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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
Global Dollar Government Portfolio
This Prospectus describes the Portfolio that is available as an underlying
investment through your variable contract. For information about your
variable contract, including information about insurance-related
expenses, see the prospectus for your variable contract which
accompanies this Prospectus.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this
Prospectus. Any representation to the contrary is a
criminal offense.
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Investment Products Offered
.Are Not FDIC Insured
.May Lose Value
.Are Not Bank Guaranteed
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TABLE OF CONTENTS
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Page
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RISK/RETURN SUMMARY........................................................ 4
Summary of Principal Risks............................................... 7
GLOSSARY................................................................... 9
DESCRIPTION OF THE PORTFOLIO............................................... 11
Investment Objectives and Principal Policies and Risks................... 11
Description of Additional Investment Practices........................... 13
Additional Risk Considerations........................................... 21
MANAGEMENT OF THE PORTFOLIO................................................ 25
PURCHASE AND SALE OF SHARES................................................ 26
How The Portfolio Values Its Shares...................................... 26
How To Purchase and Sell Shares.......................................... 26
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 26
FINANCIAL HIGHLIGHTS....................................................... 27
APPENDIX A................................................................. 28
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Alliance Variable Products Series Fund's investment adviser is Alliance Capital
Management L.P., a global investment manager providing diversified services to
institutions and individuals through a broad line of investments including more
than 100 mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about Alliance Variable
Products Series Fund. You will find additional information about the Portfolio
of the Fund, including a detailed description of the risks of an investment in
the Portfolio, after this summary.
The Risk/Return Summary describes the Portfolio's objectives, principal
investment strategies and principal risks. The Portfolio's summary includes a
discussion of some of the principal risks of investing in the Portfolio. A
further discussion of these and other risks starts on page 7.
More detailed descriptions of the Portfolio, including the risks associated
with investing in the Portfolio, can be found further back in this Prospectus.
Please be sure to read this additional information BEFORE you invest.
The Risk/Return Summary includes a table for the Portfolio showing its average
annual returns and a bar chart showing its annual returns. The table and the
bar chart provide an indication of the historical risk of an investment in the
Portfolio by showing:
. how the Portfolio's average annual returns for one, five, and 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old) compare to those of a broad based securities market index;
and
. changes in the Portfolio's performance from year to year over 10 years
(or over the life of the Portfolio if the Portfolio is less than 10
years old).
If the Portfolio's returns reflected fees charged by your variable contract,
the returns shown in the table and bar charts for the Portfolio would be lower.
The Portfolio's past performance, of course, does not necessarily indicate how
it will perform in the future. As with all investments, you may lose money by
investing in the Portfolio.
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Global Dollar Government Portfolio
Objective: The Portfolio's investment objective is to seek a high level of
current income. Its secondary investment objective is capital appreciation.
Principal Investment Strategies and Risks: The Portfolio primarily invests
in sovereign debt obligations. The Portfolio invests substantially all of
its assets in lower-rated securities or unrated securities of equivalent
quality. The Portfolio limits its investments in sovereign debt obligations
of any one country to no more than 25% of its total assets.
The Portfolio may invest up to 35% of its total assets in U.S. and non-U.S.
corporate fixed-income securities. All of the Portfolio's investments in
sovereign debt obligations and fixed-income securities will be U.S. Dollar-
denominated. The Portfolio also may invest up to 30% of its assets in
emerging markets or developing countries, including Argentina, Brazil,
Mexico, Morocco, the Philippines, Russia, and Venezuela. The average
weighted maturity of the Portfolio's investments varies between nine and 30
years.
The Portfolio may use significant borrowings and reverse repurchase
agreements and dollar rolls for leverage. The Portfolio also may:
. use derivatives strategies;
. invest in structured securities;
. invest in fixed and floating rate loans to sovereign debt issuers;
. enter into repurchase agreements; and
. invest in variable, floating, and inverse floating rate securities.
Among the principal risks of investing in the Portfolio are interest rate
risk, credit risk, market risk, and leveraging risk. Because the Portfolio
invests in lower-rated securities, it has significantly more risk than
other types of bond funds and its returns will be more volatile. The
Portfolio's investments have foreign risk and currency risk. Because the
Portfolio invests in emerging markets and in developing countries, the
Portfolio's returns will be significantly more volatile and may differ
substantially from returns in the U.S. bond markets generally. Your
investment also has the risk that market changes or other factors affecting
emerging markets and developing countries, including political instability
and unpredictable economic conditions, may have a significant effect on the
Portfolio's net asset value. In addition, the Portfolio is non-diversified,
which means that it invests more of its assets in a smaller number of
issuers than many other funds. Factors affecting those issuers can have a
more significant effect on the Portfolio's net asset value.
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The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table
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5 Since
1 Year Years Inception
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<S> <C> <C> <C>
Portfolio.......................................... 26.08% 11.42% 9.69%
J.P. Morgan Emerging Markets Bond Index............ 21.56% 16.54% 14.42%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1999. Since Inception return information is from May 2, 1994 for
the Portfolio and April 30, 1994 for the Index.
[BAR CHART]
90 91 92 93 94 95 96 97 98 99
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A 23.0 24.9 13.2 (21.7) 26.1
You should consider an investment in the Portfolio as a long-term investment.
The Portfolio's returns will fluctuate over long and short periods. For
example, during the period shown in the bar chart, the Portfolio's:
Best quarter was up 16.02%, 4th quarter, 1999; and
Worst quarter was down -27.11%, 3rd quarter, 1998.
