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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
Money Market Portfolio
Premier Growth Portfolio
International Portfolio
This Prospectus describes the Portfolios that are available as underlying
investments through your variable contract. For information about your
variable contract, including information about insurance-related
expenses, see the prospectus for your variable contract which
accompanies this Prospectus.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this
Prospectus. Any representation to the contrary is a
criminal offense.
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Investment Products Offered
.Are Not FDIC Insured
.May Lose Value
.Are Not Bank Guaranteed
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK/RETURN SUMMARY........................................................ 4
Summary of Principal Risks............................................... 8
GLOSSARY................................................................... 10
DESCRIPTION OF THE PORTFOLIOS.............................................. 12
Investment Objectives and Principal Policies and Risks................... 12
Description of Additional Investment Practices........................... 15
Additional Risk Considerations........................................... 20
MANAGEMENT OF THE PORTFOLIOS............................................... 23
PURCHASE AND SALE OF SHARES................................................ 24
How The Portfolios Value Their Shares.................................... 24
How To Purchase and Sell Shares.......................................... 24
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 24
FINANCIAL HIGHLIGHTS....................................................... 25
APPENDIX A................................................................. 27
</TABLE>
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Alliance Variable Products Series Fund's investment adviser is Alliance Capital
Management L.P., a global investment manager providing diversified services to
institutions and individuals through a broad line of investments including more
than 100 mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about Alliance Variable
Products Series Fund. You will find additional information about each Portfolio
of the Fund, including a detailed description of the risks of an investment in
each Portfolio, after this summary.
The Risk/Return Summary describes the Portfolios' objectives, principal
investment strategies and principal risks. Each Portfolio's summary includes a
discussion of some of the principal risks of investing in that Portfolio. A
further discussion of these and other risks starts on page 8.
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.
The Risk/Return Summary includes a table for each Portfolio showing its average
annual returns and a bar chart showing its annual returns. The table and the
bar chart provide an indication of the historical risk of an investment in each
Portfolio by showing:
. how the Portfolio's average annual returns for one, five, and 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old) compare to those of a broad based securities market index;
and
. changes in the Portfolio's performance from year to year over 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old).
If the Portfolio's returns reflected fees charged by your variable contract,
the returns shown in the table and bar charts for each Portfolio would be
lower.
A Portfolio's past performance, of course, does not necessarily indicate how it
will perform in the future. As with all investments, you may lose money by
investing in the Portfolios.
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Money Market Portfolio
Objective: The Portfolio's investment objectives are in the following order
of priority--safety of principal, excellent liquidity and maximum current
income to the extent consistent with the first two objectives.
Principal Investment Strategies and Risks: The Portfolio is a "money market
fund" that seeks to maintain a stable net asset value of $1.00 per share.
The Portfolio pursues its objective by maintaining a portfolio of high-
quality money market securities.
Among the principal risks of investing in the Portfolio are interest rate
risk and credit risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 4.69% 4.90% 4.29%
3-Month Treasury Bill............................. 4.74% 5.11% 4.70%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1999. Since Inception return information is from December 30, 1992
for the Portfolio and December 31, 1992 for the Treasury Bill.
Bar Chart
90 91 92 93 94 95 96 97 98 99
---- ---- ----- ----- ----- ----- ----- ----- ----- -----
N/A N/A N/A 2.3 3.3 5.0 4.7 5.1 5.0 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 1.29%, 4th quarter, 1999; and
Worst quarter was up .54%, 4th quarter, 1993.
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Premier Growth Portfolio
Objective: The Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of U.S. companies. Unlike most equity funds, the
Portfolio focuses on a relatively small number of intensively researched
companies. Alliance selects the Portfolio's investments from a research
universe of more than 600 companies that have strong management, superior
industry positions, excellent balance sheets, and superior earnings growth
prospects.
Normally, the Portfolio invests in about 40-50 companies, with the 25 most
highly regarded of these companies usually constituting approximately 70%
of the Portfolio's net assets. During market declines, while adding to
positions in favored stocks, the Portfolio becomes somewhat more
aggressive, gradually reducing the number of companies represented in its
portfolio. Conversely, in rising markets, while reducing or eliminating
fully-valued positions, the Portfolio becomes somewhat more conservative,
gradually increasing the number of companies represented in its portfolio.
Through this approach, Alliance seeks to gain positive returns in good
markets while providing some measure of protection in poor markets. The
Portfolio also may invest up to 20% of its net assets in convertible
securities.
Among the principal risks of investing in the Portfolio is market risk. In
addition, the Portfolio invests in a smaller number of issuers than many
other equity funds. Factors affecting those issuers can have a more
significant effect on the Portfolio's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
<TABLE>
<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 32.32% 36.03% 26.31%
S&P 500 Index..................................... 21.05% 28.56% 21.25%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1999. Since Inception return information is from June 26, 1992 for
the Portfolio and June 30, 1992 for the Index.
Bar Chart
90 91 92 93 94 95 96 97 98 99
----- ----- ----- ---- ----- ----- ----- ----- ----- -----
N/A N/A N/A 12.6 -3.0 44.9 22.7 33.9 48.0 32.3
You should consider an investment in the Portfolio as a long-term investment.
