invest in foreign securities although not generally in excess of 15% of
its total assets;
. invest in depository receipts, both ADRs and GDRs, where investments in
ADRs are deemed to be investments in securities issued by U.S. issuers
and those in GDRs and other types of depositary receipts are deemed to
be investments in the underlying securities;
. buy or sell foreign currencies, options on foreign currencies, foreign
currency futures contracts (and related options) and deal in forward
foreign currency exchange contracts;
. enter into forward commitments;
. buy and sell stock index futures contracts and options on those
contracts and on stock indices;
. purchase and sell futures contracts and options on futures and U.S.
Treasury securities;
. write covered call and put options;
. purchase and sell put and call options;
. make loans of portfolio securities of up to 25% of its total assets;
. invest up to 15% of its total assets in illiquid securities; and
. enter into repurchase agreements of up to 25% of its total assets.
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Technology Portfolio
The Portfolio emphasizes growth of capital and invests for capital
appreciation. Current income is only an incidental consideration. The Portfolio
may seek income by writing listed call options. The Portfolio invests primarily
in securities of companies expected to benefit from technological advances and
improvements (i.e., companies that use technology extensively in the
development of new or improved products or processes). The Portfolio will
normally have at least 80% of its assets invested in the securities of these
companies. The Portfolio normally will have substantially all its assets
invested in equity securities, but it also invests in debt securities offering
an opportunity for price appreciation. The Portfolio will invest in listed and
unlisted securities, in U.S. securities, and up to 10% of its total assets in
foreign securities.
The Portfolio's policy is to invest in any company and industry and in any type
of security with potential for capital appreciation. It invests in well-known
and established companies and in new and unseasoned companies.
The Portfolio also may:
. write covered call options on its securities of up to 15% of its total
assets and purchase exchange-listed call and put options, including
exchange-traded index put options of up to, for all options, 10% of its
total assets;
. invest up to 10% of its total assets in warrants;
. invest up to 15% of its net assets in illiquid securities; and
. make loans of portfolio securities of up to 30% of its total assets.
Because the Portfolio invests primarily in technology companies, factors
affecting those types of companies could have a significant effect on the
Portfolio's net asset value. In addition, the Portfolio's investments in
technology stocks, especially those of smaller, less-seasoned companies, tend
to be more volatile than the overall market. The Portfolio's investments in
debt and foreign securities have credit risk and foreign risk.
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
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extensive use of carefully selected forwards and other derivatives to achieve
the currency hedging that is an integral part of their investment strategy.
Alliance's use of derivatives is subject to continuous risk assessment and
control from the standpoint of each Portfolio's investment objectives and
policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately-negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards, and swaps--from which virtually any type of derivative transaction
can be created.
. Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a
premium payment or fee, gives the option holder (the buyer) the right
but not the obligation to buy or sell the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index) at a
specified price (the exercise price) during a period of time or on a
specified date. A call option entitles the holder to purchase, and a
put option entitles the holder to sell, the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index).
Likewise, when an option is exercised the writer of the option is
obligated to sell (in the case of a call option) or to purchase (in the
case of a put option) the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index).
. Futures--A futures contract is an agreement that obligates the buyer to
buy and the seller to sell a specified quantity of an underlying asset
(or settle for cash the value of a contract based on an underlying
asset, rate or index) at a specific price on the contract maturity
date. Futures contracts are standardized, exchange-traded instruments
and are fungible (i.e., considered to be perfect substitutes for each
other). This fungibility allows futures contracts to be readily offset
or cancelled through the acquisition of equal but opposite positions,
which is the primary method in which futures contracts are liquidated.
A cash-settled futures contract does not require physical delivery of
the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered
into and its maturity date.
. Forwards--A forward contract is an obligation by one party to buy, and
the other party to sell, a specific quantity of an underlying commodity
or other tangible asset for an agreed upon price at a future date.
Forward contracts are customized, privately negotiated agreements
designed to satisfy the objectives of each party. A forward contract
usually results in the delivery of the underlying asset upon maturity
of the contract in return for the agreed upon payment.
. Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to
changes in specified prices or rates (interest rates in the case of
interest rate swaps, currency exchange rates in the case of currency
swaps) for a specified amount of an underlying asset (the "notional"
principal amount). The payment flows are netted against each other,
with the difference being paid by one party to the other. Except for
currency swaps, the notional principal amount is used solely to
calculate the payment streams but is not exchanged. With respect to
currency swaps, actual principal amounts of currencies may be exchanged
by the counterparties at the initiation, and again upon the
termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the cash
flows from an underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the securities.
These securities are described below under Mortgage-Related Securities.
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While the judicious use of derivatives by highly-experienced investment
managers such as Alliance can be quite beneficial, derivatives involve risks
different from, and, in certain cases, greater than, the risks presented by
more traditional investments. The following is a general discussion of
important risk factors and issues relating to the use of derivatives that
investors should understand before investing in a Portfolio.
. Market Risk--This is the general risk of all investments that the value
of a particular investment will change in a way detrimental to the
Portfolio's interest based on changes in the bond market generally.
. Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from
those associated with stocks and bonds. The use of a derivative
requires an understanding not only of the underlying instrument but
also of the derivative itself, without the benefit of observing the
performance of the derivative under all possible market conditions. In
particular, the use and complexity of derivatives require the
maintenance of adequate controls to monitor the transactions entered
into, the ability to assess the risk that a derivative adds to a
Portfolio, and the ability to forecast price, interest rate, or
currency exchange rate movements correctly.
. Credit Risk--This is the risk that a loss may be sustained by a
Portfolio as a result of the failure of a derivative counterparty to
comply with the terms of the derivative contract. The credit risk for
exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily
payment system (i.e., margin requirements) operated by the clearing
house in order to reduce overall credit risk. For privately negotiated
derivatives, there is no similar clearing agency guarantee. Therefore,
the Portfolios consider the creditworthiness of each counterparty to a
privately negotiated derivative in evaluating potential credit risk.
. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
. Leverage Risk--Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a 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
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"lock in" the U.S. Dollar price of the security (a "transaction hedge"). When a
Portfolio believes that a foreign currency may suffer a substantial decline
against the U.S. Dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some or all of the
Portfolio's securities denominated in such foreign currency, or when the
Portfolio believes that the U.S. Dollar may suffer a substantial decline
against a foreign currency, it may enter into a forward purchase contract to
buy that foreign currency for a fixed dollar amount (a "position hedge").
Instead of entering into a position hedge, a Portfolio may, in the alternative,
enter into a forward contract to sell a different foreign currency for a fixed
U.S. Dollar amount where the Portfolio believes that the U.S. Dollar value of
the currency to be sold pursuant to the forward contract will fall whenever
there is a decline in the U.S. Dollar value of the currency in which portfolio
securities of the Portfolio are denominated (a "cross-hedge").
Futures Contracts and Options on Futures Contracts. A Portfolio may buy and
sell futures contracts on fixed-income or other securities or foreign
currencies, and contracts based on interest rates or financial indices,
including any index of U.S. Government securities, foreign government
securities or corporate debt securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Portfolio will be traded on U.S. or foreign exchanges and will be used only for
hedging purposes.
Interest Rate Transactions (Swaps, Caps, and Floors). Each Portfolio that may
enter into interest rate swap, cap, or floor transactions expects to do so
primarily for hedging purposes, which may include preserving a return or spread
on a particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Portfolio anticipates purchasing at a
later date. The Portfolios do not intend to use these transactions in a
speculative manner.
Interest rate swaps involve the exchange by a Portfolio with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate swaps are
entered on a net basis (i.e., the two payment streams are netted out, with the
Portfolio receiving or paying, as the case may be, only the net amount of the
two payments).
Interest rate caps and floors are similar to options in that the purchase of an
interest rate cap or floor entitles the purchaser, to the extent that a
specified index exceeds (in the case of a cap) or falls below (in the case of a
floor) a predetermined interest rate, to receive payments of interest on a
notional amount from the party selling the interest rate cap or floor. A
Portfolio may enter into interest rate swaps, caps, and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Portfolio from interest rate
transactions is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make.
Options on Foreign Currencies. A Portfolio invests in options on foreign
currencies that are privately negotiated or traded on U.S. or foreign exchanges
for the purpose of protecting against declines in the U.S. Dollar value of
foreign currency denominated securities held by a Portfolio and against
increases in the U.S. Dollar cost of securities to be acquired. The purchase of
an option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although if rates move adversely, a Portfolio
may forfeit the entire amount of the premium plus related transaction costs.
Options on Securities. In purchasing an option on securities, a Portfolio would
be in a position to realize a gain if, during the option period, the price of
the underlying securities increased (in the case of a call) or decreased (in
the case of a put) by an amount in excess of the premium paid; otherwise the
Portfolio would
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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.
Brady Bonds. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final
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maturity, (ii) collateralized interest payments, (iii) uncollateralized
interest payments, and (iv) any uncollateralized repayment of principal at
maturity (these uncollateralized amounts constitute the "residual risk"). In
the event of a default with respect to collateralized Brady Bonds as a result
of which the payment obligations of the issuer are accelerated, the U.S.
Treasury zero coupon obligations held as collateral for the payment of
principal will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held by the
collateral agent to the scheduled maturity of the defaulted Brady Bonds, which
will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments that would have then been due on
the Brady Bonds in the normal course. In light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as speculative.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which provide
a stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings.
Currency Swaps. Currency swaps involve the individually negotiated exchange by
a Portfolio with another party of a series of payments in specified currencies.
A currency swap may involve the delivery at the end of the exchange period of a
substantial amount of one designated currency in exchange for the other
designated currency. Therefore, the entire principal value of a currency swap
is subject to the risk that the other party to the swap will default on its
contractual delivery obligations. A Portfolio will not enter into any currency
swap unless the credit quality of the unsecured senior debt or the claims-
paying ability of the counterparty is rated in the highest rating category of
at least one nationally recognized rating organization at the time of entering
into the transaction. If there is a default by the counterparty to the
transaction, the Portfolio will have contractual remedies under the transaction
agreements.
