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This is filed pursuant to Rule 497(e).
File Nos.: 33-18647 and 811-05398
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Class A Prospectus
ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.
May 1, 2000
Short-Term Multi-Market Portfolio
This Prospectus describes the Portfolio that is available as an underlying
investment through your variable contract. For information about your
variable contract, including information about insurance-related
expenses, see the prospectus for your variable contract which
accompanies this Prospectus.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this
Prospectus. Any representation to the contrary is a
criminal offense.
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INVESTMENT PRODUCTS OFFERED
. ARE NOT FDIC INSURED
. MAY LOSE VALUE
. ARE NOT BANK GUARANTEED
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TABLE OF CONTENTS
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Page
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RISK/RETURN SUMMARY........................................................ 4
Summary of Principal Risks............................................... 7
GLOSSARY................................................................... 9
DESCRIPTION OF THE PORTFOLIO............................................... 10
Investment Objectives and Principal Policies and Risks................... 10
Description of Additional Investment Practices........................... 11
Additional Risk Considerations........................................... 17
MANAGEMENT OF THE PORTFOLIO................................................ 20
PURCHASE AND SALE OF SHARES................................................ 21
How The Portfolio Values Its Shares...................................... 21
How To Purchase and Sell Shares.......................................... 21
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 21
FINANCIAL HIGHLIGHTS....................................................... 22
APPENDIX A................................................................. 23
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Alliance Variable Products Series Fund's investment adviser is Alliance Capital
Management L.P., a global investment manager providing diversified services to
institutions and individuals through a broad line of investments including more
than 100 mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about Alliance Variable
Products Series Fund. You will find additional information about the Portfolio
of the Fund, including a detailed description of the risks of an investment in
the Portfolio, after this summary.
The Risk/Return Summary describes the Portfolio's objectives, principal
investment strategies and principal risks. The Portfolio's summary includes a
discussion of some of the principal risks of investing in the Portfolio. A
further discussion of these and other risks starts on page 7.
More detailed descriptions of the Portfolio, including the risks associated
with investing in the Portfolio, can be found further back in this Prospectus.
Please be sure to read this additional information BEFORE you invest.
The Risk/Return Summary includes a table for the 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 the
Portfolio by showing:
. how the Portfolio's average annual returns for one, five, and 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old) compare to those of a broad based securities market index;
and
. changes in the Portfolio's performance from year to year over 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old).
If the Portfolio's returns reflected fees charged by your variable contract,
the returns shown in the table and bar chart for the Portfolio would be lower.
The Portfolio's past performance, of course, does not necessarily indicate how
it will perform in the future. As with all investments, you may lose money by
investing in the Portfolio.
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Short-Term Multi-Market 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 high-
quality debt securities having remaining maturities of not more than three
years.
Principal Investment Strategies and Risks: The Portfolio invests in high-
quality debt securities having remaining maturities of not more than three
years, with a high proportion of investments in money market instruments.
The Portfolio seeks investment opportunities in foreign and domestic
securities markets. While the Portfolio normally maintains a substantial
portion of its assets in debt securities denominated in foreign
currencies, it invests at least 25% of its net assets in U.S. Dollar-
denominated debt securities. The Portfolio limits its investments in a
single currency other than the U.S. Dollar to 25% of its net assets except
for the Euro in which the Portfolio may invest up to 50% of its net
assets.
The Portfolio concentrates at least 25% of its total assets in debt
instruments issued by domestic and foreign banking companies. A high
proportion of the Portfolio's investments normally consists of money
market instruments.
The Portfolio also may:
.use derivatives strategies;
.invest in prime commercial paper or unrated paper of equivalent quality;
.enter into repurchase agreements; and
.invest in variable, floating, and inverse floating rate instruments.
Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk and market risk. The Portfolio's investments in debt
securities denominated in foreign currencies have foreign risk and
currency risk. In addition, the Portfolio is non-diversified, which means
that it invests more of its assets in a smaller number of issuers than
many other funds. Factors affecting those issuers can have a more
significant effect on the Portfolio's net asset value.
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The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
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Since
1 Year 5 Years Inception
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Portfolio......................................... 3.51% 6.13% 4.19%
Merrill Lynch 1-3 Year Treasury Index............. 3.06% 6.51% 6.33%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1999. Since Inception return information is from November 28, 1990
for the Portfolio and November 30, 1990 for the Index.