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SUMMARY OF PRINCIPAL RISKS
The value of your investment in the Portfolio will change with changes in the
values of the Portfolio's investments. Many factors can affect those values. In
this Summary, we describe the principal risks that may affect the Portfolio's
investments as a whole. The Portfolio could be subject to additional principal
risks because the types of investments made by the Portfolio can change over
time. This Prospectus has additional descriptions of the types of investments
that appear in bold type in the discussions under "Description of Additional
Investment Practices" or "Additional Risk Considerations." These sections also
include more information about the Portfolio, its investments, and related
risks.
. Interest Rate Risk This is the risk that changes in interest rates will
affect the value of the Portfolio's investments in debt securities,
such as bonds, notes, and asset-backed securities, or other income-
producing securities. Debt securities are obligations of the issuer to
make payments of principal and/or interest in future dates. Interest
rate risk is particularly applicable to fixed-income securities.
Increases in interest rates may cause the value of the Portfolio's
investments to decline.
Interest rate risk generally is greater for lower-rated securities or
comparable unrated securities. Interest rate risk is generally greater
for debt securities with longer maturities. The value of these
securities is affected more by changes in interest rates because when
interest rates rise, the maturities of these types of securities tend
to lengthen and the value of the securities decreases more
significantly. In addition, these types of securities are subject to
prepayment when interest rates fall, which generally results in lower
returns because the Portfolio must reinvest its assets in debt
securities with lower interest rates.
. Credit Risk This is the risk that the issuer or the guarantor of a debt
security, or the counterparty to a derivatives contract, will be unable
or unwilling to make timely payments of interest or principal, or to
otherwise honor its obligations. The degree of risk for a particular
security may be reflected in its credit rating. Credit risk is greater
for 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 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. The Portfolio invests in foreign securities and is
therefore 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 the Portfolio's
investments will fluctuate as the stock or bond markets fluctuate and
that prices overall will decline over shorter or longer-term periods.
. Foreign Risk This is the risk of investments in issuers located in
foreign countries. The Portfolios investments in foreign securities may
experience more rapid and extreme changes in value than investments in
securities of U.S. companies. This is because the securities markets of
many foreign countries are relatively small, with a limited number of
companies representing a small number of industries. Additionally,
foreign securities issuers are not usually subject to the same degree
of regulation as U.S. issuers. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases significantly,
from U.S. standards. Also, nationalization, expropriation or
confiscatory taxation, currency blockage, political changes, or
diplomatic developments could adversely affect the Portfolio's
investments in a foreign country. In the event of nationalization,
expropriation, or other confiscation, the Portfolio could lose its
entire investment.
. Currency Risk This is the risk that fluctuations in the exchange rates
between the U.S. Dollar and foreign currencies may negatively affect
the value of the Portfolio's investments.
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. 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 the Portfolio's net asset value.
Political, social, and economic changes in a particular country could
result in increased risks for the 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.
. Leveraging Risk When the Portfolio borrows money or otherwise leverages
its portfolio, the value of an investment in the Portfolio will be more
volatile and all other risks will tend to be compounded. The Portfolio
may create leverage by using reverse repurchase agreements, inverse
floating rate instruments or derivatives, or by borrowing money.
. Derivatives Risk The Portfolio may use derivatives, which are financial
contracts whose value depends on, or is derived from, the value of an
underlying asset, reference rate, or index. Alliance will sometimes use
derivatives as part of a strategy designed to reduce other risks.
Generally, however, the Portfolio uses derivatives as direct
investments to earn income, enhance yield, and broaden Portfolio
diversification, which entails greater risk than if used solely for
hedging purposes. In addition to other risks such as the credit risk of
the counterparty, derivatives involve the risk of difficulties in
pricing and valuation and the risk that changes in the value of the
derivative may not correlate perfectly with relevant assets, rates, or
indices.
. Liquidity Risk Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing the Portfolio from
selling out of these illiquid securities at an advantageous price. The
Portfolio may be subject to greater liquidity risk if they use
derivatives or invest in securities having substantial interest rate
and credit risk. In addition, liquidity risk tends to increase to the
extent the Portfolio invests in securities whose sale may be restricted
by law or by contract.
. Management Risk The Portfolio is subject to management risk because it
is an actively managed investment portfolio. Alliance will apply its
investment techniques and risk analyses in making investment decisions
for the Portfolio, but there can be no guarantee that its decisions
will produce the desired results. In some cases, derivative and other
investment techniques may be unavailable or Alliance may determine not
to use them, possibly even under market conditions where their use
could benefit the Portfolio.
. Focused Portfolio Risk The Portfolio may have more risk because it is
"non-diversified" meaning that it can invest more of its assets in a
smaller number of companies than many other funds, and changes in the
value of a single security may have a more significant effect on the
Portfolio's net asset value.
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GLOSSARY
This Prospectus uses the following terms.
Types of Securities
Bonds are fixed, floating, and variable rate debt obligations.
Debt securities are bonds, debentures, notes, and bills.
Fixed-income securities are debt securities and preferred stocks, including
floating rate and variable rate instruments.
Qualifying bank deposits are certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks that have total assets of more than
$1 billion and are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold under Rule 144A of the
Securities Act.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Rating Agencies, Rated Securities and Indexes
Duff & Phelps is Duff & Phelps Credit Rating Company.
Fitch is Fitch IBCA, Inc.
Investment grade securities are fixed-income securities rated Baa and above by
Moody's or B and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or below by Moody's
or BB or below by S&P, Duff & Phelps or Fitch, or determined by Alliance to be
of equivalent quality, and are commonly referred to as "junk bonds."
Moody's is Moody's Investors Service, Inc.
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
S&P is Standard & Poor's Ratings Services.
Other
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Duration is a measure that relates the price volatility of a security to
changes in interest rates. The duration of a debt security is the weighted
average term to maturity, expressed in years, of the present value of all
future cash flows, including coupon payments and principal repayments. Thus, by
definition, duration is always less than or equal to full maturity.