The Portfolio's returns will fluctuate over long and short periods. For
example, during the period shown in the bar chart, the Portfolio's:
Best quarter was up 29.72%, 4th quarter, 1998; and
Worst quarter was down -11.14%, 3rd quarter, 1998.
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International Portfolio
Objective: The Portfolio's investment objective is to seek to obtain a
total return on its assets from long-term growth of capital principally
through a broad portfolio of marketable securities of established non-U.S.
companies (i.e., companies incorporated outside the U.S.), companies
participating in foreign economies with prospects for growth, and foreign
government securities. As a secondary objective, the Portfolio attempts to
increase its current income without assuming undue risk.
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......................................... 40.23% 14.05% 13.99%
MSCI World Index ................................. 24.94% 19.76% 17.92%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1999. Since Inception return information is from December 28, 1992
for the Portfolio and December 31, 1992 for the Index.
Bar Chart
90 91 92 93 94 95 96 97 98 99
----- ----- ----- ------ ------ ----- ----- ----- ----- -----
N/A N/A N/A 21.6 6.7 9.9 7.3 3.3 13.0 40.2
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 27.15%, 4th quarter, 1999; and
Worst quarter was down -17.37%, 3rd quarter, 1998.
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SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Portfolio will change with changes in the
values of that Portfolio's investments. Many factors can affect those values.
In this Summary, we describe the principal risks that may affect a Portfolio's
investments as a whole. These risks and the Portfolios particularly subject to
the risks appear in a chart at the end of this section. All Portfolios could be
subject to additional principal risks because the types of investments made by
each Portfolio can change over time. This Prospectus has additional
descriptions of the types of investments that appear in bold type in the
discussions under "Description of Additional Investment Practices" or
"Additional Risk Considerations." These sections also include more information
about the Portfolios, their investments, and related risks.
. Interest Rate Risk This is the risk that changes in interest rates will
affect the value of a Portfolio's investments in debt securities, such
as bonds, notes, and asset-backed securities, or other income-producing
securities. Debt securities are obligations of the issuer to make
payments of principal and/or interest in future dates. Interest rate
risk is particularly applicable to Portfolios that invest in fixed-
income securities. Increases in interest rates may cause the value of a
Portfolio's investments to decline.
Even Portfolios that invest a substantial portion of their assets in
the highest quality debt securities, including U.S. Government
securities, are subject to interest rate risk. Interest rate risk
generally is greater for those Portfolios that invest a significant
portion of their assets in lower-rated securities or comparable unrated
securities.
Interest rate risk is generally greater for Portfolios that invest in
debt securities with longer maturities. The value of these securities
is affected more by changes in interest rates because when interest
rates rise, the maturities of these 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 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.
. 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 investments in
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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 a Portfolio's
investments in a foreign country. In the event of nationalization,
expropriation, or other confiscation, a Portfolio could lose its entire
investment.
. Currency Risk This is the risk that fluctuations in the exchange rates
between the U.S. Dollar and foreign currencies may negatively affect
the value of a Portfolio's investments. Portfolios with foreign
investments are subject to this risk.
. 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.
. Management Risk Each Portfolio is subject to management risk because it
is an actively managed investment Portfolio. Alliance will apply its
investment techniques and risk analyses in making investment decisions
for the Portfolios, but there can be no guarantee that its decisions
will produce the desired results. In some cases, derivative and other
investment techniques may be unavailable or Alliance may determine not
to use them, possibly even under market conditions where their use
could benefit a Portfolio.
. Focused Portfolio Risk Portfolios that invest in a limited number of
companies, may have more risk because changes in the value of a single
security may have a more significant effect, either negative or
positive, on the Portfolio's net asset value. Similarly, a Portfolio
may have more risk if it is "non-diversified" meaning that it can
invest more of its assets in a smaller number of companies than many
other funds.
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GLOSSARY
This Prospectus uses the following terms.
Types of Securities
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are fixed-income securities that are convertible into
common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
Equity securities include (i) common stocks, partnership interests, business
trust shares and other equity or ownership interests in business enterprises,
and (ii) securities convertible into, and rights and warrants to subscribe for
the purchase of, such stocks, shares and interests.
Fixed-income securities are debt securities and preferred stocks, including
floating rate and variable rate instruments.
Foreign government securities are securities issued or guaranteed, as to
payment of principal and interest, by foreign governments, quasi-governmental
entities, or governmental agencies or other entities.
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, Rated Securities and Indexes
Duff & Phelps is Duff & Phelps Credit Rating Company.
Fitch is Fitch IBCA, Inc.
High-quality commercial paper is commercial paper rated at least Prime-2 by
Moody's, A-2 by S&P, Fitch-2 by Fitch, or Duff 2 by Duff & Phelps.
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.