Bar Chart
[BAR CHART]
90 91 92 93 94 95 96 97 98 99
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A 6.9 0.8 6.6 -6.5 6.8 9.6 4.6 6.3 3.5
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 5.55%, 2nd quarter, 1995; and
Worst quarter was down -7.3%, 4th quarter, 1994.
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SUMMARY OF PRINCIPAL RISKS
The value of your investment in the Portfolio will change with changes in the
values of the Portfolio's investments. Many factors can affect those values. In
this Summary, we describe the principal risks that may affect the Portfolio's
investments as a whole. The Portfolio could be subject to additional principal
risks because the types of investments made by the 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 Additional
Investment Practices" or "Additional Risk Considerations." These sections also
include more information about the Portfolio, its investments, and related
risks.
. Interest Rate Risk This is the risk that changes in interest rates will
affect the value of the 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 the Portfolio's investments in
fixed-income securities. Increases in interest rates may cause the
value of the Portfolio's investments to decline.
Interest rate risk is generally greater for debt securities with longer
maturities. The value of these securities is affected more by changes
in interest rates because when interest rates rise, the maturities of
these types 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 Portfolio must reinvest
its assets in debt securities with lower interest rates.
. 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.
Because the Portfolio invests in foreign securities it is subject to
increased credit risk because of the difficulties of requiring foreign
entities to honor their contractual commitments, and because a number
of issuers are already in default.
. Market Risk This is the risk that the value of the Portfolio's
investments will fluctuate as the stock or bond markets fluctuate and
that prices overall will decline over shorter or longer-term periods.
. Foreign Risk This is the risk of investments in issuers located in
foreign countries. The Portfolio's investments in foreign securities
may experience more rapid and extreme changes in value than investments
in securities of U.S. companies. This is because the securities markets
of many foreign countries are relatively small, with a limited number
of companies representing a small number of industries. Additionally,
foreign securities issuers are not usually 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. Also, nationalization, expropriation or
confiscatory taxation, currency blockage, political changes, or
diplomatic developments could adversely affect the Portfolio's
investments in a foreign country. In the event of nationalization,
expropriation, or other confiscation, the Portfolio could lose its
entire investment.
. Currency Risk This is the risk that fluctuations in the exchange rates
between the U.S. Dollar and foreign currencies may negatively affect
the value of the Portfolio's investments.
. Leveraging Risk When the Portfolio borrows money or otherwise leverages
its portfolio, the value of an investment in the Portfolio will be more
volatile and all other risks will tend to be compounded. The Portfolios
may create leverage by using derivatives, or by borrowing money.
. Derivatives Risk The Portfolio 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
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will sometimes use derivatives as part of a strategy designed to reduce
other risks. Generally, however, the Portfolio uses 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 the Portfolio from
selling out of these illiquid securities at an advantageous price. The
Portfolio may be subject to greater liquidity risk if it uses
derivatives or invests in securities having substantial interest rate
and credit risk. In addition, liquidity risk tends to increase to the
extent the Portfolio invests in securities whose sale may be restricted
by law or by contract.
. Management Risk The Portfolio is subject to management risk because it
is an actively managed investment portfolio. Alliance will apply its
investment techniques and risk analyses in making investment decisions
for the Portfolio, 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 the Portfolio.
. Focused Portfolio Risk The Portfolio may have more risk because it is
"non-diversified" meaning that it can invest more of its assets in a
smaller number of companies than many other funds, because changes in
the value of a single security may have a more significant effect on
the Portfolio's net asset value.
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GLOSSARY
This Prospectus uses the following terms.
Types of Securities
Bonds are fixed, floating, and variable rate debt obligations.
Debt securities are bonds, debentures, notes, and bills.
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Fixed-income securities are debt securities and preferred stocks, including
floating rate and variable rate instruments.
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.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Rating Agencies and Rated Securities
Duff & Phelps is Duff & Phelps Credit Rating Company.
Fitch is Fitch IBCA, Inc.
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.
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.
Securities Act is the Securities Act of 1933, as amended.