Depositary Receipts and Securities of Supranational Entities. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored depositary receipts are not obligated to
disclose material information in the United States and, therefore, there may
not be a correlation between such information and the market value of the
depositary receipts. ADRs are depositary receipts typically issued by a U.S.
bank or trust company that evidence ownership of underlying securities issued
by a foreign corporation. GDRs and other types of depositary receipts are
typically issued by foreign banks or trust companies and evidence ownership of
underlying securities issued by either a foreign or U.S. company. Generally,
depositary receipts in registered form are designed for use in the U.S.
securities markets, and depositary receipts in bearer form are designed for use
in foreign securities markets. For purposes of determining the country of
issuance, investments in depositary receipts of either type are deemed to be
investments in the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the
World Bank (International Bank for Reconstruction and Development) and the
European Investment Bank. "Semi-governmental securities" are securities issued
by entities owned by either a national, state or equivalent government or are
obligations of one of such government jurisdictions that are not backed by its
full faith and credit and general taxing powers.
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Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a "when-issued basis" or purchases or sales on a
"delayed delivery basis." In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt restructuring or
approval of a proposed financing by appropriate authorities (i.e., a "when, as
and if issued" trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation and no interest or dividends accrues to the purchaser
prior to the settlement date.
The use of forward commitments helps a Portfolio to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Portfolio might sell securities in
its portfolio on a forward commitment basis to limit its exposure to falling
bond prices. In periods of falling interest rates and rising bond prices, a
Portfolio might sell a security in its portfolio and purchase the same or a
similar security on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher cash yields.
A Portfolio's right to receive or deliver a security under a forward commitment
may be sold prior to the settlement date. The Portfolios enter into forward
commitments, however, only with the intention of actually receiving securities
or delivering them, as the case may be. If a Portfolio, however, chooses to
dispose of the right to acquire a when-issued security prior to its acquisition
or dispose of its right to deliver or receive against a forward commitment, it
may realize a gain or incur a loss.
Illiquid Securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps, (ii) over the counter options and assets used to cover over the counter
options, and (iii) repurchase agreements not terminable within seven days.
A Portfolio that invests in illiquid securities may not be able to sell such
securities and may not be able to realize their full value upon sale. Alliance
will monitor each Portfolio's investments in illiquid securities. Rule 144A
securities will not be treated as "illiquid" for the purposes of the limit on
investments so long as the securities meet liquidity guidelines established by
the Board of Directors.
Investment in Other Investment Companies. Certain of the Portfolios may invest
in other investment companies whose investment objectives and policies are
consistent with those of that Portfolio. If the Portfolio acquires shares in
investment companies, shareholders would bear both their proportionate share of
expenses in the Portfolio (including management and advisory fees) and,
indirectly, the expenses of such investment companies (including management and
advisory fees).
Loans of Portfolio Securities. A Portfolio may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained
by the borrower with the Portfolio. The risks in lending portfolio securities,
as with other secured extensions of credit, consist of possible loss of rights
in the collateral should the borrower fail financially. In determining whether
to lend securities to a particular borrower, Alliance will consider all
relevant facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay the Portfolio any
income earned from the securities. The Portfolio may invest any cash collateral
in portfolio securities and earn additional income or receive an agreed-upon
amount of income from a borrower who has delivered equivalent collateral.
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Loan Participations and Assignments. A Portfolio's investments in loans are
expected in most instances to be in the form of participations in loans and
assignments of all or a portion of loans from third parties. A Portfolio's
investment in loan participations typically will result in the Portfolio having
a contractual relationship only with the lender and not with the borrower. A
Portfolio will acquire participations only if the lender interpositioned
between the Portfolio and the borrower is a lender having total assets of more
than $25 billion and whose senior unsecured debt is rated investment grade or
higher. When a Portfolio purchases a loan assignment from a lender it will
acquire direct rights against the borrower on the loan. Because loan
assignments are arranged through private negotiations between potential
assignees and potential assignors, however, the rights and obligations acquired
by a Portfolio as the purchaser of an assignment may differ from, and be more
limited than, those held by the assigning lender.
The assignability of certain sovereign foreign debt obligations, with respect
to certain Portfolios, is restricted by the governing documentation as to the
nature of the assignee such that the only way in which the Portfolio may
acquire an interest in a loan is through a participation and not an assignment.
A Portfolio may have difficulty disposing of assignments and participations
because to do so it will have to assign such securities to a third party.
Because there may not be a liquid market for such investments, they can
probably be sold only to a limited number of institutional investors. The lack
of a liquid secondary market may have an adverse effect on the value of such
investments and a Portfolio's ability to dispose of particular participations
and assignments when necessary to meet its liquidity needs in response to a
specific economic event such as a deterioration in the creditworthiness of the
borrower. The lack of a liquid secondary market for participations and
assignments also may make it more difficult for the Portfolio to assign a value
to these investments for purposes of valuing its portfolio of securities and
calculating its net asset value.
Mortgage-Related Securities. The Portfolio's investments in mortgage-related
securities typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Portfolio) by governmental or private organizations.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both
interest and principal, unlike more traditional debt securities, which normally
do not provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. Private issuers
sometimes obtain committed loan facilities, lines of credit, letters of credit,
surety bonds or other forms of liquidity and credit enhancement to support the
timely payment of interest and principal with respect to their securities if
the borrowers on the underlying mortgages fail to make their mortgage payments.
The ratings of such non-governmental securities are generally dependent upon
the ratings of the providers of such liquidity and credit support and would be
adversely affected if the rating of such an enhancer were downgraded. A
Portfolio may buy mortgage-related securities without credit enhancement if the
securities meet the Portfolio's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing, or foreclosure of the
underlying properties are also paid to the holders of these securities, which,
as discussed below, frequently causes these securities to experience
significantly greater price and yield volatility than experienced by
traditional fixed-income securities. Some mortgage-related securities, such as
securities issued by GNMA, are referred to as "modified pass-through"
securities. The holders of these securities are entitled to the full and timely
payment of principal and interest, net of certain fees, regardless of whether
payments are actually made on the underlying mortgages.
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Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. CMOs may be
issued by a U.S. Government instrumentality or agency or by a private issuer.
Although payment of the principal of, and interest on, the underlying
collateral securing privately issued CMOs may be guaranteed by GNMA, FNMA or
FHLMC, these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental agency
or any other person or entity.
Another type of mortgage-related security, known as ARMS, bears interest at a
rate determined by reference to a predetermined interest rate or index. There
are two main categories of rates or indices: (i) rates based on the yield on
U.S. Treasury securities; and (ii) indices derived from a calculated measure
such as a cost of funds index or a moving average of mortgage rates. Some rates
and indices closely mirror changes in market interest rate levels, while others
tend to lag changes in market rate levels and tend to be somewhat less
volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.
SMRS are mortgage-related securities that are usually structured with two
classes of securities collateralized by a pool of mortgages or a pool of
mortgaged-backed bonds or pass-through securities, with each class receiving
different proportions of the principal and interest payments from the
underlying assets. A common type of SMRS has one class of interest-only
securities or IOs receiving all of the interest payments from the underlying
assets; while the other class of securities, principal-only securities or POs,
receives all of the principal payments from the underlying assets. IOs and POs
are extremely sensitive to interest rate changes and are more volatile than
mortgage-related securities that are not stripped. IOs tend to decrease in
value as interest rates decrease, while POs generally increase in value as
interest rates decrease. If prepayments of the underlying mortgages are greater
than anticipated, the amount of interest earned on the overall pool will
decrease due to the decreasing principal balance of the assets. Changes in the
values of IOs and POs can be substantial and occur quickly, such as occurred in
the first half of 1994 when the value of many POs dropped precipitously due to
increases in interest rates. For this reason, none of the Portfolios relies on
IOs and POs as the principal means of furthering its investment objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates, mortgage-
related securities may be paid earlier than expected as a result of prepayments
of underlying mortgages. Such prepayments generally occur during periods of
falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, a
Portfolio may be unable to invest the proceeds from the early payment of the
mortgage-related securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price and
yield volatility than is experienced by traditional fixed-income securities.
The occurrence of mortgage prepayments is affected by the level of
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general interest rates, general economic conditions, and other social and
demographic factors. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective life of mortgage-
related securities, subjecting them to greater risk of decline in market value
in response to rising interest rates. If the life of a mortgage-related
security is inaccurately predicted, a Portfolio may not be able to realize the
rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs, and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby potentially limiting a Portfolio's ability to buy or sell those
securities at any particular time.
As with fixed-income securities generally, the value of mortgage-related
securities also can be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such an adverse effect
is especially possible with fixed-rate mortgage securities. If the yield
available on other investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate levels, the value
of the mortgage-related securities will decline. Although the negative effect
could be lessened if the mortgage-related securities were to be paid earlier
(thus permitting a Portfolio to reinvest the prepayment proceeds in investments
yielding the higher current interest rate), as described above the rates of
mortgage prepayments and early payments of mortgage-related securities
generally tend to decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of fixed-
rate mortgage securities by rising interest rates, ARMS may still decline in
value as a result of rising interest rates. Although, as described above, the
yields on ARMS vary with changes in the applicable interest rate or index,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a
Portfolio to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. A Portfolio
requires continual maintenance of collateral in an amount equal to, or in
excess of, the resale price. If a vendor defaults on its repurchase obligation,
a Portfolio would suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. If a vendor goes
bankrupt, a Portfolio might be delayed in, or prevented from, selling the
collateral for its benefit.
Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by a Portfolio of its assets concurrently with an agreement by
the Portfolio to repurchase the same assets at a later date at a fixed price.
During the reverse repurchase agreement period, the Portfolio continues to
receive principal and interest payments on these securities. Generally, the
effect of such a transaction is that a Portfolio can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are advantageous
only if the interest cost to a Portfolio of the reverse repurchase transaction
is less than the cost of otherwise obtaining the cash. Reverse repurchase
agreements and dollar rolls are speculative techniques and are considered
borrowings by the Portfolios.
Dollar rolls involve sales by a Portfolio of securities for delivery in the
current month and the Portfolio's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, a Portfolio forgoes principal and interest paid
on the securities. A Portfolio
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is compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as by the interest earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Portfolio is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, a Portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities. Reverse repurchase agreements and dollar rolls are
speculative techniques and are considered borrowings by the Portfolios.