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Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Duration is a measure that relates the price volatility of a security to
changes in interest rates. The duration of a debt security is the weighted
average term to maturity, expressed in years, of the present value of all
future cash flows, including coupon payments and principal repayments. Thus, by
definition, duration is always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
Non-U.S. Company is an entity that (i) is organized under the laws of a foreign
country and conducts business in a foreign country, (ii) derives 50% or more of
its total revenues from business in foreign countries, or (iii) issues equity
or debt securities that are traded principally on a stock exchange in a foreign
country.
Securities Act is the Securities Act of 1933, as amended.
World Bank is the commonly used name for the International Bank for
Reconstruction and Development.
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DESCRIPTION OF THE PORTFOLIOS
This section of the Prospectus provides a more complete description of each
Portfolio's investment objectives, principal strategies and risks. Of course,
there can be no assurance that any Portfolio will achieve its investment
objective.
Please note that:
. Additional discussion of the Portfolios' investments, including the
risks of the investments, can be found in the discussion under
Description of Additional 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 PRINCIPAL POLICIES AND RISKS
Money Market Portfolio
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. As a money market fund, the
Portfolio must meet the requirements of Commission Rule 2a-7. The Rule imposes
strict requirements on the investment quality, maturity, and diversification of
the Portfolio's investments. Under Rule 2a-7, the Portfolio's investments must
have a remaining maturity of no more than 397 days and its investments must
maintain an average weighted maturity that does not exceed 90 days.
The Portfolio pursues its objectives by maintaining a portfolio of high-quality
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;
. asset-backed securities; and
. repurchase agreements that are fully collateralized.
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
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interruptions in the flow of international currency transactions, potential
political and social instability or expropriation, imposition of foreign taxes,
the lower level of government supervision of issuers, the difficulty in
enforcing contractual obligations, and the lack of uniform accounting and
financial reporting standards.
The Portfolio limits its investment in illiquid securities to 10% of its total
assets. Illiquid securities include restricted securities, except restricted
securities determined by the Adviser to be liquid in accordance with procedures
adopted by the Trustees of the Portfolio.
The Portfolio does not invest more than 25% of its assets in securities of
issuers in any one industry except for U.S. Government securities or
certificates of deposit and bankers' acceptances issued or guaranteed by, or
interest-bearing savings deposits maintained at, banks and savings institutions
and loan associations (including foreign branches of U.S. banks and U.S.
branches of foreign banks).
The Portfolio's primary risks are interest rate risk and credit risk. Because
the Portfolio invests in short-term securities, a decline in interest rates
will affect the Portfolio's yield as these securities mature or are sold and
the Portfolio purchases new short-term securities with a lower yield.
Generally, an increase in interest rates causes the value of a debt instrument
to decrease. The change in value for shorter-term securities is usually smaller
than for securities with longer maturities. Because the Portfolio invests in
securities with short maturities and seeks to maintain a stable net asset value
of $1.00 per share, it is possible, though unlikely, that an increase in
interest rates would change the value of your investment.
Credit risk is the possibility that a security's credit rating will be
downgraded or that the issuer of the security will default (fail to make
scheduled interest and principal payments). The Portfolio invests in highly-
rated securities to minimize credit risk.
The Portfolio's investments in illiquid securities also may be subject to
liquidity risk, which is the risk that, under certain circumstances, particular
investments may be difficult to sell at an advantageous price. Illiquid
restricted securities also are subject to the risk that the Portfolio may be
unable to sell the security due to legal or contractual restrictions on resale.
The Portfolio's investments in U.S. Dollar-denominated obligations of foreign
banks, foreign branches of U.S. banks, U.S. branches of foreign banks, and
commercial paper of foreign companies may be subject to foreign risk. Foreign
securities issuers are usually not subject to the same degree of regulation as
U.S. issuers. Reporting, accounting, and auditing standards of foreign
countries differ, in some cases, significantly from U.S. standards. Foreign
risk includes nationalization, expropriation or confiscatory taxation,
political changes or diplomatic developments that could adversely affect the
Portfolio's investments.
Premier Growth Portfolio
The Portfolio's investment objective is growth of capital by pursuing
aggressive investment policies. The Portfolio invests primarily 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
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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.
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 (i.e., companies
incorporated outside the U.S.), companies participating in foreign economies
with prospects for growth, and foreign government securities. As a secondary
objective, the Portfolio attempts to increase its current income without
assuming undue risk. The Portfolio also invests in U.S. companies that have
their principal activities and interests outside the U.S. Normally, the
Portfolio will invest more than 80% of its assets in these types of companies.
The Portfolio expects to invest primarily in common stocks of established non-
U.S. companies that Alliance believes have potential for capital appreciation
or income or both. The Portfolio also may invest in any other type of security,
including convertible securities, preferred stocks, debt securities of foreign
issuers, or U.S. Government securities.
The Portfolio intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest a
substantial portion of its assets in one or more of these countries. The
Portfolio may invest in companies, wherever organized, that Alliance judges
have their principal activities and interests outside the U.S. These companies
may be located in developing countries, which involves exposure to economic
structures that are generally less diverse and mature, and to political systems
which can be expected to have less stability, than those of developed
countries.