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DESCRIPTION OF THE PORTFOLIO
This section of the Prospectus provides a more complete description of the
Portfolio's investment objectives, principal strategies and risks. Of course,
there can be no assurance that the Portfolio will achieve its investment
objective.
Please note that:
. Additional discussion of the Portfolio's investments, including the
risks of the investments, can be found in the discussion under
Description of Additional Investment Practices following this section.
. The description of the principal risks for the Portfolio may include
risks described in the Summary of Principal Risks above. Additional
information about the risks of investing in the Portfolio can be found
in the discussion under Additional Risk Considerations.
. Additional descriptions of the Portfolio's strategies, investments and
risks can be found in the Fund'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 PRINCIPAL POLICIES AND RISKS
Short-Term Multi-Market Portfolio
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 high-quality debt securities having
remaining maturities of not more than three years. The Portfolio is designed
for the investor who seeks a higher yield than a money market fund or
certificate of deposit and less fluctuation in net asset value than a longer-
term bond fund.
The Portfolio invests in debt securities denominated in the U.S. Dollar (at
least 25% of its net assets) and selected foreign currencies. The Portfolio
seeks investment opportunities in foreign, as well as domestic, securities
markets. The Portfolio will normally maintain a substantial portion of its
assets in debt securities denominated in foreign currencies. The Portfolio
limits its investments in a single currency other than the U.S. Dollar to 25%
of its net assets except for the Euro in which the Portfolio may invest up to
50% of its net assets.
In pursuing its investment objective, the Portfolio seeks to minimize credit
risk and fluctuations in net asset value by investing only in shorter-term debt
securities. Normally, a high proportion of the Portfolio's investments consist
of money market instruments. Alliance actively manages the Portfolio in
accordance with a multi-market investment strategy, allocating the Portfolio's
investments among securities denominated in the U.S. Dollar and the currencies
of a number of foreign countries and, within each such country, among different
types of debt securities. Alliance adjusts the Portfolio's exposure to each
currency based on its perception of the most favorable markets and issuers. The
percentage of assets invested in securities of a particular country or
denominated in a particular currency varies in accordance with the Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relative strength of a country's currency. Fundamental economic
strength, credit quality and interest rate trends are the principal factors
considered by Alliance in determining whether to increase or decrease the
emphasis placed upon a particular type of security or industry sector within
the Portfolio's investment portfolio.
The returns available from short-term foreign currency denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including "cross-
hedges" can help protect against declines in the U.S. Dollar value of income
available for distribution
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to shareholders and declines in the net asset value of the Portfolio's shares
resulting from adverse changes in the currency exchange rates. The Portfolio
invests in debt securities denominated in the currencies of countries whose
governments are considered stable by Alliance.
The Portfolio expects to invest in debt securities denominated in the Euro. An
issuer of debt securities purchased by the Portfolio may be domiciled in a
country other than the country in whose currency the instrument is denominated.
In addition, the Portfolio may purchase debt securities (sometimes referred to
as "linked" securities) that are denominated in one currency while the
principal amounts of, and value of interest payments on, such securities are
determined with reference to another currency.
The Portfolio seeks to minimize investment risk by limiting its investments to
debt securities of high-quality and invests in:
. U.S. Government securities;
. foreign government and supranational organization debt securities;
. corporate debt securities;
. certificates of deposit and bankers' acceptances issued or guaranteed
by, or time deposits maintained at, banks (including foreign branches
of U.S. banks or U.S. or foreign branches of foreign banks) having
total assets of more than $500 million and determined by Alliance to be
of high quality; and
. prime commercial paper (or unrated commercial paper of equivalent
quality) issued by U.S. or foreign companies having outstanding high-
quality debt securities.
As a matter of fundamental policy, the Portfolio concentrates at least 25% of
its total assets in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies. These
investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks.
The Portfolio also may:
. invest in indexed commercial paper;
. enter into futures contracts and purchase and write options on futures
contracts and privately negotiated options on securities;
. purchase and write put and call options on foreign currencies;
. purchase or sell forward foreign currency exchange contracts;
. enter into interest rate swaps, caps and floors;
. invest in variable, floating, and inverse floating rate instruments;
. make secured loans of portfolio securities of up to 20% of its net
assets;
. invest up to 10% of its total assets in illiquid securities; and
. enter into repurchase agreements.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
This section describes the Portfolio's investment practices and associated
risks. Unless otherwise noted, the Portfolio's use of any of these practices
was specified in the previous section.