Rights and Warrants. Warrants are option securities permitting their holders to
subscribe for other securities. Rights are similar to warrants except that they
have a substantially shorter duration. Rights and warrants do not carry with
them dividend or voting rights with respect to the underlying securities, or
any rights in the assets of the issuer. As a result, an investment in rights
and warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date.
Short Sales. A short sale is effected by selling a security that a Portfolio
does not own, or if the Portfolio owns the security, is not to be delivered
upon consummation of the sale. A short sale is "against the box" if a Portfolio
owns or has the right to obtain without payment securities identical to those
sold short.
If the price of the security sold short increases between the time of the short
sale and the time a Portfolio replaces the borrowed security, the Portfolio
will incur a loss; conversely, if the price declines, the Portfolio will
realize a short-term capital gain. Any gain will be decreased, and any loss
increased, by the transaction costs described above. Although a Portfolio's
gain is limited to the price at which it sold the security short, its potential
loss is theoretically unlimited.
Standby Commitment Agreements. Standby commitment agreements are similar to put
options that commit a Portfolio, for a stated period of time, to purchase a
stated amount of a security that may be issued and sold to the Portfolio at the
option of the issuer. The price and coupon of the security are fixed at the
time of the commitment. At the time of entering into the agreement, the
Portfolio is paid a commitment fee regardless of whether the security
ultimately is issued. The Portfolios will enter into such agreements only for
the purpose of investing in the security underlying the commitment at a yield
and price considered advantageous and unavailable on a firm commitment basis.
No Portfolio will enter into a standby commitment with a remaining term in
excess of 45 days. The Portfolios will limit their investments in standby
commitments so that the aggregate purchase price of the securities subject to
the commitments does not exceed 20% of their assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Portfolio will bear the risk of capital loss
in the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Portfolio.
Structured Securities. Structured securities in which some Portfolios may
invest represent interests in entities organized and operated solely for the
purpose of restructuring the investment characteristics of sovereign or foreign
debt obligations. This type of restructuring involves the deposit with or
purchase by an entity, such as a corporation or trust, of specified instruments
(such as commercial bank loans or Brady Bonds) and the issuance by that entity
of one or more classes of structured securities backed by, or representing
interests in, the underlying instruments. The cash flow on the underlying
instruments may be apportioned among the newly issued structured securities to
create securities with different investment characteristics such
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as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured securities is dependent
on the extent of the cash flow on the underlying instruments. Because
structured securities typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments.
Structured securities of a given class may be either subordinated or
unsubordinated to the right of payment of another class. Subordinated
structured securities typically have higher yields and present greater risks
than unsubordinated structured securities.
Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Portfolio may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of
time if short-term interest rates rise above a predetermined level or "cap."
The amount of such an additional interest payment typically is calculated under
a formula based on a short-term interest rate index multiplied by a designated
factor.
Leveraged inverse floating rate debt instruments are sometimes known as
"inverse floaters." The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse
floater is indexed. An inverse floater may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds the magnitude
of the change in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater volatility in market
value, such that, during periods of rising interest rates, the market values of
inverse floaters will tend to decrease more rapidly than those of fixed rate
securities.
Zero Coupon and Principal-Only Securities. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal portions from the
coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which are generally held by a bank in a custodial or trust
account).
Future Developments. A Portfolio may, following written notice to its
shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Portfolio, or are not available but may
yet be developed, to the extent such investment practices are consistent with
the Portfolio's investment
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<PAGE>
objective and legally permissible for the Portfolio. Such investment practices,
if they arise, may involve risks that are different from or exceed those
involved in the practices described above.
Portfolio Turnover. The portfolio turnover rate for each Portfolio is included
in the Financial Highlights section. The Portfolios are actively managed and,
in some cases in response to market conditions, a Portfolio's turnover may
exceed 100%. Several of the Portfolios, including U.S. Government/High Grade
Securities Portfolio, High Yield Portfolio, Short-Term Multi-Market Portfolio,
Global Bond Portfolio, North American Government Income Portfolio, Global
Dollar Government Portfolio, Conservative Investors Portfolio, Growth Investors
Portfolio, and Growth Portfolio, engage in more active trading and have
significantly higher portfolio turnover. A higher rate of portfolio turnover
increases brokerage and other expenses, which must be borne by the Portfolio
and its shareholders.
Temporary Defensive Position. For temporary defensive purposes, each Portfolio
may invest in certain types of short-term, liquid, high-grade or high-quality
(depending on the Portfolio) debt securities. These securities may include U.S.
Government securities, qualifying bank deposits, money market instruments,
prime commercial paper and other types of short-term debt securities, including
notes and bonds. For Portfolios that may invest in foreign countries, such
securities may also include short-term, foreign-currency denominated securities
of the type mentioned above issued by foreign governmental entities, companies
and supranational organizations. While the Portfolios are investing for
temporary defensive purposes, they may not meet their investment objective.
ADDITIONAL RISK CONSIDERATIONS
Investment in certain of the Portfolios involves the special risk
considerations described below. Certain of these risks may be heightened when
investing in emerging markets.
Currency Considerations. Those Portfolios that invest some portion of their
assets in securities denominated in, and receive revenues in, foreign
currencies will be adversely affected by reductions in the value of those
currencies relative to the U.S. Dollar. These changes will affect a Portfolio's
net assets, distributions and income. If the value of the foreign currencies in
which a Portfolio receives income falls relative to the U.S. Dollar between
receipt of the income and the making of Portfolio distributions, a Portfolio
may be required to liquidate securities in order to make distributions if the
Portfolio has insufficient cash in U.S. Dollars to meet the distribution
requirements that the Portfolio must satisfy to qualify as a regulated
investment company for federal income tax purposes. Similarly, if an exchange
rate declines between the time a Portfolio incurs expenses in U.S. Dollars and
the time cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, a Portfolio may engage in certain
currency hedging transactions, as described above, which involve certain
special risks.
Effects of Borrowing. A Portfolio's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each
Portfolio that may borrow expects to effect borrowings and repayments at such
times and in such amounts as will maintain investment leverage in an amount
approximately equal to its borrowing target. The loan agreements provide for a
selection of interest rates that are based on the bank's short-term funding
costs in the U.S. and London markets.
Borrowings by a Portfolio result in leveraging of the Portfolio's shares.
Utilization of leverage, which is usually considered speculative, involves
certain risks to a Portfolio's shareholders. These include a higher volatility
of the net asset value of a Portfolio's shares and the relatively greater
effect on the net asset value of the shares. So long as a Portfolio is able to
realize a net return on its investment portfolio that is higher than the
interest expense paid on borrowings, the effect of leverage will be to cause
the Portfolio's shareholders to realize a higher current net investment income
than if the Portfolio were not leveraged. On the other hand, interest rates on
U.S. Dollar-denominated and foreign currency-denominated obligations change
from time to time as does their relationship to each other, depending upon such
factors as supply and demand forces, monetary and tax
55
<PAGE>
policies within each country and investor expectations. Changes in such factors
could cause the relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency-denominated obligations of a Portfolio's investments. If the
interest expense on borrowings approaches the net return on a Portfolio's
investment portfolio, the benefit of leverage to the Portfolio's shareholders
will be reduced. If the interest expense on borrowings were to exceed the net
return to shareholders, a Portfolio's use of leverage would result in a lower
rate of return. Similarly, the effect of leverage in a declining market could
be a greater decrease in net asset value per share. In an extreme case, if a
Portfolio's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Portfolio to liquidate
certain of its investments and reduce the net asset value of a Portfolio's
shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by some Portfolios could
adversely affect the Portfolios' shareholders, as noted above, or in
anticipation of such changes, a Portfolio may increase the percentage of its
investment portfolio invested in U.S. Government securities, which would tend
to offset the negative impact of leverage on Portfolio shareholders. Each
Portfolio may also reduce the degree to which it is leveraged by repaying
amounts borrowed.
Fixed-Income Securities. The value of each Portfolio's shares will fluctuate
with the value of its investments. The value of each Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of a Portfolio's securities will
generally rise, although if falling interest rates are viewed as a precursor to
a recession, the values of a Portfolio's securities may fall along with
interest rates. Conversely, during periods of rising interest rates, the values
of a Portfolio's securities will generally decline. Changes in interest rates
have a greater effect on fixed-income securities with longer maturities and
durations than those with shorter maturities and durations.
In seeking to achieve a Portfolio's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Portfolio.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Portfolio whose investment portfolio includes
foreign securities may experience greater price volatility and significantly
lower liquidity than a portfolio invested solely in securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase
the cost and expenses of a Portfolio. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
A Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require a Portfolio to adopt special procedures or seek local
governmental approvals or other
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<PAGE>
actions, any of which may involve additional costs to a Portfolio. These
factors may affect the liquidity of a Portfolio's investments in any country
and Alliance will monitor the effect of any such factor or factors on a
Portfolio's investments. Furthermore, transaction costs including brokerage
commissions for transactions both on and off the securities exchanges in many
foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, or diplomatic
developments could affect adversely the economy of a foreign country. In the
event of nationalization, expropriation or other confiscation, a Portfolio
could lose its entire investment in securities in the country involved. In
addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Portfolio than that provided by U.S. laws.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on any Portfolio's investments in the securities
of Canadian issuers or investments denominated in Canadian Dollars. The factors
described above are more likely to have a material adverse effect on the
Portfolio's investments in the securities of Mexican and other non-Canadian
foreign issuers, including investments in securities denominated in Mexican
Pesos or other non-Canadian foreign currencies. If not hedged, however,
currency fluctuations could affect the unrealized appreciation and depreciation
of Canadian Government securities as expressed in U.S. Dollars.
Some of the Portfolios may invest substantial amounts of their assets in
issuers located in the United Kingdom, Japan, Canada, Mexico and Argentina.
Please refer to Appendix B for a discussion of risks associated with
investments in these countries.
Investment in Privatized Enterprises by Worldwide Privatization Portfolio. In
certain jurisdictions, the ability of foreign entities, such as the Portfolio,
to participate in privatizations may be limited by local law, or the price or
terms on which the Portfolio may be able to participate may be less
advantageous than for local investors. Moreover, there can be no assurance that
governments that have embarked on privatization programs will continue to
divest their ownership of state enterprises, that proposed privatizations will
be successful or that governments will not re-nationalize enterprises that have
been privatized. Furthermore, in the case of certain of the enterprises in
which the Portfolio may invest, large blocks of the stock of those enterprises
may be held by a small group of stockholders, even after the initial equity
offerings by those enterprises. The sale of some portion or all of those blocks
could have an adverse effect on the price of the stock of any such enterprise.