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The Portfolio also may:
. purchase or sell forward foreign currency exchange contracts of up to
50% of its assets;
. invest in warrants;
. make secured loans of portfolio securities of up to 30% of its total
assets;
. invest in illiquid securities of up to 10% of its total assets; and
. enter into repurchase agreements of up to seven days' duration for up
to 10% of the Portfolio's total assets.
Investments in non-U.S. countries may have more risk because they tend to be
more volatile than the U.S. stock market. To the extent that the Portfolio
invests a substantial amount of its assets in a particular foreign country, an
investment in the Portfolio has the risk that market changes or other events
affecting that country, including political instability and unpredictable
economic conditions, may have a more significant effect on the Portfolio's net
asset value.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
This section describes the Portfolios' investment practices and associated
risks. Unless otherwise noted, a Portfolio's use of any of these practices was
specified in the previous section.
Derivatives. The Portfolios may use derivatives to achieve their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices, and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Portfolios to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Portfolios is permitted to use
derivatives for one or more of these purposes, although most of the Portfolios
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool, which, when used properly, can provide
significant benefits to Portfolio shareholders. A Portfolio may take a
significant position in those derivatives that are within its investment
policies if, in Alliance's judgment, this represents the most effective
response to current or anticipated market conditions. Certain Portfolios will
generally make extensive use of carefully selected forwards and other
derivatives to achieve the currency hedging that is an integral part of their
investment strategy. Alliance's use of derivatives is subject to continuous
risk assessment and control from the standpoint of each Portfolio's investment
objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately-negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards, and swaps--from which virtually any type of derivative transaction
can be created.
. Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a
premium payment or fee, gives the option holder (the buyer) the right
but not the obligation to buy or sell the underlying asset (or settle
for cash an amount based
15
<PAGE>
on an underlying asset, rate or index) at a specified price (the
exercise price) during a period of time or on a specified date. A call
option entitles the holder to purchase, and a put option entitles the
holder to sell, the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index). Likewise, when an option
is exercised the writer of the option is obligated to sell (in the case
of a call option) or to purchase (in the case of a put option) the
underlying asset (or settle for cash an amount based on an underlying
asset, rate or index).
. Futures--A futures contract is an agreement that obligates the buyer to
buy and the seller to sell a specified quantity of an underlying asset
(or settle for cash the value of a contract based on an underlying
asset, rate or index) at a specific price on the contract maturity
date. Futures contracts are standardized, exchange-traded instruments
and are fungible (i.e., considered to be perfect substitutes for each
other). This fungibility allows futures contracts to be readily offset
or cancelled through the acquisition of equal but opposite positions,
which is the primary method in which futures contracts are liquidated.
A cash-settled futures contract does not require physical delivery of
the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered
into and its maturity date.
. Forwards--A forward contract is an obligation by one party to buy, and
the other party to sell, a specific quantity of an underlying commodity
or other tangible asset for an agreed upon price at a future date.
Forward contracts are customized, privately negotiated agreements
designed to satisfy the objectives of each party. A forward contract
usually results in the delivery of the underlying asset upon maturity
of the contract in return for the agreed upon payment.
. Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to
changes in specified prices or rates (interest rates in the case of
interest rate swaps, currency exchange rates in the case of currency
swaps) for a specified amount of an underlying asset (the "notional"
principal amount). The payment flows are netted against each other,
with the difference being paid by one party to the other. Except for
currency swaps, the notional principal amount is used solely to
calculate the payment streams but is not exchanged. With respect to
currency swaps, actual principal amounts of currencies may be exchanged
by the counterparties at the initiation, and again upon the
termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the
cash flows from an underlying pool of mortgages or other assets from which
payments are passed through to the owner of, or that collateralize, the
securities.
While the judicious use of derivatives by highly-experienced investment
managers such as Alliance can be quite beneficial, derivatives involve risks
different from, and, in certain cases, greater than, the risks presented by
more traditional investments. The following is a general discussion of
important risk factors and issues relating to the use of derivatives that
investors should understand before investing in a Portfolio.
. Market Risk--This is the general risk of all investments that the value
of a particular investment will change in a way detrimental to the
Portfolio's interest based on changes in the bond market generally.
. Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from
those associated with stocks and bonds. The use of a derivative
requires an understanding not only of the underlying instrument but
also of the derivative itself, without the benefit of observing the
performance of the derivative under all possible market conditions. In
particular, the use and complexity of derivatives require the
maintenance of adequate
16
<PAGE>
controls to monitor the transactions entered into, the ability to
assess the risk that a derivative adds to a Portfolio, and the ability
to forecast price, interest rate, or currency exchange rate movements
correctly.
. Credit Risk--This is the risk that a loss may be sustained by a
Portfolio as a result of the failure of a derivative counterparty to
comply with the terms of the derivative contract. The credit risk for
exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily
payment system (i.e., margin requirements) operated by the clearing
house in order to reduce overall credit risk. For privately negotiated
derivatives, there is no similar clearing agency guarantee. Therefore,
the Portfolios consider the creditworthiness of each counterparty to a
privately negotiated derivative in evaluating potential credit risk.
. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
. Leverage Risk--Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial
investment.
. Other Risks--Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately negotiated
derivatives, are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Portfolio. Derivatives do not
always perfectly or even highly correlate or track the value of the
assets, rates or indices they are designed to closely track.
Consequently, a Portfolio's use of derivatives may not always be an
effective means of, and sometimes could be counterproductive to,
furthering the Portfolio's investment objective.
Derivatives Used by the Portfolios. The following describes specific
derivatives that one or more of the Portfolios may use.
Forward Foreign Currency Exchange Contracts. A Portfolio purchases or sells
forward foreign currency exchange contracts ("forward contracts") to minimize
the risk from adverse changes in the relationship between the U.S. Dollar and
other currencies. A Portfolio may enter into a forward contract, for example,
when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price
of the security (a "transaction hedge"). When a Portfolio believes that a
foreign currency may suffer a substantial decline against the U.S. Dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency, or when the Portfolio believes that the
U.S. Dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount (a "position hedge"). Instead of entering into a position
hedge, a Portfolio may, in the alternative, enter into a forward contract to
sell a different foreign currency for a fixed U.S. Dollar amount where the
Portfolio believes that the U.S. Dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
U.S. Dollar value of the currency in which portfolio securities of the
Portfolio are denominated (a "cross-hedge").
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
17
<PAGE>
decreased (in the case of a put) by an amount in excess of the premium paid;
otherwise the Portfolio would experience a loss not greater than the premium
paid for the option. Thus, a Portfolio would realize a loss if the price of the
underlying security declined or remained the same (in the case of a call) or
increased or remained the same (in the case of a put) or otherwise did not
increase (in the case of a put) or decrease (in the case of a call) by more
than the amount of the premium. If a put or call option purchased by a
Portfolio were permitted to expire without being sold or exercised, its premium
would represent a loss to the Portfolio.
A Portfolio may write a put or call option in return for a premium, which is
retained by the Portfolio whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Portfolios will write uncovered call or put options on securities. A call
option written by a Portfolio is "covered" if the Portfolio owns the underlying
security, has an absolute and immediate right to acquire that security upon
conversion or exchange of another security it holds, or holds a call option on
the underlying security with an exercise price equal to or less than that of
the call option it has written. A put option written by a Portfolio is covered
if the Portfolio holds a put option on the underlying securities with an
exercise price equal to or greater than that of the put option it has written.
The risk involved in writing an uncovered call option is that there could be an
increase in the market value of the underlying security, and a Portfolio could
be obligated to acquire the underlying security at its current price and sell
it at a lower price. The risk of loss from writing an uncovered put option is
limited to the exercise price of the option.
A Portfolio may write a call option on a security that it does not own in order
to hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Portfolio would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in cross-
hedging may be greater than the correlation risk involved with other hedging
strategies.
Some of the Portfolios generally purchase or write privately negotiated options
on securities. A Portfolio that does so will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance. Privately
negotiated options purchased or written by a Portfolio may be illiquid and it
may not be possible for the Portfolio to effect a closing transaction at an
advantageous time.
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which provide
a stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings.
Illiquid Securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when
18
<PAGE>
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.
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.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a
Portfolio to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. A Portfolio
requires continual maintenance of collateral in an amount equal to, or in
excess of, the resale price. If a vendor defaults on its repurchase obligation,
a Portfolio would suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. If a vendor goes
bankrupt, a Portfolio might be delayed in, or prevented from, selling the
collateral for its benefit.
Rights and Warrants. Warrants are option securities permitting their holders to
subscribe for other securities. Rights are similar to warrants except that they
have a substantially shorter duration. Rights and warrants do not carry with
them dividend or voting rights with respect to the underlying securities, or
any rights in the assets of the issuer. As a result, an investment in rights
and warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date.
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<PAGE>
Secured 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's Custodian. 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.
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.
Future Developments. A Portfolio may, following written notice to its
shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Portfolio, or are not available but may
yet be developed, to the extent such investment practices are consistent with
the Portfolio's investment objective and legally permissible for the Portfolio.
Such investment practices, if they arise, may involve risks that are different
from or exceed those involved in the practices described above.
Portfolio Turnover. The portfolio turnover rate for each Portfolio is included
in the Financial Highlights section. The Portfolios are actively managed and,
in some cases in response to market conditions, a Portfolio's turnover may
exceed 100%. A higher rate of portfolio turnover increases brokerage and other
expenses, which must be borne by the Portfolio and its shareholders.
Temporary Defensive Position. For temporary defensive purposes, each Portfolio
may invest in certain types of short-term, liquid, high-grade or high-quality
(depending on the Portfolio) debt securities. These securities may include U.S.
Government securities, qualifying bank deposits, money market instruments,
prime commercial paper and other types of short-term debt securities, including
notes and bonds. For Portfolios that may invest in foreign countries, such
securities may also include short-term, foreign-currency denominated securities
of the type mentioned above issued by foreign governmental entities, companies
and supranational organizations. While the Portfolios are investing for
temporary defensive purposes, they may not meet their investment objective.