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Exchange is the New York Stock Exchange.
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 PORTFOLIO
This section of the Prospectus provides a more complete description of the
Portfolio's investment objectives, principal strategies and risks. Of course,
there can be no assurance that the Portfolio will achieve its investment
objective.
Please note that:
. Additional discussion of the Portfolio's investments, including the
risks of the investments, can be found in the discussion under
Description of Additional Investment Practices following this section.
. The description of the principal risks for the Portfolio may include
risks described in the Summary of Principal Risks above. Additional
information about the risks of investing in the Portfolio can be found
in the discussion under Additional Risk Considerations.
. Additional descriptions of the Portfolio's strategies, investments and
risks can be found in the Fund's Statement of Additional Information or
SAI.
. Except as noted, (i) the Portfolio's investment objectives are
"fundamental" and cannot be changed without a shareholder vote, and
(ii) the Portfolio's investment policies are not fundamental and thus
can be changed without a shareholder vote.
INVESTMENT OBJECTIVES AND PRINCIPAL POLICIES AND RISKS
Global Dollar Government Portfolio
The Portfolio's investment objective is to seek a high level of current income.
Its secondary investment objective is capital appreciation. In seeking to
achieve these objectives, the Portfolio invests at least 65% of its total
assets in sovereign debt obligations. The Portfolio's investments in sovereign
debt obligations will emphasize obligations referred to as "Brady Bonds," which
are issued as part of debt restructurings and collateralized in full as to
principal due at maturity by zero coupon U.S. Government securities.
The Portfolio also may invest up to 35% of its total assets in U.S. and non-
U.S. corporate fixed-income securities. The Portfolio will limit its
investments in sovereign debt obligations and U.S. and non-U.S. corporate
fixed-income securities to U.S. Dollar-denominated securities. Alliance expects
the average weighted maturity of the Portfolio's investments will be
approximately:
. for U.S. fixed-income securities, nine to 15 years;
. for non-U.S. fixed-income securities, 15 to 25 years; and
. for sovereign debt obligations longer than 25 years.
Substantially all of the Portfolio's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for non-
subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by S&P,
Duff & Phelps and Fitch) and unrated securities of equivalent investment
quality. These securities may have extremely poor prospects of ever attaining
any real investment standing and a current identifiable vulnerability to
default, be unlikely to have the capacity to pay interest and repay principal
when due in the event of adverse business, financial or economic conditions,
and be in default or not current in the payment of interest or principal.
The Portfolio also may invest in investment grade securities. Unrated
securities will be considered for investment by the Portfolio when Alliance
believes that the financial condition of the issuers of such obligations and
the protection afforded by the terms of the obligations themselves limit the
risk to the Portfolio to a degree comparable to that of rated securities which
are consistent with the Portfolio's investment objectives and policies.
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As of December 31, 1999, securities ratings (or equivalent quality) of the
Portfolio's securities were:
. A-1+ 14.66%
. Ba or BB 29.00%
. B 31.76%
. CCC 3.55%
. CC 6.28%
. C 1.23%
. Unrated 13.52%
The Portfolio's investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities emphasize countries that are considered at
the time of purchase to be emerging markets or developing countries by the
World Bank. A substantial part of the Portfolio's investment focus is in
obligations of or securities of issuers in Argentina, Brazil, Mexico, Morocco,
the Philippines, Russia and Venezuela because these countries are now, or are
expected in the future to be, the principal participants in debt restructuring
programs (including, in the case of Argentina, Mexico, the Philippines and
Venezuela, issuers of currently outstanding Brady Bonds) that, in Alliance's
opinion, will provide the most attractive investment opportunities for the
Portfolio. Alliance anticipates that other countries that will provide
investment opportunities for the Portfolio include, among others, Bolivia,
Costa Rica, the Dominican Republic, Ecuador, Jordan, Nigeria, Panama, Peru,
Poland, Thailand, Turkey and Uruguay.
The Portfolio limits its investments in the sovereign debt obligations of any
single foreign country to less than 25% of its total assets, although the
Portfolio may invest up to 30% of its total assets in the sovereign debt
obligations of and corporate fixed-income securities of issuers in each of
Argentina, Brazil, Mexico, Morocco, the Philippines, Russia and Venezuela. The
Portfolio expects that it will limit its investments in any other single
foreign country to not more than 10% of its total assets.
The Portfolio also may:
. invest in structured securities of up to 25% of its total assets;
. invest in fixed and floating rate loans that are arranged through
private negotiations between an issuer of sovereign debt obligations and
one or more financial institutions and in participations in and
assignments of these types of loans;
. invest up to 10% of its total assets in other investment companies whose
investment objectives and policies are consistent with those of the
Portfolio;
. invest in warrants;
. enter into interest rate swaps, caps and floors;
. enter into forward commitments for up to 30% of its total assets;
. enter into standby commitment agreements;
. make short sales of securities "against the box" or maintain a short
position of up to 10% of its net assets;
. write put and call options on securities of the types in which it is
permitted to invest and write call options for cross-hedging purposes;
. write privately negotiated options on securities;
. purchase and sell exchange-traded options on any securities index of the
types of securities in which it may invest;
. invest in variable, floating, and inverse floating rate instruments;
. enter into reverse repurchase agreements and dollar rolls;
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. invest in loan participations and assignments up to 25% of its total
assets;
. make secured loans of portfolio securities of up to 30% of its net
assets;
. invest in illiquid securities of up to 15% of its total assets; and
. enter into repurchase agreements.
While it does not currently intend to do so, the Portfolio reserves the right
to borrow an amount not to exceed one-third of the Portfolio's net assets.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
This section describes the Portfolio's investment practices and associated
risks. Unless otherwise noted, the Portfolio's use of any of these practices
was specified in the previous section.