Derivatives. The Portfolio may use derivatives to achieve its 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,
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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 Portfolio 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. The Portfolio is permitted to use derivatives
for one or more of these purposes, although the Portfolio generally uses
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. The 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. The Portfolio will generally make extensive use of carefully
selected forwards and other derivatives to achieve the currency hedging that is
an integral part of its investment strategy. Alliance's use of derivatives is
subject to continuous risk assessment and control from the standpoint of the
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,
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currency exchange rates in the case of currency swaps) for a specified
amount of an underlying asset (the "notional" principal amount). The
payment flows are netted against each other, with the difference being
paid by one party to the other. Except for currency swaps, the notional
principal amount is used solely to calculate the payment streams but is
not exchanged. With respect to currency swaps, actual principal amounts
of currencies may be exchanged by the counterparties at the initiation,
and again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the cash
flows from an underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the securities.
While the judicious use of derivatives by highly-experienced investment
managers such as Alliance can be quite beneficial, derivatives involve risks
different from, and, in certain cases, greater than, the risks presented by
more traditional investments. The following is a general discussion of
important risk factors and issues relating to the use of derivatives that
investors should understand before investing in the 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 the
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 the
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 Portfolio considers 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.
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. 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 the 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, the 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 Portfolio. The following describes specific derivatives
that the Portfolio may use.
Forward Foreign Currency Exchange Contracts. The 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. The Portfolio may enter into a forward contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price
of the security (a "transaction hedge"). When the 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,
the 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. The 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
the 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). The Portfolio may enter
into interest rate swap, cap, or floor transaction and 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 Portfolio does not intend to use these transactions in a
speculative manner.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate swaps are
entered 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. The
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.
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<PAGE>
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 the 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. The 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 the 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, the Portfolio
may forfeit the entire amount of the premium plus related transaction costs.
Options on Securities. In purchasing an option on securities, the Portfolio
would be in a position to realize a gain if, during the option period, the
price of the underlying securities increased (in the case of a call) or
decreased (in the case of a put) by an amount in excess of the premium paid;
otherwise the Portfolio would experience a loss not greater than the premium
paid for the option. Thus, the 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 the
Portfolio were permitted to expire without being sold or exercised, its premium
would represent a loss to the Portfolio.
The 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, the
Portfolio will not write uncovered call or put options on securities. A call
option written by the Portfolio is "covered" if the Portfolio owns the
underlying security, has an absolute and immediate right to acquire that
security upon conversion or exchange of another security it holds, or holds a
call option on the underlying security with an exercise price equal to or less
than that of the call option it has written. A put option written by the
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 the 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.
The 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." The 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.
The Portfolio generally purchases or writes privately negotiated options on
securities. The Portfolio will effect such transactions only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan institutions) deemed creditworthy by Alliance. Privately negotiated
options purchased or written by the Portfolio may be illiquid and it may not be
possible for the Portfolio to effect a closing transaction at an advantageous
time.
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Depositary Receipts. 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.
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.
The Portfolio invests in illiquid securities and may not be able to sell such
securities and may not be able to realize their full value upon sale. Alliance
will monitor the Portfolio's investments in illiquid securities. Rule 144A
securities will not be treated as "illiquid" for the purposes of the limit on
investments so long as the securities meet liquidity guidelines established by
the Board of Directors.
Indexed Commercial Paper. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. The Portfolio may invest in
indexed commercial paper without limitation. The Portfolio will receive
interest and principal payments on such commercial paper in the currency in
which such commercial paper is denominated, but the amount of principal payable
by the issuer at maturity will change in proportion to the change (if any) in
the exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables the Portfolio
to hedge (or cross-hedge) against a decline in the U.S. Dollar value of
investments denominated in foreign currencies while providing an attractive
money market rate of return. The Portfolio will purchase such commercial paper
for hedging purposes only, not for speculation.
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 the
Portfolio to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. The Portfolio
requires continual maintenance of collateral in an amount equal to, or in
excess of, the resale price. If a vendor defaults on its repurchase obligation,
the 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, the Portfolio might be delayed in, or prevented from, selling the
collateral for its benefit.