ADDITIONAL RISK CONSIDERATIONS
Investment in certain of the Portfolios involves the special risk
considerations described below. Certain of these risks may be heightened when
investing in emerging markets.
Currency Considerations. Those Portfolios that invest some portion of their
assets in securities denominated in, and receive revenues in, foreign
currencies will be adversely affected by reductions in the value of those
currencies relative to the U.S. Dollar. These changes will affect a Portfolio's
net assets, distributions and
20
<PAGE>
income. If the value of the foreign currencies in which a Portfolio receives
income falls relative to the U.S. Dollar between receipt of the income and the
making of Portfolio distributions, a Portfolio may be required to liquidate
securities in order to make distributions if the Portfolio has insufficient
cash in U.S. Dollars to meet the distribution requirements that the Portfolio
must satisfy to qualify as a regulated investment company for federal income
tax purposes. Similarly, if an exchange rate declines between the time a
Portfolio incurs expenses in U.S. Dollars and the time cash expenses are paid,
the amount of the currency required to be converted into U.S. Dollars in order
to pay expenses in U.S. Dollars could be greater than the equivalent amount of
such expenses in the currency at the time they were incurred. In light of these
risks, a Portfolio may engage in certain currency hedging transactions, as
described above, which involve certain special risks.
Fixed-Income Securities. The value of each Portfolio's shares will fluctuate
with the value of its investments. The value of each Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of a Portfolio's securities will
generally rise, although if falling interest rates are viewed as a precursor to
a recession, the values of a Portfolio's securities may fall along with
interest rates. Conversely, during periods of rising interest rates, the values
of a Portfolio's securities will generally decline. Changes in interest rates
have a greater effect on fixed-income securities with longer maturities and
durations than those with shorter maturities and durations.
In seeking to achieve a Portfolio's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Portfolio.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Portfolio whose investment portfolio includes
foreign securities may experience greater price volatility and significantly
lower liquidity than a portfolio invested solely in securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase
the cost and expenses of a Portfolio. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
A Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require a Portfolio to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to a Portfolio. These factors may affect the liquidity of a Portfolio's
investments in any country and Alliance will monitor the effect of any such
factor or factors on a Portfolio's investments. Furthermore, transaction costs
including brokerage commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing
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<PAGE>
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 A for a discussion of risks associated with
investments in these countries.
Investment in the Banking Industry. Sustained increases in interest rates can
adversely affect the availability and cost of funds for a bank's lending
activities, and a deterioration in general economic conditions could increase
the exposure to credit losses. The banking industry is also subject to the
effects of the concentration of loan portfolios in particular businesses such
as real estate, energy, agriculture or high technology-related companies;
competition within those industries as well as with other types of financial
institutions; and national and local governmental regulation. In addition, a
Portfolio's investments in commercial banks located in several foreign
countries are subject to additional risks due to the combination in such banks
of commercial banking and diversified securities activities. As discussed
above, however, a Portfolio will seek to minimize their exposure to such risks
by investing only in debt securities which are determined to be of high
quality.
U.S. and Foreign Taxes. A Portfolio's investment in foreign securities may be
subject to taxes withheld at the source on dividend or interest payments.
Foreign taxes paid by a Portfolio may be creditable or deductible by U.S.
shareholders for U.S. income tax purposes. No assurance can be given that
applicable tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct such foreign
taxes.
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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,
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 Portfolios. For these advisory services, for the fiscal year ended
December 31, 1999 the Portfolios paid Alliance as a percentage of average net
assets:
<TABLE>
<CAPTION>
Fee as a
percentage of
average
Portfolio net assets *
--------- -------------
<S> <C>
Money Market Portfolio............................................ .50%
Premier Growth Portfolio.......................................... 1.00%
International Portfolio........................................... .69%
</TABLE>
- --------
* Fees are stated net of waivers and/or reimbursements in effect during the
Fund's fiscal year ended December 31, 1999. Absent fee waivers and/or
reimbursements, the fee paid to Alliance by the following Portfolio as a
percentage of average net assets, would have been: International Portfolio
(1.00%);
Portfolio Managers
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Portfolio, the length of time that each
person has been primarily responsible for the Portfolio, and each person's
principal occupation during the past five years.
<TABLE>
<CAPTION>
Principal Occupation
Employee; Time Period; During
Portfolio Title With ACMC The Past Five Years*
--------- ---------------------------- ------------------------
<C> <S> <C>
Money Market Portfolio Raymond J. Papera; since Associated with Alliance
1997; Senior Vice since prior to 1995
President of Alliance
Capital Management
Corporation (ACMC)**
Premier Growth Alfred Harrison; since Associated with Alliance
Portfolio inception; Director and Vice since prior to 1995
Chairman of ACMC
International Portfolio Steven Beinhacker; since Associated with Alliance
1996; Senior Vice President since prior to 1995
of ACMC
</TABLE>
- --------
* Unless indicated otherwise, persons associated with Alliance have been
employed in a portfolio management, research or investment capacity.