Most state enterprises or former state enterprises go through an internal
reorganization of management prior to conducting an initial equity offering in
an attempt to better enable these enterprises to compete in the private sector.
However, certain reorganizations could result in a management team that does
not function as well as the enterprise's prior management and may have a
negative effect on such enterprise. After making an initial equity offering,
enterprises that may have enjoyed preferential treatment from the respective
state or government that owned or controlled them may no longer receive such
preferential treatment and may become subject to market competition from which
they were previously protected. Some of these enterprises may not
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<PAGE>
be able to effectively operate in a competitive market and may suffer losses or
experience bankruptcy due to such competition. In addition, the privatization
of an enterprise by its government may occur over a number of years, with the
government continuing to hold a controlling position in the enterprise even
after the initial equity offering for the enterprise.
Investment in Smaller, Emerging Companies. The foreign securities in which
certain Portfolios may invest may include securities of smaller, emerging
companies. Investment in such companies involves greater risks than is
customarily associated with securities of more established companies. Companies
in the earlier stages of their development often have products and management
personnel which have not been thoroughly tested by time or the marketplace;
their financial resources may not be as substantial as those of more
established companies. The securities of smaller companies may have relatively
limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger companies or broad market indices. The
revenue flow of such companies may be erratic and their results of operations
may fluctuate widely and may also contribute to stock price volatility.
Extreme Governmental Action; Less Protective Laws. In contrast with investing
in the United States, foreign investment may involve in certain situations
greater risk of nationalization, expropriation, confiscatory taxation, currency
blockage or other extreme governmental action which could adversely impact a
Portfolio's investments. In the event of certain such actions, a Portfolio
could lose its entire investment in the country involved. In addition, laws in
various foreign countries governing, among other subjects, business
organization and practices, securities and securities trading, bankruptcy and
insolvency may provide less protection to investors such as a Portfolio than
provided under U.S. laws.
Investment in the Banking Industry. Sustained increases in interest rates can
adversely affect the availability and cost of funds for a bank's lending
activities, and a deterioration in general economic conditions could increase
the exposure to credit losses. The banking industry is also subject to the
effects of the concentration of loan portfolios in particular businesses such
as real estate, energy, agriculture or high technology-related companies;
competition within those industries as well as with other types of financial
institutions; and national and local governmental regulation. In addition, a
Portfolio's investments in commercial banks located in several foreign
countries are subject to additional risks due to the combination in such banks
of commercial banking and diversified securities activities. As discussed
above, however, a Portfolio will seek to minimize their exposure to such risks
by investing only in debt securities which are determined to be of high
quality.
Investment in Fixed-Income Securities Rated Baa and BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
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<PAGE>
secondary market for lower-rated securities, a Portfolio may experience
difficulty in valuing such securities and, in turn, the Portfolio's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification, and attention to current
developments and trends in interest rates and economic and political
conditions. There can be no assurance, however, that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of its
program for managing a Portfolio's securities than would be the case if a
Portfolio did not invest in lower-rated securities. In considering investments
for the Portfolio, Alliance will attempt to identify those high-yielding
securities whose financial condition is adequate to meet future obligations,
has improved, or is expected to improve in the future. Alliance's analysis
focuses on relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience and managerial
strength of the issuer.
Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which a Portfolio may invest. Reduced
secondary market liquidity may have an adverse effect on the market price and a
Portfolio's ability to dispose of particular instruments when necessary to meet
its liquidity requirements or in response to specific economic events such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain sovereign debt obligations may also make it more
difficult for a Portfolio to obtain accurate market quotations for the purpose
of valuing its portfolio. Market quotations are generally available on many
sovereign debt obligations only from a limited number of dealers and may not
necessarily represent firm bids of those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Portfolios will be exposed to
the direct or indirect consequences of political, social, and economic changes
in various countries. Political changes in a country may affect the willingness
of a foreign government to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among other things,
in its inflation rate, the amount of its external debt and its gross domestic
product, will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Portfolios will invest in many
cases pertain to countries that are among the world's largest debtors to
commercial banks, foreign governments, international financial organizations,
and other financial institutions. In recent years, the governments of some of
these countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers.
The Portfolios are permitted to invest in sovereign debt obligations that are
not current in the payment of interest or principal or are in default so long
as Alliance believes it to be consistent with the Portfolios' investment
objectives. The Portfolios may have limited legal recourse in the event of a
default with respect to certain sovereign debt obligations it holds. For
example, remedies from defaults on certain sovereign debt obligations, unlike
those on private debt, must, in some cases, be pursued in the courts of the
defaulting party itself. Legal recourse therefore may be significantly
diminished. Bankruptcy, moratorium and other similar laws applicable to issuers
of sovereign debt obligations may be substantially different from those
applicable to issuers of private debt obligations. The political context,
expressed as the willingness of an issuer of sovereign debt obligations to meet
the terms of the debt obligation, for example, is of considerable importance.
In addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of securities issued by foreign
governments in the event of default under commercial bank loan agreements.
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U.S. and Foreign Taxes. A Portfolio's investment in foreign securities may be
subject to taxes withheld at the source on dividend or interest payments.
Foreign taxes paid by a Portfolio may be creditable or deductible by U.S.
shareholders for U.S. income tax purposes. No assurance can be given that
applicable tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct such foreign
taxes.
Unrated Securities. Unrated securities will also be considered for investment
by certain Portfolios when Alliance believes that the financial condition of
the issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the Portfolio's objective
and policies.
U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which certain Portfolios invest may include securities issued in
connection with corporate restructurings such as takeovers or leveraged
buyouts, which may pose particular risks. Securities issued to finance
corporate restructurings may have special credit risks due to the highly
leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Furthermore, the
market price of such securities may be more volatile to the extent that
expected benefits from the restructuring do not materialize. The Portfolios may
also invest in U.S. corporate fixed-income securities that are not current in
the payment of interest or principal or are in default, so long as Alliance
believes such investment is consistent with the Portfolio's investment
objectives. The Portfolios' rights with respect to defaults on such securities
will be subject to applicable U.S. bankruptcy, moratorium and other similar
laws.
Year 2000. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction,
rather than the full four digits. If these systems are not modified or
replaced, transactions occurring after 1999 could be processed as year "1900",
which could result in processing inaccuracies and computer system failures.
This is commonly known as the Year 2000 problem. The failure of any of the
computer systems employed by the Portfolios' major service providers to process
Year 2000 related information properly could have a significant negative impact
on the Portfolios' operations and the services that are provided to the
Portfolios' shareholders. In addition, to the extent that the operations of
issuers of securities held by the Portfolios are impaired by the Year 2000
problem, or prices of securities held by the Portfolios decline as a result of
real or perceived problems relating to the Year 2000, the value of the
Portfolios' shares may be materially affected.
With respect to the Year 2000, the Portfolios have been advised that Alliance,
each Portfolio's investment adviser, Alliance Fund Distributors, Inc. ("AFD"),
each Portfolio's principal underwriter, and Alliance Fund Services, Inc.
("AFS"), each Portfolio's registrar, transfer agent and dividend disbursing
agent (collectively, "Alliance"), began to address the Year 2000 issue several
years ago in connection with the replacement or upgrading of certain computer
systems and applications. During 1997, Alliance began a formal Year 2000
initiative, which established a structured and coordinated process to deal with
the Year 2000 issue. Alliance reports that it has completed its assessment of
the Year 2000 issues on its domestic and international computer systems and
applications. Currently, management of Alliance expects that the required
modifications for the majority of its significant systems and applications that
will be in use on January 1, 2000, will be completed and tested by early 1999.
Full integration testing of these systems and testing of interfaces with third-
party suppliers will continue through 1999. At this time, management of
Alliance believes that the costs associated with resolving this issue will not
have a material adverse effect on its operations or on its ability to provide
the level of services it currently provides to the Portfolio.
The Portfolios and Alliance have been advised by the Portfolios' Custodian and
Administrator that they are each in the process of reviewing their systems with
the same goals. As of the date of this Prospectus, the Portfolio and Alliance
have no reason to believe that the Custodian or Administrator will be unable to
achieve these goals.
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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>
U.S. Government/High Grade Securities Portfolio................... .60%
High Yield Portfolio.............................................. .44%
Total Return Portfolio............................................ .62%
International Portfolio........................................... .67%
Global Bond Portfolio............................................. .64%
North American Government Income Portfolio........................ .53%
Global Dollar Government Portfolio................................ .39%
Utility Income Portfolio.......................................... .58%
Worldwide Privatization Portfolio................................. .38%
Quasar Portfolio.................................................. .73%
Real Estate Investment Portfolio.................................. .45%
Money Market Portfolio............................................ .50%
Premier Growth Portfolio.......................................... .97%
Growth and Income Portfolio....................................... .63%
Growth Portfolio.................................................. .75%
Technology Portfolio.............................................. .81%
</TABLE>
- --------
* Fees are stated net of waivers and/or reimbursements. Absent fee waivers
and/or reimbursements, the fee paid to Alliance by the following Portfolios
as a percentage of average net assets, would have been: U.S. Government/High
Grade Securities Portfolio (.60%); High Yield Portfolio (.75%); Total Return
Portfolio (.63%); International Portfolio (1.00%); Global Bond Portfolio
(.65%); North American Government Income Portfolio (.65%); Global Dollar
Government Portfolio (.75%); Utility Income Portfolio (.75%); Worldwide
Privatization Portfolio (1.00%); Quasar Portfolio (1.00%); Real Estate
Investment Portfolio (.90%); Money Market Portfolio (.50%); Premier Growth
Portfolio (1.00%); Growth and Income Portfolio (.63%); Technology Portfolio
(1.00%); and Growth Portfolio (.75%).
AIGAM International Limited, Unit 1/11, Harbor Yard, Chelsea, London, England,
is the Sub-Adviser for the Global Bond Portfolio. The Sub-Adviser is an asset
management firm specializing in global fixed-income money management. It
manages a range of institutional specialty funds, investment companies, and
dedicated institutional portfolios.