Derivatives. The Portfolio may use derivatives to achieve its investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices, and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Portfolio to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Portfolio is permitted to use derivatives
for one or more of these purposes, although the Portfolio generally uses
derivatives primarily as direct investments in order to enhance yields and
broaden portfolio diversification. Each of these uses entails greater risk than
if derivatives were used solely for hedging purposes. Derivatives are a
valuable tool, which, when used properly, can provide significant benefits to
Portfolio shareholders. The Portfolio may take a significant position in those
derivatives that are within its investment policies if, in Alliance's judgment,
this represents the most effective response to current or anticipated market
conditions. Alliance's use of derivatives is subject to continuous risk
assessment and control from the standpoint of the Portfolio's investment
objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately-negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards, and swaps--from which virtually any type of derivative transaction
can be created.
. Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a
premium payment or fee, gives the option holder (the buyer) the right
but not the obligation to buy or sell the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index) at a
specified price (the exercise price) during a period of time or on a
specified date. A call option entitles the holder to purchase, and a
put option entitles the holder to sell, the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index).
Likewise, when an option is exercised the writer of the option is
obligated to sell (in the case of a call option) or to purchase (in the
case of a put option) the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index).
. Futures--A futures contract is an agreement that obligates the buyer to
buy and the seller to sell a specified quantity of an underlying asset
(or settle for cash the value of a contract based on an
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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 the Portfolio.
. Market Risk--This is the general risk of all investments that the value
of a particular investment will change in a way detrimental to the
Portfolio's interest based on changes in the bond market generally.
. Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from
those associated with stocks and bonds. The use of a derivative
requires an understanding not only of the underlying instrument but
also of the derivative itself, without the benefit of observing the
performance of the derivative under all possible market conditions. In
particular, the use and complexity of derivatives require the
maintenance of adequate controls to monitor the transactions entered
into, the ability to assess the risk that a derivative adds to the
Portfolio, and the ability to forecast price, interest rate, or
currency exchange rate movements correctly.
. Credit Risk--This is the risk that a loss may be sustained by the
Portfolio as a result of the failure of a derivative counterparty to
comply with the terms of the derivative contract. The credit risk for
exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily
payment system (i.e., margin
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requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar
clearing agency guarantee. Therefore, the Portfolio considers the
creditworthiness of each counterparty to a privately negotiated
derivative in evaluating potential credit risk.
. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
. Leverage Risk--Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial
investment.
. Other Risks--Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately negotiated
derivatives, are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements to
counterparties or a loss of value to the Portfolio. Derivatives do not
always perfectly or even highly correlate or track the value of the
assets, rates or indices they are designed to closely track.
Consequently, the Portfolio's use of derivatives may not always be an
effective means of, and sometimes could be counterproductive to,
furthering the Portfolio's investment objective.
Derivatives Used by the Portfolio. The following describes specific derivatives
that the Portfolio may use.
Interest Rate Transactions (Swaps, Caps, and Floors). The Portfolio may enter
into interest rate swap, cap, or floor transactions and expects to do so
primarily for hedging purposes, which may include preserving a return or spread
on a particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Portfolio anticipates purchasing at a
later date. The Portfolio does not intend to use these transactions in a
speculative manner.
Interest rate swaps involve the exchange by the Portfolio with another party of
their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate swaps are
entered on a net basis (i.e., the two payment streams are netted out, with the
Portfolio receiving or paying, as the case may be, only the net amount of the
two payments).
Interest rate caps and floors are similar to options in that the purchase of an
interest rate cap or floor entitles the purchaser, to the extent that a
specified index exceeds (in the case of a cap) or falls below (in the case of a
floor) a predetermined interest rate, to receive payments of interest on a
notional amount from the party selling the interest rate cap or floor. The
Portfolio may enter into interest rate swaps, caps, and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to the Portfolio from interest rate
transactions is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make.
Options on Securities. In purchasing an option on securities, the Portfolio
would be in a position to realize a gain if, during the option period, the
price of the underlying securities increased (in the case of a call) or
decreased (in the case of a put) by an amount in excess of the premium paid;
otherwise the Portfolio would
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experience a loss not greater than the premium paid for the option. Thus, the
Portfolio would realize a loss if the price of the underlying security declined
or remained the same (in the case of a call) or increased or remained the same
(in the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by the Portfolio were permitted to expire without
being sold or exercised, its premium would represent a loss to the Portfolio.
The Portfolio may write a put or call option in return for a premium, which is
retained by the Portfolio whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, the
Portfolio will not write uncovered call or put options on securities. A call
option written by the Portfolio is "covered" if the Portfolio owns the
underlying security, has an absolute and immediate right to acquire that
security upon conversion or exchange of another security it holds, or holds a
call option on the underlying security with an exercise price equal to or less
than that of the call option it has written. A put option written by the
Portfolio is covered if the Portfolio holds a put option on the underlying
securities with an exercise price equal to or greater than that of the put
option it has written.
The risk involved in writing an uncovered call option is that there could be an
increase in the market value of the underlying security, and the Portfolio
could be obligated to acquire the underlying security at its current price and
sell it at a lower price. The risk of loss from writing an uncovered put option
is limited to the exercise price of the option.
The Portfolio may write a call option on a security that it does not own in
order to hedge against a decline in the value of a security that it owns or has
the right to acquire, a technique referred to as "cross-hedging." The Portfolio
would write a call option for cross-hedging purposes, instead of writing a
covered call option, when the premium to be received from the cross-hedge
transaction exceeds that to be received from writing a covered call option,
while at the same time achieving the desired hedge. The correlation risk
involved in cross-hedging may be greater than the correlation risk involved
with other hedging strategies.