** The sole general partner of Alliance.
23
<PAGE>
PURCHASE AND SALE OF SHARES
How The Portfolios Value Their Shares
The Portfolios' net asset value or NAV (except for the Money Market Portfolio)
is calculated at 4:00 p.m., Eastern time, each day the Exchange is open for
business. To calculate NAV, a Portfolio's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. The Portfolios value their securities at
their current market value determined on the basis of market quotations or, if
such quotations are not readily available, such other methods as the
Portfolios' Directors or Trustees believe accurately reflect fair market value.
Some of the Portfolios invest in securities that are primarily listed on
foreign exchanges and trade on weekends or other days when the fund does not
price its shares. These Portfolios' NAVs may change on days when shareholders
will not be able to purchase or redeem the Portfolios' shares.
The Money Market Portfolio's NAV is expected to be constant at $1.00 share,
although this value is not guaranteed. The NAV is calculated at 4:00 pm,
Eastern time, each day the Exchange is open for business. The Portfolio values
its securities at their amortized cost. This method involves valuing an
instrument at its cost and thereafter applying a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the investment.
Your order for purchase or sale of shares is priced at the next NAV calculated
after your order is received by the Portfolio.
How To Purchase and Sell Shares
The Portfolios offer their shares through the separate accounts of life
insurance companies. You may only purchase and sell shares through these
separate accounts. See the prospectus of the separate account of the
participating insurance company for information on the purchase and sale of the
Portfolios' shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Money Market Portfolio declares income dividends each business day at 4:00
p.m., Eastern time. The dividends are paid monthly via automatic investment in
additional full and fractional shares. As these additional shares are entitled
to income, a compounding of income occurs.
The other Portfolios declare dividends on their shares at least annually. The
income and capital gains distribution will be made in shares of each Portfolio.
See the prospectus of the separate account of the participating insurance
company for federal income tax information.
Investment income received by a Portfolio from sources within foreign countries
may be subject to foreign income taxes withheld at the source. Provided that
certain code requirements are met, a Portfolio may "pass-through" to its
shareholders credits or deductions to foreign income taxes paid.
24
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand a 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 auditors, whose report, along with each
Portfolio's financial statements, is included in the SAI, which is available
upon request.
Money 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...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- -------- ------- -------
Income From Investment
Operations
Net investment income... .05 .05 .05(a) .05(a) .05(a)
---------- ---------- -------- ------- -------
Less: Dividends
Dividends from net
investment income...... (.05) (.05) (.05) (.05) (.05)
---------- ---------- -------- ------- -------
Net asset value, end of
year................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ======= =======
Total Return
Total investment return
based on net asset
value(c)............... 4.69% 4.98% 5.11% 4.71% 4.97%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)........ $ 134,467 $ 119,574 $ 67,584 $64,769 $28,092
Ratios to average net
assets of:
Expenses, net of
waivers and
reimbursements....... .64% .68% .64% .69% .95%
Expenses, before
waivers and
reimbursements....... .64% .68% .64% .69% 1.07%
Net investment
income............... 4.59% 4.84% 5.00%(a) 4.64%(a) 4.85%(a)
<CAPTION>
Premier Growth Portfolio
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 31.03 $ 20.99 $ 15.70 $ 17.80 $ 12.37
---------- ---------- -------- ------- -------
Income From Investment
Operations
Net investment income
(loss)(b).............. (.09) (.01)(a) .04(a) .08(a) .09(a)
Net realized and
unrealized gain on
investment
transactions........... 9.98 10.08 5.27 3.29 5.44
---------- ---------- -------- ------- -------
Net increase in net
asset value from
operations............. 9.89 10.07 5.31 3.37 5.53
---------- ---------- -------- ------- -------
Less: Dividends and
Distributions
Dividends from net
investment income...... -0- (.03) (.02) (.10) (.03)
Distributions from net
realized gains......... (.47) -0- -0- (5.37) (.07)
---------- ---------- -------- ------- -------
Total dividends and
distributions.......... (.47) (.03) (.02) (5.47) (.10)
---------- ---------- -------- ------- -------
Net asset value, end of
year................... $ 40.45 $ 31.03 $ 20.99 $ 15.70 $ 17.80
========== ========== ======== ======= =======
Total Return
Total investment return
based on net asset
value(c)............... 32.32% 47.97% 33.86% 22.70% 44.85%
Ratios/Supplemental Data
Net assets, end of year
(000's omitted)........ $2,345,563 $1,247,254 $472,326 $96,434 $29,278
Ratios to average net
assets of:
Expenses, net of
waivers and
reimbursements....... 1.05% 1.06% .95% .95% .95%
Expenses, before
waivers and
reimbursements....... 1.05% 1.09% 1.10% 1.23% 1.19%
Net investment income
(loss)............... (.27)% (.04)%(a) .21%(a) .52%(a) .55%(a)
Portfolio turnover
rate................... 26% 31% 27% 32% 97%
</TABLE>
- --------
See footnotes on page 84.