In connection with investments in real estate securities, Alliance has, at its
expense, retained as a consultant CB Richard Ellis, Inc. ("CBRE"). CBRE is a
publicly held company and the largest real services company in the United
States, comprised of real estate brokerage, property, and facilities
management, and real estate finance, and investment advisory services.
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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>
U.S. Government/High Matthew Bloom; since 1999; Associated with Alliance
Grade Securities Portfolio Senior Vice President of since prior to 1994
ACMC
High Yield Portfolio Nelson R. Jantzen; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
Wayne C. Tappe; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
Total Return Portfolio Paul C. Rissman; since (see above)
inception; (see above)
International Portfolio Steven Beinhacker; since Associated with Alliance
1996; Senior Vice since prior to 1994
President of ACMC
Global Bond Portfolio Ian Coulman; since Associated with the Sub-
inception; Investment Adviser since prior to
Manager of the Sub-Adviser 1994
North American Government Wayne D. Lyski; since Associated with Alliance
Income Portfolio inception; Executive Vice since prior to 1994
President of ACMC
Global Dollar Government Wayne D. Lyski; since (see above)
Portfolio inception; (see above)
Utility Income Portfolio Paul C. Rissman; since (see above)
inception; (see above)
Worldwide Privatization Portfolio Mark H. Breedon; since Associated with Alliance
inception; Vice President since prior to 1994
of ACMC and Director and
Senior Vice President of
Alliance Capital
Limited***
Gerald T. Malone; since Associated with Alliance
1992; Senior Vice since prior to 1994
President of ACMC
Quasar Portfolio Alden M. Stewart; since Associated with Alliance
inception; Executive Vice since prior to 1994
President of ACMC
Randall E. Hasse; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
</TABLE>
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<TABLE>
<CAPTION>
Principal Occupation
Employee; Time Period; During
Portfolio Title With ACMC The Past Five Years*
--------- -------------------------- ------------------------
<C> <S> <C>
Real Estate Investment Portfolio Daniel G. Pine; since Associated with Alliance
inception; Senior Vice since 1996; prior
President of ACMC thereto associated with
Desai Capital Management
since prior to 1994
David Kruth; since 1997; Associated with Alliance
Vice President of ACMC since 1997; prior
thereto, Senior Vice
President of Yarmouth
Group
Money Market Portfolio Raymond J. Papera; since Associated with Alliance
1997; Senior Vice since prior to 1994
President of Alliance
Capital Management
Corporation (ACMC)**
Premier Growth Alfred Harrison; since Associated with Alliance
Portfolio inception; Director and since prior to 1994
Vice Chairman of ACMC
Growth and Income Paul C. Rissman; since Associated with Alliance
Portfolio inception; Senior Vice since prior to 1994
President of ACMC
Growth Portfolio Tyler J. Smith; since Associated with Alliance
inception; Senior Vice since prior to 1994
President of ACMC
Technology Portfolio Peter Anastos; since 1992; Associated with Alliance
Senior Vice President of since prior to 1994
ACMC
Gerald T. Malone; since Associated with alliance
1992; since prior to 1994
Senior Vice President of
ACMC
</TABLE>
- --------
* Unless indicated otherwise, persons associated with Alliance have been
employed in a portfolio management, research or investment capacity.
** The sole general partner of Alliance.
*** An indirect wholly-owned subsidiary of Alliance.
63
<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.
DISTRIBUTION ARRANGEMENTS
This Prospectus offers Class B shares of the Portfolios. The Class B shares
have an asset-based sales charge or Rule 12b-1 fee. Each Portfolio has adopted
a plan under the Commission Rule 12b-1 that allows the Portfolio to pay asset-
based sales charges or distribution fees for the distribution and sale of its
shares. The amount of these fees for the Class B shares as a percentage of
average net assets is 0.25%. Because these fees are paid out of the Portfolio's
assets on an on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales fees.
64
<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. Since the Portfolios did not offer Class B shares
prior to January 1999, the financial highlights are solely for Class A shares
and do not reflect the annual Class B Rule 12b-1 fee of .25% of average net
assets.
<TABLE>
<CAPTION>
U.S. Government/High Grade Securities
Portfolio
------------------------------------------
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $ 11.93 $ 11.52 $ 11.66 $ 9.94 $10.72
------- ------- ------- ------- ------
Income From Investment Operations
Net investment income(b)(c)...... .63 .68 .66 .65 .28
Net realized and unrealized gain
(loss) on investment
transactions.................... .32 .29 (.39) 1.25 (.71)
------- ------- ------- ------- ------
Net increase (decrease) in net
asset value from operations..... .95 .97 .27 1.90 (.43)
------- ------- ------- ------- ------
Less: Dividends and Distributions
Dividends from net investment
income.......................... (.55) (.54) (.28) (.18) (.21)
Distributions from net realized
gains........................... (.06) (.02) (.13) -0- (.14)
------- ------- ------- ------- ------
Total dividends and
distributions................... (.61) (.56) (.41) (.18) (.35)
------- ------- ------- ------- ------
Net asset value, end of year..... $ 12.27 $ 11.93 $ 11.52 $ 11.66 $ 9.94
======= ======= ======= ======= ======
Total Return
Total investment return based on
net asset value(d).............. 8.22% 8.68% 2.55% 19.26% (4.03)%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)........................ $58,418 $36,198 $29,150 $16,947 $5,101
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................ .78% .84% .92% .95% .95%
Expenses, before waivers and
reimbursements................ .91% .84% .98% 1.58% 3.73%
Net investment income(b)....... 5.24% 5.89% 5.87% 5.96% 5.64%
Portfolio turnover rate.......... 235% 114% 137% 68% 32%
</TABLE>
<TABLE>
<CAPTION>
High Yield Portfolio
-------------------------
October 27,
Year Ended 1997(a) to
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net asset value, beginning of period............... $ 10.33 $10.00
------- ------
Income From Investment Operations
Net investment income(b)(c)........................ 1.03 .13
Net realized and unrealized gain (loss) on
investment transactions........................... (1.41) .20
------- ------
Net increase (decrease) in net asset value from
operations........................................ (.38) .33
------- ------
Less: Dividends
Dividends from net investment income............... (.01) -0-
------- ------
Net asset value, end of period..................... $ 9.94 $10.33
======= ======
Total Return
Total investment return based on net asset
value(d).......................................... (3.69)% 3.30%
Ratios/Supplemental Data
Net assets, end of period (000's omitted).......... $16,910 $1,141
Ratios to average net assets of:
Expenses, net of waivers and reimbursements...... .95% .95%(e)
Expenses, before waivers and reimbursements...... 1.80% 8.26%(e)
Net investment income(b)......................... 9.77% 7.28%(e)
Portfolio turnover rate............................ 295% 8%
</TABLE>
- --------
See footnotes on page .
65
<PAGE>
<TABLE>
<CAPTION>
Total Return Portfolio
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 16.92 $ 14.63 $ 12.80 $10.41 $10.97
------- ------- ------- ------ ------
Income From Investment Operations
Net investment income(b)(c)....... .41 .39 .27 .36 .15
Net realized and unrealized gain
(loss) on investment
transactions..................... 2.36 2.62 1.66 2.10 (.56)
------- ------- ------- ------ ------
Net increase (decrease) in net
asset value from operations...... 2.77 3.01 1.93 2.46 (.41)
------- ------- ------- ------ ------
Less: Dividends and Distributions
Dividends from net investment
income........................... (.29) (.23) (.07) (.07) (.09)
Distributions from net realized
gains............................ (1.34) (.49) (.03) -0- (.06)
------- ------- ------- ------ ------
Total dividends and
distributions.................... (1.63) (.72) (.10) (.07) (.15)
------- ------- ------- ------ ------
Net asset value, end of year...... $ 18.06 $ 16.92 $ 14.63 $12.80 $10.41
======= ======= ======= ====== ======
Total Return
Total investment return based on
net asset value(d)............... 16.99% 21.11% 15.17% 23.67% (3.77)%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)......................... $59,464 $42,920 $25,875 $8,242 $ 750
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................. .88% .88% .95% .95% .95%
Expenses, before waivers and
reimbursements................. .95% .88% 1.12% 4.49% 19.49%
Net investment income(b)........ 2.41% 2.46% 2.76% 3.16% 2.29%
Portfolio turnover rate........... 57% 65% 57% 30% 83%
</TABLE>
<TABLE>
<CAPTION>
International Portfolio
------------------------------------------
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 15.02 $ 14.89 $ 14.07 $ 12.88 $12.16
------- ------- ------- ------- ------
Income From Investment Operations
Net investment income(b)(c)....... .17 .13 .19 .18 .10
Net realized and unrealized gain
on investments and foreign
currency transactions............ 1.80 .39 .83 1.08 .72
------- ------- ------- ------- ------
Net increase in net asset value
from operations.................. 1.97 .52 1.02 1.26 .82
------- ------- ------- ------- ------
Less: Dividends and Distributions
Dividends from net investment
income........................... (.33) (.15) (.08) (.03) (.02)
Distributions from net realized
gains............................ (.49) (.24) (.12) (.04) (.08)
------- ------- ------- ------- ------
Total dividends and
distributions.................... (.82) (.39) (.20) (.07) (.10)
------- ------- ------- ------- ------
Net asset value, end of year...... $ 16.17 $ 15.02 $ 14.89 $ 14.07 $12.88
======= ======= ======= ======= ======
Total Return
Total investment return based on
net asset value(d)............... 13.02% 3.33% 7.25% 9.86% 6.70%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)......................... $65,052 $60,710 $44,324 $16,542 $7,276
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................. .95% .95% .95% .95% .95%
Expenses, before waivers and
reimbursements................. 1.37% 1.42% 1.91% 2.99% 7.26%
Net investment income(b)........ 1.08% .87% 1.29% 1.41% .90%
Portfolio turnover rate........... 117% 134% 60% 87% 95%
</TABLE>
- --------
See footnotes on page .