The Portfolio generally purchases or writes privately negotiated options on
securities. The Portfolio will effect such transactions only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan institutions) deemed creditworthy by Alliance. Privately negotiated
options purchased or written by the Portfolio may be illiquid and it may not be
possible for the Portfolio to effect a closing transaction at an advantageous
time.
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Brady Bonds. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final
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maturity, (ii) collateralized interest payments, (iii) uncollateralized
interest payments, and (iv) any uncollateralized repayment of principal at
maturity (these uncollateralized amounts constitute the "residual risk"). In
the event of a default with respect to collateralized Brady Bonds as a result
of which the payment obligations of the issuer are accelerated, the U.S.
Treasury zero coupon obligations held as collateral for the payment of
principal will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held by the
collateral agent to the scheduled maturity of the defaulted Brady Bonds, which
will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments that would have then been due on
the Brady Bonds in the normal course. In light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as speculative.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a "when-issued basis" or purchases or sales on a
"delayed delivery basis." In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt restructuring or
approval of a proposed financing by appropriate authorities (i.e., a "when, as
and if issued" trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation and no interest or dividends accrue to the purchaser
prior to the settlement date.
The use of forward commitments helps the Portfolio to protect against
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling bond prices, the Portfolio might sell
securities in its portfolio on a forward commitment basis to limit its exposure
to falling bond prices. In periods of falling interest rates and rising bond
prices, the Portfolio might sell a security in its portfolio and purchase the
same or a similar security on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields.
The Portfolio's right to receive or deliver a security under a forward
commitment may be sold prior to the settlement date. The Portfolio enters into
forward commitments, however, only with the intention of actually receiving
securities or delivering them, as the case may be. If the Portfolio, however,
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition or dispose of its right to deliver or receive against a forward
commitment, it may realize a gain or incur a loss.
Illiquid Securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps, (ii) over the counter options and assets used to cover over the counter
options, and (iii) repurchase agreements not terminable within seven days.
The Portfolio invests in illiquid securities and may not be able to sell such
securities and may not be able to realize their full value upon sale. Alliance
will monitor the Portfolio's investments in illiquid securities. Rule 144A
securities will not be treated as "illiquid" for the purposes of the limit on
investments so long as the securities meet liquidity guidelines established by
the Board of Directors.
Investment in Other Investment Companies. The Portfolio may invest in other
investment companies whose investment objectives and policies are consistent
with those of the Portfolio. If the Portfolio acquires shares in investment
companies, shareholders would bear both their proportionate share of expenses
in the
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Portfolio (including management and advisory fees) and, indirectly, the
expenses of such investment companies (including management and advisory fees).
Loan Participations and Assignments. The 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. The 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. The
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 the 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 the 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 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. The 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 the 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 the
Portfolio to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. The Portfolio
requires continual maintenance of collateral in an amount equal to, or in
excess of, the resale price. If a vendor defaults on its repurchase obligation,
the Portfolio would suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. If a vendor goes
bankrupt, the Portfolio might be delayed in, or prevented from, selling the
collateral for its benefit.
Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by the Portfolio of its assets concurrently with an agreement by
the Portfolio to repurchase the same assets at a later date at a fixed price.
During the reverse repurchase agreement period, the Portfolio continues to
receive principal and interest payments on these securities. Generally, the
effect of such a transaction is that the Portfolio can recover all or most of
the cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are advantageous
only if the interest cost to the Portfolio of the reverse repurchase
transaction is less than the cost of otherwise obtaining the cash. Reverse
repurchase agreements and dollar rolls are speculative techniques and are
considered borrowings by the Portfolio.
Dollar rolls involve sales by the Portfolio of securities for delivery in the
current month and the Portfolio's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Portfolio forgoes principal and interest paid
on the securities. The Portfolio is compensated by the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.
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Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities the Portfolio is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
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.
Secured Loans of Portfolio Securities. The Portfolio may make secured loans of
portfolio securities to brokers, dealers and financial institutions, provided
that cash, liquid high grade debt securities or bank letters of credit equal to
at least 100% of the market value of the securities loaned is deposited and
maintained by the borrower with the Portfolio's Custodian. The risks in lending
portfolio securities, as with other secured 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 the 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 the 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 the Portfolio's
gain is limited to the price at which it sold the security short, its potential
loss is theoretically unlimited.
Standby Commitment Agreements. Standby commitment agreements are similar to put
options that commit the Portfolio, for a stated period of time, to purchase a
stated amount of a security that may be issued and sold to the Portfolio at the
option of the issuer. The price and coupon of the security are fixed at the
time of the commitment. At the time of entering into the agreement, the
Portfolio is paid a commitment fee regardless of whether the security
ultimately is issued. The Portfolio will enter into such agreements only for
the purpose of investing in the security underlying the commitment at a yield
and price considered advantageous and unavailable on a firm commitment basis.
The Portfolio will not enter into a standby commitment with a remaining term in
excess of 45 days. The Portfolio will limit its investments in standby
commitments so that the aggregate purchase price of the securities subject to
the commitments does not exceed 20% of its assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, the Portfolio will bear the risk of capital
loss in the event the value of the security declines and may not benefit from
an appreciation in the value of the security during the commitment period if
the issuer decides not to issue and sell the security to the Portfolio.
Structured Securities. Structured securities in which the Portfolio may invest
represent interests in entities organized and operated solely for the purpose
of restructuring the investment characteristics of sovereign or
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foreign debt obligations. This type of restructuring involves the deposit with
or purchase by an entity, such as a corporation or trust, of specified
instruments (such as commercial bank loans or Brady Bonds) and the issuance by
that entity of one or more classes of structured securities backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued structured
securities to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured securities is dependent
on the extent of the cash flow on the underlying instruments. Because
structured securities typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments.