25
<PAGE>
International Portfolio
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................. $ 16.17 $ 15.02 $ 14.89 $ 14.07 $ 12.88
------- ------- ------- ------- -------
Income From Investment Operations
Net investment income(a)(b)....... .12 .17 .13 .19 .18
Net realized and unrealized gain
on investments and foreign
currency transactions............ 6.13 1.80 .39 .83 1.08
------- ------- ------- ------- -------
Net increase in net asset value
from operations.................. 6.25 1.97 .52 1.02 1.26
------- ------- ------- ------- -------
Less: Dividends and Distributions
Dividends from net investment
income........................... (.15) (.33) (.15) (.08) (.03)
Distributions from net realized
gains............................ (.49) (.49) (.24) (.12) (.04)
------- ------- ------- ------- -------
Total dividends and
distributions.................... (.64) (.82) (.39) (.20) (.07)
------- ------- ------- ------- -------
Net asset value, end of year...... $ 21.78 $ 16.17 $ 15.02 $ 14.89 $ 14.07
======= ======= ======= ======= =======
Total Return
Total investment return based on
net asset value(c)............... 40.23% 13.02% 3.33% 7.25% 9.86%
Ratios/Supplemental Data
Net assets, end of year (000's
omitted)......................... $81,370 $65,052 $60,710 $44,324 $16,542
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................. .95% .95% .95% .95% .95%
Expenses, before waivers and
reimbursements................. 1.36% 1.37% 1.42% 1.91% 2.99%
Net investment income(a)........ .69% 1.08% .87% 1.29% 1.41%
Portfolio turnover rate........... 111% 117% 134% 60% 87%
</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.
26
<PAGE>
APPENDIX A
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 the Fund'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 1.62 in 1999. On April 5, 2000 the U.S. Dollar-pound sterling exchange
rate was 1.58.
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 6930.2 at the end of 1999, up approximately 18% from the end of 1998.
The FT-SE 100 index closed at 6379.30 on April 5, 2000.
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, gaining 418 of 659 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
Fund'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. Thereafter, the Japanese yen
generally depreciated against the U.S. Dollar until mid-1998, when it began to
appreciate. In September 1999 the Japanese yen reached a 43-month high against
the U.S. Dollar, precipitating a series of interventions by the Japanese
government in the currency market, which have succeeded in slowing the
appreciation of the Japanese yen 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, 1999 the
27
<PAGE>
TOPIX closed at 1722.20, up approximately 58% from the end of 1998. On April 5,
2000 the TOPIX closed at 1695.05, down approximately 1.6% from the end of 1999.
Since the early 1980s, 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 was expected to more open Japanese markets with respect to trade
in certain goods and services. Since then, the two countries have agreed in
principle to increase Japanese imports of American automobiles and automotive
parts, as well as other goods and services. Nevertheless, the surpluses have
persisted and it is expected that continuing the friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.
Each Fund'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. The LDP formed a new
three-party coalition government on October 5, 1999 that further strengthened
the position of Mr. Obuchi's administration in the parliament. On April 5,
2000, following a debilitating stroke suffered by Mr. Obuchi on April 2, 2000,
the parliament elected Yoshiro Mari to replace Mr. Obuchi as prime minister.
For the past several years, Japan's banking industry has been weakened by a
significant amount of problem loans. Japan's banks also have had significant
exposure to the recent 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 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 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
28
<PAGE>
range of fluctuation in the Canadian Dollar-U.S. 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 5, 2000,
the Canadian Dollar-U.S. Dollar exchange rate was 1.4498:1. 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.
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 an
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 liquidity crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government 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 has
been sustained, resulting in increases of 5.2%, 6.8%, 4.8% and 3.7% in 1996,
1997, 1998 and 1999, respectively. In addition, inflation dropped from a 52%
annual rate in 1995 to a 12.3% annual rate in 1999. 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 those initiatives.
29
<PAGE>
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
through 1996, from 1997 through 1999 the Peso-Dollar exchange rate decreased
approximately 20%.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund'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.
Shortly after taking office in 1989, the country's then 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, inflation was brought under control and gross
domestic product has increased each year between 1991 and 1998, with the
exception of 1995. During the first two quarters of 1999, however, gross
domestic product contracted by an estimated 3.0% and 4.9%, respectively. The
recent slowdown of economic activity, which has been attributed to external
economic conditions as well as internal political uncertainties and is not
expected to persist, has fostered a deflationary process, evidenced by the 1.8%
decrease in the consumer price index during the 12 months ended November 30,
1999. 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 the current President, who took office on December
10, 1999, and 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
30
<PAGE>
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.
31
<PAGE>
For more information about the Portfolios, the following documents are
available upon request:
Annual/Semi-annual Reports to Shareholders
The Portfolios' annual and semi-annual reports to shareholders contain
additional information on the Portfolios' investments. In the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected a Portfolio's performance during its last fiscal
year.
Statement of Additional Information (SAI)
The Portfolios have an SAI, which contains more detailed information about the
Portfolios, including their operations and investment policies. The Portfolios'
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 Portfolios, 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 Portfolios 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 Portfolios on the
internet at: www.Alliancecapital.com.
File No: 811-05398
32