66
<PAGE>
<TABLE>
<CAPTION>
Global Bond Portfolio
------------------------------------------
Year Ended December 31,
------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 11.10 $ 11.74 $ 12.15 $ 9.82 $11.33
------- ------- ------- ------- ------
Income From Investment Operations
Net investment income(b)(c)....... .49 .54 .67 .69 .57
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions............ 1.06 (.48) .01 1.73 (1.16)
------- ------- ------- ------- ------
Net increase (decrease) in net
asset value from operations...... 1.55 .06 .68 2.42 (.59)
------- ------- ------- ------- ------
Less: Dividends and Distributions
Dividends from net investment
income........................... (.17) (.57) (.84) (.09) (.62)
Distributions from net realized
gains............................ (.06) (.13) (.25) -0- (.30)
------- ------- ------- ------- ------
Total dividends and
distributions.................... (.23) (.70) (1.09) (.09) (.92)
------- ------- ------- ------- ------
Net asset value, end of year...... $ 12.42 $ 11.10 $ 11.74 $ 12.15 $ 9.82
======= ======= ======= ======= ======
Total Return
Total investment return based on
net asset value(d)............... 14.12% .67% 6.21% 24.73% (5.16)%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)......................... $34,652 $22,194 $18,117 $11,553 $7,298
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................. .93% .94% .94% .95% .95%
Expenses, before waivers and
reimbursements................. 1.17% 1.03% 1.15% 1.77% 2.05%
Net investment income(b)........ 4.23% 4.81% 5.76% 6.22% 6.01%
Portfolio turnover rate........... 42% 257% 191% 262% 102%
</TABLE>
<TABLE>
<CAPTION>
North American Government Income Portfolio
-------------------------------------------------
May 3, 1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 12.97 $ 12.38 $ 10.48 $ 8.79 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net investment income(b)(c).. 1.16 1.07 1.26 1.13 .50
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions................ (.65) .10 .69 .83 (1.71)
------- ------- ------- ------ ------
Net increase (decrease) in
net asset value from
operations.................. .51 1.17 1.95 1.96 (1.21)
------- ------- ------- ------ ------
Less: Dividends and
Distributions
Dividends from net investment
income...................... (.82) (.58) (.05) (.27) -0-
Distributions from net
realized gains.............. (.11) -0- -0- -0- -0-
------- ------- ------- ------ ------
Total dividends and
distributions............... (.93) (.58) (.05) (.27) -0-
------- ------- ------- ------ ------
Net asset value, end of
period...................... $ 12.55 $ 12.97 $ 12.38 $10.48 $ 8.79
======= ======= ======= ====== ======
Total Return
Total investment return based
on net asset value(d)....... 4.07% 9.62% 18.70% 22.71% (12.10)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted)............. $32,059 $30,507 $16,696 $7,278 $3,848
Ratios to average net assets
of:
Expenses, net of waivers
and reimbursements........ .86% .95% .95% .95% .95%(e)
Expenses, before waivers
and reimbursements........ 1.17% 1.04% 1.41% 2.57% 4.43%(e)
Net investment income(b)... 9.16% 8.34% 11.04% 12.24% 8.49%(e)
Portfolio turnover rate...... 8% 20% 4% 35% 15%
</TABLE>
- --------
See footnotes on page .
67
<PAGE>
<TABLE>
<CAPTION>
Global Dollar Government Portfolio
-------------------------------------------------
May 2, 1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------ ------ --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 14.65 $ 14.32 $11.95 $ 9.84 $10.00
------- ------- ------ ------ ------
Income From Investment
Operations
Net investment income(b)(c).. 1.20 1.17 1.10 .92 .36
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions................ (4.03) .70 1.78 1.32 (.52)
------- ------- ------ ------ ------
Net increase (decrease) in
net asset value from
operations.................. (2.83) 1.87 2.88 2.24 (.16)
------- ------- ------ ------ ------
Less: Dividends and
Distributions
Dividends from net investment
income...................... (.95) (.61) (.48) (.13) -0-
Distributions from net
realized gains.............. (.69) (.93) (.03) -0- -0-
------- ------- ------ ------ ------
Total dividends and
distributions............... (1.64) (1.54) (.51) (.13) -0-
------- ------- ------ ------ ------
Net asset value, end of
period...................... $ 10.18 $ 14.65 $14.32 $11.95 $ 9.84
======= ======= ====== ====== ======
Total Return
Total investment return based
on net asset value(d)....... (21.71)% 13.23% 24.90% 22.98% (1.60)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted)............. $10,380 $15,378 $8,847 $3,778 $1,146
Ratios to average net assets
of:
Expenses, net of waivers
and reimbursements........ .95% .95% .95% .95% .95%(e)
Expenses, before waivers
and reimbursements........ 1.75% 1.29% 1.97% 4.82% 15.00%(e)
Net investment income(b)... 9.49% 7.87% 8.53% 8.65% 6.02%(e)
Portfolio turnover rate...... 166% 214% 155% 13% 9%
</TABLE>
<TABLE>
<CAPTION>
Utility Income Portfolio
--------------------------------------------------
May 10, 1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 15.67 $ 12.69 $ 12.01 $ 9.96 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net investment
income(b)(c).............. .37 .38 .31 .30 .28
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions.............. 3.31 2.84 .62 1.83 (.32)
------- ------- ------- ------ ------
Net increase (decrease) in
net asset value from
operations................ 3.68 3.22 .93 2.13 (.04)
------- ------- ------- ------ ------
Less: Dividends and
Distributions
Dividends from net
investment income......... (.31) (.24) (.09) (.08) -0-
Distributions from net
realized gains............ (.14) -0- (.16) -0- -0-
------- ------- ------- ------ ------
Total dividends and
distributions............. (.45) (.24) (.25) (.08) -0-
------- ------- ------- ------ ------
Net asset value, end of
period.................... $ 18.90 $ 15.67 $ 12.69 $12.01 $ 9.96
======= ======= ======= ====== ======
Total Return
Total investment return
based on net asset
value(d).................. 23.91% 25.71% 7.88% 21.45% (.40)%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted)........... $34,436 $20,347 $14,857 $6,251 $1,254
Ratios to average net
assets of:
Expenses, net of waivers
and reimbursements...... .95% .95% .95% .95% .95%(e)
Expenses, before waivers
and reimbursements...... 1.35% 1.08% 1.51% 3.79% 15.98%(e)
Net investment
income(b)............... 2.20% 2.83% 2.61% 2.73% 4.62%(e)
Portfolio turnover rate.... 20% 30% 75% 138% 31%
</TABLE>
- --------
See footnotes on page .
68
<PAGE>
<TABLE>
<CAPTION>
Worldwide Privatization Portfolio
------------------------------------------------
September 23,
1994(a)
Year Ended December 31, to
--------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 14.20 $ 13.13 $ 11.17 $10.10 $10.00
------- ------- ------- ------ ------
Income From Investment
Operations
Net investment income(b)(c)... .26 .25 .28 .32 .10
Net realized and unrealized
gain on investments and
foreign currency
transactions................. 1.29 1.17 1.78 .78 -0-
------- ------- ------- ------ ------
Net increase in net asset
value from operations........ 1.55 1.42 2.06 1.10 .10
------- ------- ------- ------ ------
Less: Dividends and
Distributions
Dividends from net investment
income....................... (.20) (.16) (.10) (.03) -0-
Distributions from net
realized gains............... (.74) (.19) -0- -0- -0-
------- ------- ------- ------ ------
Total dividends and
distributions................ (.94) (.35) (.10) (.03) -0-
------- ------- ------- ------ ------
Net asset value, end of
period....................... $ 14.81 $ 14.20 $ 13.13 $11.17 $10.10
======= ======= ======= ====== ======
Total Return
Total investment return based
on net asset value(d)........ 10.83% 10.75% 18.51% 10.87% 1.00%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted).............. $46,268 $41,818 $18,807 $5,947 $1,127
Ratios to average net assets
of:
Expenses, net of waivers and
reimbursements............. .95% .95% .95% .95% .95%(e)
Expenses, before waivers and
reimbursements............. 1.70% 1.55% 1.85% 4.17% 18.47%(e)
Net investment income(b).... 1.74% 1.76% 2.26% 2.96% 4.27%(e)
Portfolio turnover rate....... 92% 58% 47% 23% 0%
</TABLE>
<TABLE>
<CAPTION>
Quasar Portfolio
---------------------------------------
August 5,
Year Ended December 31, 1996(a) to
------------------------- December 31,
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 12.61 $ 10.64 $10.00
----------- ----------- ------
Income From Investment Operations
Net investment income(b)(c).......... .07 .02 .04
Net realized and unrealized gain
(loss) on investment transactions... (.49) 1.96 .60
----------- ----------- ------
Net increase (decrease) in net asset
value from operations............... (.42) 1.98 .64
----------- ----------- ------
Less: Dividends and Distributions
Dividends from net investment
income.............................. (.01) (.01) -0-
Distributions from net realized
gains............................... (1.04) -0- -0-
----------- ----------- ------
Total dividends and distributions.... (1.05) (.01) -0-
----------- ----------- ------
Net asset value, end of period....... $ 11.14 $ 12.61 $10.64
=========== =========== ======
Total Return
Total investment return based on net
asset value(d)...................... (4.49)% 18.60% 6.40%
Ratios/Supplemental Data
Net assets, end of period (000's
omitted)............................ $ 90,870 $ 59,277 $8,842
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements.................... .95% .95% .95%(e)
Expenses, before waivers and
reimbursements.................... 1.30% 1.37% 4.44%(e)
Net investment income(b)........... .55% .17% .93%(e)
Portfolio turnover rate.............. 107% 210% 40%
</TABLE>
- --------
See footnotes on page .