Structured securities of a given class may be either subordinated or
unsubordinated to the right of payment of another class. Subordinated
structured securities typically have higher yields and present greater risks
than unsubordinated structured securities.
Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
The Portfolio may invest in fixed-income securities that pay interest at a
coupon rate equal to a base rate, plus additional interest for a certain period
of time if short-term interest rates rise above a predetermined level or "cap."
The amount of such an additional interest payment typically is calculated under
a formula based on a short-term interest rate index multiplied by a designated
factor.
Leveraged inverse floating rate debt instruments are sometimes known as
"inverse floaters." The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse
floater is indexed. An inverse floater may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds the magnitude
of the change in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater volatility in market
value, such that, during periods of rising interest rates, the market values of
inverse floaters will tend to decrease more rapidly than those of fixed rate
securities.
Future Developments. The Portfolio may, following written notice to its
shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Portfolio, or are not available but may
yet be developed, to the extent such investment practices are consistent with
the Portfolio's investment objective and legally permissible for the Portfolio.
Such investment practices, if they arise, may involve risks that are different
from or exceed those involved in the practices described above.
Portfolio Turnover. The portfolio turnover rate for the Portfolio is included
in the Financial Highlights section. The Portfolio is actively managed and
engages in more active trading and may have a portfolio turnover rate that is
significantly higher than 100%. A higher rate of portfolio turnover increases
brokerage and other expenses, which must be borne by the Portfolio and its
shareholders.
Temporary Defensive Position. For temporary defensive purposes, the Portfolio
may invest in certain types of short-term, liquid, high-grade or high-quality
debt securities. These securities may include U.S. Government securities,
qualifying bank deposits, money market instruments, prime commercial paper and
other types of short-term debt securities, including notes and bonds. Such
securities may also include short-term, foreign-currency denominated securities
of the type mentioned above issued by foreign governmental entities, companies
and supranational organizations. While the Portfolio is investing for temporary
defensive purposes, it may not meet its investment objective.
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ADDITIONAL RISK CONSIDERATIONS
Investment in the Portfolio involves the special risk considerations described
below. Certain of these risks may be heightened when investing in emerging
markets.
Effects of Borrowing. The Portfolio's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and the
Portfolio that may borrow expects to effect borrowings and repayments at such
times and in such amounts as will maintain investment leverage in an amount
approximately equal to its borrowing target. The loan agreements provide for a
selection of interest rates that are based on the bank's short-term funding
costs in the U.S. and London markets.
Borrowings by the Portfolio result in leveraging of the Portfolio's shares.
Utilization of leverage, which is usually considered speculative, involves
certain risks to the Portfolio's shareholders. These include a higher
volatility of the net asset value of the Portfolio's shares and the relatively
greater effect on the net asset value of the shares. So long as the Portfolio
is able to realize a net return on its investment portfolio that is higher than
the interest expense paid on borrowings, the effect of leverage will be to
cause the Portfolio's shareholders to realize a higher current net investment
income than if the Portfolio were not leveraged. On the other hand, interest
rates on U.S. Dollar-denominated and foreign currency-denominated obligations
change from time to time as does their relationship to each other, depending
upon such factors as supply and demand forces, monetary and tax policies within
each country and investor expectations. Changes in such factors could cause the
relationship between such rates to change so that rates on U.S. Dollar-
denominated obligations may substantially increase relative to the foreign
currency-denominated obligations of the Portfolio's investments. If the
interest expense on borrowings approaches the net return on the Portfolio's
investment portfolio, the benefit of leverage to the Portfolio's shareholders
will be reduced. If the interest expense on borrowings were to exceed the net
return to shareholders, the Portfolio's use of leverage would result in a lower
rate of return. Similarly, the effect of leverage in a declining market could
be a greater decrease in net asset value per share. In an extreme case, if a
Portfolio's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Portfolio to liquidate
certain of its investments and reduce the net asset value of a Portfolio's
shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by the Portfolio could
adversely affect the Portfolio's shareholders, as noted above, or in
anticipation of such changes, the Portfolio may increase the percentage of its
investment portfolio invested in U.S. Government securities, which would tend
to offset the negative impact of leverage on Portfolio shareholders. The
Portfolio may also reduce the degree to which it is leveraged by repaying
amounts borrowed.
Fixed-Income Securities. The value of the Portfolio's shares will fluctuate
with the value of its investments. The value of the Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of the Portfolio's securities will
generally rise, although if falling interest rates are viewed as a precursor to
a recession, the values of the Portfolio's securities may fall along with
interest rates. Conversely, during periods of rising interest rates, the values
of the Portfolio's securities will generally decline. Changes in interest rates
have a greater effect on fixed-income securities with longer maturities and
durations than those with shorter maturities and durations.
In seeking to achieve the Portfolio's investment objective, there will be
times, such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in the Portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of the
Portfolio.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, the Portfolio whose investment portfolio includes
foreign securities
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may experience greater price volatility and significantly lower liquidity than
a portfolio invested solely in securities of U.S. companies. These markets may
be subject to greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of securities, than
is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase
the cost and expenses of the Portfolio. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
The Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require the Portfolio to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to the Portfolio. These factors may affect the liquidity of the
Portfolio's investments in any country and Alliance will monitor the effect of
any such factor or factors on the Portfolio's investments. Furthermore,
transaction costs including brokerage commissions for transactions both on and
off the securities exchanges in many foreign countries are generally higher
than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, or diplomatic
developments could affect adversely the economy of a foreign country. In the
event of nationalization, expropriation or other confiscation, the Portfolio
could lose its entire investment in securities in the country involved. In
addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Portfolio than that provided by U.S. laws.