Secured Loans of Portfolio Securities. The 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's Custodian. The risks in lending
portfolio securities, as with other secured
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<PAGE>
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.
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.
The 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.
Future Developments. The Portfolio may, following written notice to its
shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Portfolio, or are not available but may
yet be developed, to the extent such investment practices are consistent with
the Portfolio's investment objective and legally permissible for the Portfolio.
Such investment practices, if they arise, may involve risks that are different
from or exceed those involved in the practices described above.
Portfolio Turnover. The portfolio turnover rate for the Portfolio is included
in the Financial Highlights section. The Portfolio is actively managed and
engages in more active trading. As a result, its portfolio turnover rate may
significantly exceed 100%. A higher rate of portfolio turnover increases
brokerage and other expenses, which must be borne by the Portfolio and its
shareholders.
Temporary Defensive Position. For temporary defensive purposes, the Portfolio
may invest in certain types of short-term, liquid, high-grade or high-quality
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. 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 Portfolio is investing for temporary
defensive purposes, it may not meet its investment objective.
ADDITIONAL RISK CONSIDERATIONS
Investment in the Portfolio involves the special risk considerations described
below. Certain of these risks may be heightened when investing in emerging
markets.
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<PAGE>
Currency Considerations. The Portfolio invests some portion of its assets in
securities denominated in, and receives revenues in, foreign currencies and,
therefore will be adversely affected by reductions in the value of those
currencies relative to the U.S. Dollar. These changes will affect the
Portfolio's net assets, distributions and income. If the value of the foreign
currencies in which the Portfolio receives income falls relative to the U.S.
Dollar between receipt of the income and the making of Portfolio distributions,
the Portfolio may be required to liquidate securities in order to make
distributions if the Portfolio has insufficient cash in U.S. Dollars to meet
the distribution requirements that the Portfolio must satisfy to qualify as a
regulated investment company for federal income tax purposes. Similarly, if an
exchange rate declines between the time the Portfolio incurs expenses in U.S.
Dollars and the time cash expenses are paid, the amount of the currency
required to be converted into U.S. Dollars in order to pay expenses in U.S.
Dollars could be greater than the equivalent amount of such expenses in the
currency at the time they were incurred. In light of these risks, the Portfolio
may engage in certain currency hedging transactions, as described above, which
involve certain special risks.
Fixed-Income Securities. The value of the Portfolio's shares will fluctuate
with the value of its investments. The value of the Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of the Portfolio's securities will
generally rise, although if falling interest rates are viewed as a precursor to
a recession, the values of the Portfolio's securities may fall along with
interest rates. Conversely, during periods of rising interest rates, the values
of the 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 the 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 the Portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of the
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, the 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 the 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.
The 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 the Portfolio to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to the Portfolio. These factors may affect the liquidity of the
Portfolio's investments in any country and Alliance will monitor the effect of
any such factor or factors on the 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.
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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, the 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.
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 the
Portfolio's investments. In the event of certain such actions, the 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 the 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, the
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, the Portfolio will seek to minimize their exposure to such
risks by investing only in debt securities which are determined to be of high
quality.
U.S. and Foreign Taxes. The Portfolio's investment in foreign securities may be
subject to taxes withheld at the source on dividend or interest payments.
Foreign taxes paid by the Portfolio may be creditable or deductible by U.S.
shareholders for U.S. income tax purposes. No assurance can be given that
applicable tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct such foreign
taxes.
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MANAGEMENT OF THE PORTFOLIO
Investment Adviser
The 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,
1999, totaling more than $368 billion (of which more than $169 billion
represented the assets of investment companies). As of December 31, 1999,
Alliance managed retirement assets for many of the largest public and private
employee benefit plans (including 31 of the nation's FORTUNE 100 companies),
for public employee retirement funds in 31 states, for investment companies and
for foundations, endowments, banks and insurance companies worldwide. The 53
registered investment companies managed by Alliance, comprising 119 separate
portfolios currently have more than 5 million shareholder accounts.