69
<PAGE>
<TABLE>
<CAPTION>
Real Estate Investment
Portfolio
-------------------------
January 9,
Year Ended 1997(a) to
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Net asset value, beginning of period............... $ 12.34 $ 10.00
------- -------
Income From Investment Operations
Net investment income(b)(c)........................ .54 .56
Net realized and unrealized gain (loss) on
investment transactions........................... (2.87) 1.78
------- -------
Net increase (decrease) in net asset value from
operations........................................ (2.33) 2.34
------- -------
Less: Dividends and Distributions
Dividends from net investment income............... (.16) -0-
Distributions from net realized gains.............. (.07) -0-
------- -------
Total dividends and distributions.................. (.23) -0-
------- -------
Net asset value, end of period..................... $ 9.78 $ 12.34
======= =======
Total Return
Total investment return based on net asset
value(d).......................................... (19.07)% 23.40%
Ratios/Supplemental Data
Net assets, end of period (000's omitted).......... $17,080 $13,694
Ratios to average net assets of:
Expenses, net of waivers and reimbursements...... .95% .95%(e)
Expenses, before waivers and reimbursements...... 1.77% 2.31%(e)
Net investment income(b)......................... 4.98% 5.47%(e)
Portfolio turnover rate............................ 27% 26%
</TABLE>
<TABLE>
<CAPTION>
Money Market Portfolio
----------------------------------------------------
Year Ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------
Income From Investment
Operations
Net investment income... .05 .05(b) .05(b) .05(b) .03(b)
-------- ------- ------- ------- ------
Less: Dividends
Dividends from net
investment income...... (.05) (.05) (.05) (.05) (.03)
-------- ------- ------- ------- ------
Net asset value, end of
year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======
Total Return
Total investment return
based on net asset
value(d)............... 4.98% 5.11% 4.71% 4.97% 3.27%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)........ $119,574 $67,584 $64,769 $28,092 $6,899
Ratios to average net
assets of:
Expenses, net of
waivers and
reimbursements....... .68% .64% .69% .95% .95%
Expenses, before
waivers and
reimbursements....... .68% .64% .69% 1.07% 4.46%
Net investment
income............... 4.84% 5.00%(b) 4.64%(b) 4.85%(b) 3.98%(b)
</TABLE>
- --------
See footnotes on page .
70
<PAGE>
<TABLE>
<CAPTION>
Premier Growth Portfolio
------------------------------------------------
Year Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year................... $ 20.99 $ 15.70 $ 17.80 $ 12.37 $ 12.79
---------- -------- ------- ------- -------
Income From Investment
Operations
Net investment income
(loss)(b)(c).............. (.01) .04 .08 .09 .03
Net realized and unrealized
gain (loss) on investment
transactions.............. 10.08 5.27 3.29 5.44 (.41)
---------- -------- ------- ------- -------
Net increase (decrease) in
net asset value from
operations................ 10.07 5.31 3.37 5.53 (.38)
---------- -------- ------- ------- -------
Less: Dividends and
Distributions
Dividends from net
investment income......... (.03) (.02) (.10) (.03) (.01)
Distributions from net
realized gains............ -0- -0- (5.37) (.07) (.03)
---------- -------- ------- ------- -------
Total dividends and
distributions............. (.03) (.02) (5.47) (.10) (.04)
---------- -------- ------- ------- -------
Net asset value, end of
year...................... $ 31.03 $ 20.99 $ 15.70 $ 17.80 $ 12.37
========== ======== ======= ======= =======
Total Return
Total investment return
based on net asset
value(d).................. 47.97% 33.86% 22.70% 44.85% (2.96)%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)........... $1,247,254 $472,326 $96,434 $29,278 $37,669
Ratios to average net
assets of:
Expenses, net of waivers
and reimbursements...... 1.06% .95% .95% .95% .95%
Expenses, before waivers
and reimbursements...... 1.09% 1.10% 1.23% 1.19% 1.40%
Net investment income
(loss)(b)............... (.04)% .21% .52% .55% .42%
Portfolio turnover rate.... 31% 27% 32% 97% 38%
</TABLE>
<TABLE>
<CAPTION>
Growth and Income Portfolio
----------------------------------------------
Year Ended December 31,
----------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $ 19.93 $ 16.40 $ 15.79 $ 11.85 $ 12.18
-------- -------- -------- ------- -------
Income From Investment
Operations
Net investment income(b)(c).. .22 .21 .24 .27 .10
Net realized and unrealized
gain (loss) on investment
transactions................ 3.81 4.39 3.18 3.94 (.16)
-------- -------- -------- ------- -------
Net increase (decrease) in
net asset value from
operations.................. 4.03 4.60 3.42 4.21 (.06)
-------- -------- -------- ------- -------
Less: Dividends and
Distributions
Dividends from net investment
income...................... (.16) (.13) (.25) (.13) (.10)
Distributions from net
realized gains.............. (1.96) (.94) (2.56) (.14) (.17)
-------- -------- -------- ------- -------
Total dividends and
distributions............... (2.12) (1.07) (2.81) (.27) (.27)
-------- -------- -------- ------- -------
Net asset value, end of
year........................ $ 21.84 $ 19.93 $ 16.40 $ 15.79 $ 11.85
======== ======== ======== ======= =======
Total Return
Total investment return based
on net asset value(d)....... 20.89% 28.80% 24.09% 35.76% (.35)%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)............. $381,614 $250,202 $126,729 $41,993 $41,702
Ratios to average net assets
of:
Expenses, net of waivers
and reimbursements........ .73% .72% .82% .79% .90%
Expenses, before waivers
and reimbursements........ .73% .72% .82% .79% .91%
Net investment income(b)... 1.07% 1.16% 1.58% 1.95% 1.71%
Portfolio turnover rate...... 79% 86% 87% 150% 95%
</TABLE>
- --------
See footnotes on page .
71
<PAGE>
<TABLE>
<CAPTION>
Growth Portfolio
----------------------------------------------------
September 15,
1994(a)
Year Ended December 31, to
------------------------------------- December 31,
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 22.42 $ 17.92 $ 14.23 $ 10.53 $10.00
-------- -------- -------- ------- ------
Income From Investment
Operations
Net investment
income(b)(c)............ .10 .07 .06 .17 .03
Net realized and
unrealized gain on
investment
transactions............ 6.19 5.18 3.95 3.54 .50
-------- -------- -------- ------- ------
Net increase in net asset
value from operations... 6.29 5.25 4.01 3.71 .53
-------- -------- -------- ------- ------
Less: Dividends and
Distributions
Dividends from net
investment income....... (.06) (.03) (.04) (.01) -0-
Distributions from net
realized gains.......... (1.40) (.72) (.28) -0- -0-
-------- -------- -------- ------- ------
Total dividends and
distributions........... (1.46) (.75) (.32) (.01) -0-
-------- -------- -------- ------- ------
Net asset value, end of
period.................. $ 27.25 $ 22.42 $ 17.92 $ 14.23 $10.53
======== ======== ======== ======= ======
Total Return
Total investment return
based on net asset
value(d)................ 28.73% 30.02% 28.49% 35.23% 5.30%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted)......... $328,681 $235,875 $138,688 $45,220 $5,492
Ratios to average net
assets of:
Expenses, net of
waivers and
reimbursements........ .87% .84% .93% .95% .95%(e)
Expenses, before
waivers and
reimbursements........ .87% .84% .93% 1.27% 4.19%(e)
Net investment
income(b)............. .43% .37% .35% 1.31% 1.17%(e)
Portfolio turnover rate.. 62% 62% 98% 86% 25%
</TABLE>
<TABLE>
<CAPTION>
Technology Portfolio
----------------------------------------
January 11,
1996(a)
Year Ended December 31, to
-------------------------- December 31,
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Net asset value, beginning of
period............................. $ 11.72 $ 11.04 $ 10.00
------------ ----------- -------
Income From Investment Operations
Net investment income (loss)(b)(c).. (.04) .02 .11
Net realized and unrealized gain on
investment transactions............ 7.51 .69 .93
------------ ----------- -------
Net increase in net asset value from
operations......................... 7.47 .71 1.04
------------ ----------- -------
Less: Dividends
Dividends from net investment
income............................. (.02) (.03) -0-
------------ ----------- -------
Net asset value, end of period...... $ 19.17 $ 11.72 $ 11.04
============ =========== =======
Total Return
Total investment return based on net
asset value(d)..................... 63.79% 6.47% 10.40%
Ratios/Supplemental Data
Net assets, end of period (000's
omitted)........................... $ 130,602 $ 69,240 $28,083
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................... .95% .95% .95%(e)
Expenses, before waivers and
reimbursements................... 1.20% 1.19% 1.62%(e)
Net investment income (loss)(b)... (.30)% .16% 1.17%(e)
Portfolio turnover rate............. 63% 46% 22%
</TABLE>
- --------
Footnotes:
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return
calculated for a period of less than one year is not annualized.
(e) Annualized.
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<PAGE>
APPENDIX A
BOND RATINGS
Moody's Investors Service, Inc.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
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<PAGE>
Suspension or withdrawal may occur if: new and material circumstances arise,
the effects of which preclude satisfactory analysis; there is no longer
available reasonable up-to-date data to permit a judgment to be formed; or a
bond is called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Standard & Poor's Ratings Services
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
74
<PAGE>
Duff & Phelps Credit Rating Co.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- --High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- --Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- --Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- --Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC--Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP--Preferred stock with dividend arrearages.
Fitch Ibca, Inc.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
75
<PAGE>
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
76
<PAGE>
APPENDIX B
GENERAL INFORMATION
ABOUT THE UNITED KINGDOM, JAPAN, CANADA,
MEXICO AND ARGENTINA
General Information About the United Kingdom
Investment in securities of United Kingdom issuers involves certain
considerations not present with investment in securities of U.S. issuers. As
with any investment not denominated in the U.S. Dollar, the U.S. Dollar value
of a Portfolio's investment denominated in the British pound sterling will
fluctuate with pound sterling-dollar exchange rate movements. Between 1972,
when the pound sterling was allowed to float against other currencies, and the
end of 1992, the pound sterling generally depreciated against most major
currencies, including the U.S. Dollar. Between September and December 1992,
after the United Kingdom's exit from the Exchange Rate Mechanism of the
European Monetary System, the value of the pound sterling fell by almost 20%
against the U.S. Dollar. The pound sterling has since recovered due to interest
rate cuts throughout Europe and an upturn in the economy of the United Kingdom.
The average exchange rate of the U.S. Dollar to the pound sterling was 1.50 in
1993 and 1.66 in 1998. On April 15, 1999 the U.S. Dollar-pound sterling
exchange rate was 1.61.
The United Kingdom's largest stock exchange is the London Stock Exchange, which
is the third largest exchange in the world. As measured by the FT-SE 100 index,
the performance of the 100 largest companies in the United Kingdom reached
5,882.6 at the end of 1998, up approximately 15% from the end of 1997. The FT-
SE 100 index closed at 6466.1 on April 15, 1999.
The Economic and Monetary Union ("EMU") became effective on January 1, 1999.
When fully implemented in 2002, the EMU will establish a common currency for
European countries that meet the eligibility criteria and choose to
participate. Although the United Kingdom meets the eligibility criteria, the
government has not taken any action to join the EMU.