Investment in Smaller, Emerging Companies. The foreign securities in which the
Portfolio may invest may include securities of smaller, emerging companies.
Investment in such companies involves greater risks than is customarily
associated with securities of more established companies. Companies in the
earlier stages of their development often have products and management
personnel which have not been thoroughly tested by time or the marketplace;
their financial resources may not be as substantial as those of more
established companies. The securities of smaller companies may have relatively
limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger companies or broad market indices. The
revenue flow of such companies may be erratic and their results of operations
may fluctuate widely and may also contribute to stock price volatility.
Extreme Governmental Action; Less Protective Laws. In contrast with investing
in the United States, foreign investment may involve in certain situations
greater risk of nationalization, expropriation, confiscatory taxation, currency
blockage or other extreme governmental action which could adversely impact the
Portfolio's investments. In the event of certain such actions, the Portfolio
could lose its entire investment in the country
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involved. In addition, laws in various foreign countries governing, among other
subjects, business organization and practices, securities and securities
trading, bankruptcy and insolvency may provide less protection to investors
such as the Portfolio than provided under U.S. laws.
Investment in Fixed-Income Securities Rated Baa and BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, the Portfolio may experience
difficulty in valuing such securities and, in turn, the Portfolio's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification, and attention to current
developments and trends in interest rates and economic and political
conditions. There can be no assurance, however, that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of its
program for managing the Portfolio's securities than would be the case if the
Portfolio did not invest in lower-rated securities. In considering investments
for the Portfolio, Alliance will attempt to identify those high-yielding
securities whose financial condition is adequate to meet future obligations,
has improved, or is expected to improve in the future. Alliance's analysis
focuses on relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience and managerial
strength of the issuer.
Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which the Portfolio may invest. Reduced
secondary market liquidity may have an adverse effect on the market price and
the Portfolio's ability to dispose of particular instruments when necessary to
meet its liquidity requirements or in response to specific economic events such
as a deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain sovereign debt obligations may also make it more
difficult for the Portfolio to obtain accurate market quotations for the
purpose of valuing its portfolio. Market quotations are generally available on
many sovereign debt obligations only from a limited number of dealers and may
not necessarily represent firm bids of those dealers or prices for actual
sales.
By investing in sovereign debt obligations, the Portfolio will be exposed to
the direct or indirect consequences of political, social, and economic changes
in various countries. Political changes in a country may affect the willingness
of a foreign government to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among other things,
in its inflation rate, the amount of its external debt and its gross domestic
product, will also affect the government's ability to honor its obligations.
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<PAGE>
The sovereign debt obligations in which the Portfolio will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations, and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers.
The Portfolio is permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Portfolio's investment
objectives. The Portfolio may have limited legal recourse in the event of a
default with respect to certain sovereign debt obligations it holds. For
example, remedies from defaults on certain sovereign debt obligations, unlike
those on private debt, must, in some cases, be pursued in the courts of the
defaulting party itself. Legal recourse therefore may be significantly
diminished. Bankruptcy, moratorium and other similar laws applicable to issuers
of sovereign debt obligations may be substantially different from those
applicable to issuers of private debt obligations. The political context,
expressed as the willingness of an issuer of sovereign debt obligations to meet
the terms of the debt obligation, for example, is of considerable importance.
In addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of securities issued by foreign
governments in the event of default under commercial bank loan agreements.
U.S. and Foreign Taxes. The Portfolio's investment in foreign securities may be
subject to taxes withheld at the source on dividend or interest payments.
Foreign taxes paid by the Portfolio may be creditable or deductible by U.S.
shareholders for U.S. income tax purposes. No assurance can be given that
applicable tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct such foreign
taxes.
U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which certain Portfolios invest may include securities issued in
connection with corporate restructurings such as takeovers or leveraged
buyouts, which may pose particular risks. Securities issued to finance
corporate restructurings may have special credit risks due to the highly
leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Furthermore, the
market price of such securities may be more volatile to the extent that
expected benefits from the restructuring do not materialize. The Portfolio may
also invest in U.S. corporate fixed-income securities that are not current in
the payment of interest or principal or are in default, so long as Alliance
believes such investment is consistent with the Portfolio's investment
objectives. The Portfolio's rights with respect to defaults on such securities
will be subject to applicable U.S. bankruptcy, moratorium and other similar
laws.
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<PAGE>
MANAGEMENT OF THE PORTFOLIO
Investment Adviser
The Portfolio's Adviser is Alliance Capital Management, L.P., 1345 Avenue of
the Americas, New York, New York 10105. Alliance is a leading international
investment manager supervising client accounts with assets as of December 31,
1999, totaling more than $368 billion (of which more than $169 billion
represented the assets of investment companies). As of December 31, 1999,
Alliance managed retirement assets for many of the largest public and private
employee benefit plans (including 31 of the nation's FORTUNE 100 companies),
for public employee retirement funds in 31 states, for investment companies and
for foundations, endowments, banks and insurance companies worldwide. The 53
registered investment companies managed by Alliance, comprising 119 separate
portfolios currently have more than 5 million shareholder accounts.
Alliance provides investment advisory services and order placement facilities
for the Portfolio. For these advisory services, for the fiscal year ended
December 31, 1999 the Portfolio paid Alliance .12% as a percentage of average
net assets.
<TABLE>
<CAPTION>
Fee as a
percentage of
average
Portfolio net assets *
--------- -------------
<S> <C>
Global Dollar Government Portfolio................................ .12%
</TABLE>
- --------
* 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 Portfolio as a percentage of average net assets,
would have been .75%.