Alliance provides investment advisory services and order placement facilities
for the Portfolio. For these advisory services, for the fiscal year ended
December 31, 1999 the Portfolio paid Alliance 0% as a percentage of average net
assets, net of waivers and/or reimbursements in effect during the Fund's fiscal
year. Absent fee waivers and/or reimbursements, the fee paid to Alliance as a
percentage of average net assets by the Portfolio would have been .55%.
Portfolio Manager
Douglas J. Peebles is the person who has been primarily responsible for the
day-to-day management of the Portfolio since its inception. Mr. Peebles is a
Senior Vice President of Alliance Capital Management Corporation, the sole
general partner of Alliance, with which he has been associated since prior to
1995.
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PURCHASE AND SALE OF SHARES
How The Portfolio Values Its Shares
The Portfolio's net asset value or NAV is calculated at 4:00 p.m., Eastern
time, each day the Exchange is open for business. To calculate NAV, the
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
Portfolio values its 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 Fund's Directors believe accurately reflect fair
market value. The Portfolio invests in securities that are primarily listed on
foreign exchanges and trade on weekends or other days when the Portfolio does
not price its shares. The Portfolio's NAV may change on days when shareholders
will not be able to purchase or redeem the Portfolio's shares.
Your order for purchase or sale of shares is priced at the next NAV calculated
after your order is received by the Portfolio.
How To Purchase and Sell Shares
The Portfolio offers its 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 Portfolio's
shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Portfolio declares dividends on their shares at least annually. The income
and capital gains distribution will be made in shares of the Portfolio.
See the prospectus of the separate account of the participating insurance
company for federal income tax information.
Investment income received by the Portfolio from sources within foreign
countries may be subject to foreign income taxes withheld at the source.
Provided that certain Code requirements are met, the Portfolio may "pass-
through" to its shareholders credits or deductions to foreign income taxes
paid.
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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 the
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 auditors, whose report,
along with the Portfolio's financial statements, is included in the SAI, which
is available upon request.
Short-Term Multi-Market Portfolio
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year..... $10.10 $10.57 $10.73 $10.58 $ 9.91
------ ------ ------ ------ ------
Income From Investment Operations
Net investment income(a)(b)............ .51 .61 .59 .64 .82
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions.......................... (.16) .03 (.11) .33 (.15)
------ ------ ------ ------ ------
Net increase in net asset value from
operations............................ .35 .64 .48 .97 .67
------ ------ ------ ------ ------
Less: Dividends and Distributions
Dividends from net investment income... (.54) (1.11) (.64) (.82) -0-
------ ------ ------ ------ ------
Net asset value, end of year........... $ 9.91 $10.10 $10.57 $10.73 $10.58
====== ====== ====== ====== ======
Total Return
Total investment return based on net
asset value(c)........................ 3.51% 6.32% 4.59% 9.57% 6.76%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted).............................. $4,416 $6,469 $6,489 $7,112 $3,152
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements...................... .95% .94% .94% .95% .95%
Expenses, before waivers and
reimbursements...................... 2.65% 2.69% 1.42% 2.09% 1.30%
Net investment income(a)............. 5.09% 5.94% 5.50% 6.03% 8.22%
Portfolio turnover rate................ 123% 18% 222% 159% 379%
</TABLE>
- --------
Footnotes:
(a) Net of expenses reimbursed or waived by Alliance.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total investment return
calculated for a period of less than one year is not annualized.
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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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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.
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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.
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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.
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For more information about the Portfolio, the following documents are available
upon request:
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The Portfolio's annual and semi-annual reports to shareholders contain
additional information on the Portfolio's investments. In the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Portfolio's performance during its last fiscal
year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The Fund has an SAI, which contains more detailed information about the
Portfolio, including its operations and investment policies. The SAI is
incorporated by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the
SAI, or make shareholder inquiries of the Portfolio, 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:
. Call the Commission at 1-202-942-8090 for information on the operation
of the Public Reference Room.
. Reports and other information about the Portfolio are available on the
EDGAR Database on the Commission's Internet site at http://www.sec.gov.
. Copies of the information may be obtained, after paying a fee, by
electronic request at [email protected], or by writing the Commission's
Public Reference Section, Washington, DC 20549-0102.
You also may find more information about Alliance and the Portfolio on the
internet at: www.Alliancecapital.com.
File No: 811-05398
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