From 1979 until 1997 the Conservative Party controlled Parliament. In the May
1, 1997 general elections, however, the Labour Party, led by Tony Blair, won a
majority in Parliament, holding 418 of 658 seats in the House of Commons. Mr.
Blair, who was appointed Prime Minister, has launched a number of reform
initiatives, including an overhaul of the monetary policy framework intended to
protect monetary policy from political forces by vesting responsibility for
setting interest rates in a new Monetary Policy Committee headed by the
Governor of the Bank of England, as opposed to the Treasury. Prime Minister
Blair has also undertaken a comprehensive restructuring of the regulation of
the financial services industry.
General Information About Japan
Investment in securities of Japanese issuers involves certain considerations
not present with investment in securities of U.S. issuers. As with any
investment not denominated in the U.S. Dollar, the U.S. Dollar value of each
Portfolio's investments denominated in the Japanese yen will fluctuate with
yen-dollar exchange rate movements. Between 1985 and 1995, the Japanese yen
generally appreciated against the U.S. Dollar, but has since fallen from its
post-World War II high (in 1995) against the U.S. Dollar.
Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section
of which is reserved for larger, established companies. As measured by the
TOPIX, a capitalization-weighted composite index of all common stocks listed in
the First Section, the performance of the First Section reached a peak in 1989.
Thereafter, the TOPIX declined approximately 50% through the end of 1997. On
December 31, 1998 the TOPIX closed at 1086.99, down approximately 7% from the
end of 1997. Certain valuation measures, such as price-to-book value and price-
to-cash flow ratios, indicate that the Japanese stock market is near its lowest
level in the last twenty years relative to other world markets.
77
<PAGE>
In recent years, Japan has consistently recorded large current account trade
surpluses with the U.S. that have caused difficulties in the relations between
the two countries. On October 1, 1994, the U.S. and Japan reached an agreement
that may lead to more open Japanese markets with respect to trade in certain
goods and services. In June 1995, the two countries agreed in principle to
increase Japanese imports of American automobiles and automotive parts.
Nevertheless it is expected that the continuing friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.
Each Portfolio's investments in Japanese issuers will be subject to uncertainty
resulting from the instability of recent Japanese ruling coalitions. From 1955
to 1993, Japan's government was controlled by a single political party. Between
August 1993 and October 1996 Japan was ruled by a series of four coalition
governments. As the result of a general election on October 20, 1996, however,
Japan returned to a single-party government led by Ryutaro Hashimoto, a member
of the Liberal Democratic Party ("LDP"). While the LDP does not control a
majority of the seats in the parliament, subsequent to the 1996 elections it
established a majority in the House of Representatives as individual members
joined the ruling party. The popularity of the LDP declined, however, due to
the dissatisfaction with Mr. Hashimoto's leadership. In the July 1998 House of
Councillors election, the LDP's representation fell to 103 seats from 120
seats. As a result of the LDP's defeat, Mr. Hashimoto resigned as prime
minister and leader of the LDP. Mr. Hashimoto was replaced by Keizo Obuchi. On
January 14, 1999, the LDP formed a coalition government with a major opposition
party. As a result, Mr. Obuchi's administration strengthened its position in
the parliament, where it increased its majority in the House of Representatives
and reduced its shortfall in the House of Councillors. For the past several
years, Japan's banking industry has been weakened by a significant amount of
problem loans. Japan's banks also have significant exposure to the current
financial turmoil in other Asian markets. Following the insolvency of one of
Japan's largest banks in November 1997, the government proposed several plans
designed to strengthen the weakened banking sector. In October 1998, the
Japanese parliament approved several new laws that have made $508 billion in
public funds available to increase the capital of Japanese banks, to guarantee
depositors' accounts and to nationalize the weakest banks. It is unclear
whether these new laws will achieve their intended effect.
General Information About Canada
Canada consists of a federation of ten Provinces and three federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial governments. The Parliament of
Canada has jurisdiction over all areas not assigned exclusively to the
Provincial legislatures, and has jurisdiction over such matters as the federal
public debt and property, the regulation of trade and commerce, currency and
coinage, banks and banking, national defense, the postal services, navigation
and shipping and unemployment insurance.
The Canadian economy is based on the free enterprise system, with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely goods-
producing economy to a predominantly service-based one. Agriculture and other
primary production play a small but key role in the economy. Canada is also an
exporter of energy to the United States in the form of natural gas (of which
Canada has substantial reserves) and hydroelectric power, and has significant
mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed-country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Since 1991, Canada generally has experienced a weakening of
its currency. The Canadian Dollar reached an all-time low of 1.5770 Canadian
Dollars per U.S. Dollar on August 27, 1998. On April 15, 1999 the Canadian
Dollar-U.S. Dollar exchange rate was 1.4882:1. The range of fluctuation that
has occurred in the past is not necessarily indicative of the range of
fluctuation that will occur in the future. Future rates of exchange cannot be
accurately predicted.
78
<PAGE>
General Information About The United Mexican States
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including growth in gross domestic product
and a substantial reduction in the rate of inflation and in the public sector
financial deficit. Much of the past improvement in the Mexican economy was due
to a series of economic policy initiatives intended to modernize and reform the
Mexican economy, control inflation, reduce the financial deficit, increase
public revenues through the reform of the tax system, establish a competitive
and stable currency exchange rate, liberalize trade restrictions and increase
investment and productivity, while reducing the government's role in the
economy. In this regard, the Mexican government launched a program for
privatizing certain state owned enterprises, developing and modernizing the
securities markets, increasing investment in the private sector and permitting
increased levels of foreign investment.
In 1994, Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by
inflows of foreign capital, were factors contributing to the crisis. A
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a large
decline in foreign reserves followed by a sharp and rapid devaluation of the
Mexican Peso. The ensuing economic and financial crisis resulted in higher
inflation and domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and the
government and the business and labor sectors of the economy entered into a new
accord in an effort to stabilize the economy and the financial markets. To help
relieve Mexico's liquidity crisis and restore financial stability to Mexico's
economy, the Mexican government also obtained financial assistance from the
United States, other countries and certain international agencies conditioned
upon the implementation and continuation of the economic reform program.
In October 1995, and again in October 1996, the Mexican government announced
new accords designed to encourage economic growth and reduce inflation. While
it cannot be accurately predicted whether these accords will continue to
achieve their objectives, the Mexican economy has stabilized since the economic
crisis of 1994, and the high inflation and high interest rates that continued
to be a factor after 1994 have subsided as well. After declining for five
consecutive quarters beginning with the first quarter of 1995, Mexico's gross
domestic product began to grow in the second quarter of 1996. That growth was
sustained in 1996 and 1997, resulting in increases of 5.2% and 7.0%,
respectively. The growth rate for 1998 was 4.6%. In addition, inflation dropped
from a 52% annual rate in 1995 to a 27.7% annual rate in 1996 and a 15.7%
annual rate in 1997. In 1998, the inflation rate was 18.6%. Mexico's economy is
influenced by international economic conditions, particularly those in the
United States, and by world prices for oil and other commodities. The recovery
of the economy will require continued economic and fiscal discipline as well as
stable political and social conditions. In addition, there is no assurance that
Mexico's economic policy initiatives will be successful or that succeeding
administrations will continue these initiatives.
Under economic policy initiatives implemented on and after December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float freely against
other currencies, resulting in a precipitous decline against the U.S. Dollar.
By December 31, 1996, the Peso-Dollar exchange rate had decreased approximately
40% from that on December 22, 1994. After dropping approximately 55% from 1994
79
<PAGE>
through 1996, in 1997, the average annual Peso-Dollar exchange rate decreased
approximately 4% from that in 1996. In 1998, the average annual Peso-Dollar
exchange rate was approximately 16% less than that in 1997.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the
Portfolio's ability to obtain U.S. Dollars in exchange for Mexican Pesos.
General Information About The Republic of Argentina
The Republic of Argentina ("Argentina") consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government. The
military has intervened in the political process on several occasions since
1930 and has ruled the country for 22 of the past 69 years. The most recent
military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including an aggressive privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the announcement of a new economic plan in March 1991,
the Argentine economy was characterized by low and erratic growth, declining
investment rates and rapidly worsening inflation. Despite its strengths, which
include a well-balanced natural resource base and a high literacy rate, the
Argentine economy failed to respond to a series of economic plans in the
1980's. The 1991 economic plan represented a pronounced departure from its
predecessors in calling for raising revenues, cutting expenditures and reducing
the public deficit. The extensive privatization program commenced in 1989 was
accelerated, the domestic economy deregulated and opened up to foreign trade
and the frame-work for foreign investment reformed. As a result of the economic
stabilization reforms, gross domestic product has increased each year since
1991, with the exception of 1995. During 1998, gross domestic product increased
an estimated 4.2% from 1997. The rate of inflation is generally viewed to be
under control. Significant progress was also made between 1991 and 1994 in
rescheduling Argentina's debt with both external and domestic creditors, which
improved fiscal cash flows in the medium term and allowed a return to voluntary
credit markets. There is no assurance that Argentina's economic policy
initiatives will be successful or that succeeding administrations will continue
these initiatives.
In 1995, economic policy was directed toward the effects of the Mexican
currency crisis. The Mexican currency crisis led to a run on Argentine bank
deposits, which was brought under control by a series of measures designed to
strengthen the financial system. The measures included the "dollarization" of
banking reserves, the establishment of two trust funds and strengthening bank
reserve requirements.
In 1991, the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by international reserves, in an effort to
make the Argentine Peso fully convertible into the U.S. Dollar at a rate of one
to one.
The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been
instrumental in stabilizing the economy, but has not reduced pressures from
high rates of unemployment. It is not clear that the government will be able to
resist pressure to devalue the currency. However, the historic range is not
necessarily indicative of fluctuations that may occur in the exchange rate over
time and future rates of exchange cannot be accurately predicted. The Argentine
foreign exchange market was highly controlled until December 1989, when a free
exchange rate was established for all foreign currency transactions. Argentina
has eliminated restrictions on foreign direct investment and capital
repatriation. In 1993, legislation was adopted abolishing previous requirements
of a three-year waiting period for capital repatriation. Under the legislation,
foreign investors are permitted to remit profits at any time.
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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.
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