Portfolio Manager
Wayne D. Lyski is the person who has been primarily responsible for the day-to-
day management of the Portfolio since its inception. Mr. Lyski is an Executive
Vice President of Alliance Capital Management Corporation, the sole general
partner of Alliance, with which he has been associated since prior to 1995.
25
<PAGE>
PURCHASE AND SALE OF SHARES
How The Portfolio Values Its Shares
The Portfolio's net asset value or NAV is calculated at 4:00 p.m., Eastern
time, each day the Exchange is open for business. To calculate NAV, the
Portfolio's assets are valued and totaled, liabilities are subtracted, and the
balance, called net assets, is divided by the number of shares outstanding. The
Portfolio values its securities at their current market value determined on the
basis of market quotations or, if such quotations are not readily available,
such other methods as the Portfolio's Directors or Trustees believe accurately
reflect fair market value. The Portfolio invests in securities that are
primarily listed on foreign exchanges and trade on weekends or other days when
the fund does not price its shares. The Portfolio's NAVs may change on days
when shareholders will not be able to purchase or redeem the Portfolio's
shares.
Your order for purchase or sale of shares is priced at the next NAV calculated
after your order is received by the Portfolio.
How To Purchase and Sell Shares
The Portfolio offers its shares through the separate accounts of life insurance
companies. You may only purchase and sell shares through these separate
accounts. See the prospectus of the separate account of the participating
insurance company for information on the purchase and sale of the Portfolios'
shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Portfolio declares dividends on its shares at least annually. The income
and capital gains distribution will be made in shares of the Portfolio.
See the prospectus of the separate account of the participating insurance
company for federal income tax information.
Investment income received by the Portfolio from sources within foreign
countries may be subject to foreign income taxes withheld at the source.
Provided that certain code requirements are met, the Portfolio may "pass-
through" to its shareholders credits or deductions to foreign income taxes
paid.
26
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolio's financial performance for the period of the Portfolio's operations.
Certain information reflects financial results for a single share of the
Portfolio. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Portfolio (assuming
reinvestment of all dividends and distributions). The information has been
audited by Ernst & Young LLP, the Fund's independent auditors, whose report,
along with the Portfolio's financial statements, is included in the SAI, which
is available upon request.
Global Dollar Government Portfolio
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year.. $ 10.18 $ 14.65 $ 14.32 $11.95 $ 9.84
------- ------- ------- ------ ------
Income From Investment Operations
Net investment income(a)(b)......... 1.21 1.20 1.17 1.10 .92
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions.............. 1.08 (4.03) .70 1.78 1.32
------- ------- ------- ------ ------
Net increase (decrease) in net asset
value from operations.............. 2.29 (2.83) 1.87 2.88 2.24
------- ------- ------- ------ ------
Less: Dividends and Distributions
Dividends from net investment
income............................. (1.68) (.95) (.61) (.48) (.13)
Distributions from net realized
gains.............................. -0- (.69) (.93) (.03) -0-
------- ------- ------- ------ ------
Total dividends and distributions... (1.68) (1.64) (1.54) (.51) (.13)
------- ------- ------- ------ ------
Net asset value, end of year........ $ 10.79 $ 10.18 $ 14.65 $14.32 $11.95
======= ======= ======= ====== ======
Total Return
Total investment return based on net
asset value(c)..................... 26.08% (21.71)% 13.23% 24.90% 22.98%
Ratios/Supplemental Data
Net assets, end of period (000's
omitted)........................... $10,139 $10,380 $15,378 $8,847 $3,778
Ratios to average net assets of:
Expenses, net of waivers and
reimbursements................... .95% .95% .95% .95% .95%
Expenses, before waivers and
reimbursements................... 2.29% 1.75% 1.29% 1.97% 4.82%
Net investment income(a).......... 12.42% 9.49% 7.87% 8.53% 8.65%
Portfolio turnover rate............. 117% 166% 214% 155% 13%
</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.
27
<PAGE>
APPENDIX A
BOND RATINGS
Moody's Investors Service, Inc.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
28
<PAGE>
Suspension or withdrawal may occur if: new and material circumstances arise,
the effects of which preclude satisfactory analysis; there is no longer
available reasonable up-to-date data to permit a judgment to be formed; or a
bond is called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Standard & Poor's Ratings Services
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
29
<PAGE>
Duff & Phelps Credit Rating Co.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- --High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- --Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- --Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- --Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC--Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP--Preferred stock with dividend arrearages.
Fitch Ibca, Inc.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
30
<PAGE>
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
31
<PAGE>
For more information about the Portfolio, the following documents are available
upon request:
Annual/Semi-annual Reports to Shareholders
The Portfolio's annual and semi-annual reports to shareholders contain
additional information on the Portfolio's investments. In the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Portfolio's performance during its last fiscal
year.
Statement of Additional Information (SAI)
The Fund has an SAI, which contains more detailed information about the
Portfolio, including its operations and investment policies. The SAI is
incorporated by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the
SAI, or make shareholder inquiries of the Portfolio, by contacting your broker
or other financial intermediary, or by contacting Alliance:
By mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By phone: For Information:
(800) 221-5672
For Literature:(800) 227-4618
Or you may view or obtain these documents from the Commission:
. Call the Commission at 1-202-942-8090 for information on the operation
of the Public Reference Room.
. Reports and other information about the Portfolio are available on the
EDGAR Database on the Commission's Internet site at http://www.sec.gov.
. Copies of the information may be obtained, after paying a fee, by
electronic request at [email protected], or by writing the Commission's
Public Reference Section, Washington, DC 20549-0102.
You also may find more information about Alliance and the Portfolio on the
internet at: www.Alliancecapital.com.
File No: 811-05398
32
