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This is filed pursuant to Rule 497(e).
File Nos.: 33-18647 and 811-05398
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Class B Prospectus
ALLIANCE VARIABLE PRODUCTS
SERIES FUND, INC.
May 1, 2000
Growth 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
<TABLE>
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Page
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<S> <C>
RISK/RETURN SUMMARY........................................................ 4
Summary of Principal Risks............................................... 6
GLOSSARY................................................................... 7
DESCRIPTION OF THE PORTFOLIO............................................... 9
Investment Objectives and Principal Policies and Risks................... 9
Description of Additional Investment Practices........................... 10
Additional Risk Considerations........................................... 16
MANAGEMENT OF THE PORTFOLIO................................................ 20
PURCHASE AND SALE OF SHARES................................................ 21
How The Portfolio Values Its Shares...................................... 21
How To Purchase and Sell Shares.......................................... 21
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 21
DISTRIBUTION ARRANGEMENTS.................................................. 21
FINANCIAL HIGHLIGHTS....................................................... 22
</TABLE>
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Alliance Variable Products Series Fund's investment adviser is Alliance Capital
Management L.P., a global investment manager providing diversified services to
institutions and individuals through a broad line of investments including more
than 100 mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about Alliance Variable
Products Series Fund. You will find additional information about the Portfolio,
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 6.
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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Growth Portfolio
Objective: The Portfolio's investment objective is to provide long-term
growth of capital. Current income is only an incidental consideration.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in equity securities of companies with favorable earnings outlooks and
whose long-term growth rates are expected to exceed that of the U.S.
economy over time. The Portfolio emphasizes investments in large- and mid-
cap companies. The Portfolio also may invest up to 25% of its total assets
in lower-rated fixed-income securities and convertible bonds, and generally
up to 15% of its total assets in foreign securities.
Among the principal risks of investing in the Portfolio is market risk.
Investments in mid-cap companies may be more volatile than investments in
large-cap companies. To the extent the Portfolio invests in lower-rated
fixed-income securities and convertible bonds, your investment may have
interest rate or credit risk. The Portfolio's investments in foreign
securities have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table*
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<CAPTION>
Since
1 Year 5 Years Inception
------ ------- ---------
<S> <C> <C> <C>
Portfolio......................................... 34.47% 31.35% 30.61%
S&P 500 Index..................................... 21.05% 28.56% 27.02%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1999. Since Inception return information is from September 15,
1994 for the Portfolio and September 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 35.2 28.5 30.0 28.7 34.5
You should consider an investment in the Portfolio as a long-term investment.
The Portfolio's returns will fluctuate over long and short periods. For
example, during the period shown in the bar chart, the Portfolio's:
Best quarter was up 32.47%, 4th quarter, 1998; and
Worst quarter was down -18.21%, 3rd quarter, 1998.
* Because the Class B shares of the Portfolio have not been in existence for a
full calendar year, the annual total returns shown are for Class A shares,
which are not offered in this Prospectus. Class B shares would have had
substantially similar annual returns to Class A shares because the shares
are invested in the same portfolio of securities and the annual returns
would differ only to the extent that the Classes do not have the same
expenses.
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SUMMARY OF PRINCIPAL RISKS
The value of your investment in the Portfolio will change with changes in the
values of the Portfolio's investments. Many factors can affect those values.
In this Summary, we describe the principal risks that may affect the
Portfolio's investments as a whole. The Portfolio could be subject to
additional principal risks because the types of investments made by the
Portfolio can change over time. This Prospectus has additional descriptions of
the types of investments that appear in bold type in the discussions under
"Description of Additional Investment Practices" or "Additional Risk
Considerations." These sections also include more information about the
Portfolio, its investments, and related risks.
. Interest Rate Risk This is the risk that changes in interest rates will
affect the value of the Portfolio's investments in debt securities,
such as bonds, notes, and asset-backed securities, or other income-
producing securities. Debt securities are obligations of the issuer to
make payments of principal and/or interest in future dates. Interest
rate risk is particularly applicable to the Portfolio's investments in
fixed-income securities. Increases in interest rates may cause the
value of the Portfolio's investments to decline. Interest rate risk is
generally greater for investments in debt securities with longer
maturities.
. 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.
The Portfolio is 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.
. Capitalization Risk This is the risk of investments in small- to mid-
capitalization companies. Investments in mid-cap companies may be more
volatile than investments in large-cap companies. In addition, the
Portfolio's investments in smaller capitalization stocks may have
additional risks because these companies often have limited product
lines, markets, or financial resources.
. Foreign Risk This is the risk of investments in issuers located in
foreign countries. The Portfolio's investments in foreign securities
may experience more rapid and extreme changes in value than investments
in securities of U.S. companies. This is because the securities markets
of many foreign countries are relatively small, with a limited number
of companies representing a small number of industries. Additionally,
foreign Securities issuers are not usually subject to the same degree
of regulation as U.S. issuers. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases significantly,
from U.S. standards. Also, nationalization, expropriation or
confiscatory taxation, currency blockage, political changes, or
diplomatic developments could adversely affect the Portfolio's
investments in a foreign country. In the event of nationalization,
expropriation, or other confiscation, the Portfolio could lose its
entire investment.
. Currency Risk This is the risk that fluctuations in the exchange rates
between the U.S. Dollar and foreign currencies may negatively affect
the value of the Portfolio's investments.
. 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.
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GLOSSARY
This Prospectus uses the following terms.
Types of Securities
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are fixed-income securities that are convertible into
common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Equity securities include (i) common stocks, partnership interests, business
trust shares and other equity or ownership interests in business enterprises,
and (ii) securities convertible into, and rights and warrants to subscribe for
the purchase of, such stocks, shares and interests.
Fixed-income securities are debt securities and preferred stocks, including
floating rate and variable rate instruments.
Foreign government securities are securities issued or guaranteed, as to
payment of principal and interest, by foreign governments, quasi-governmental
entities, or governmental agencies or other entities.
Qualifying bank deposits are certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks that have total assets of more than
$1 billion and are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold under Rule 144A of the
Securities Act.
Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions, and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
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.
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.
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S&P 500 Index is S&P's 500 Composite Stock Price Index, a widely recognized
unmanaged index of market activity.
Other
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Duration is a measure that relates the price volatility of a security to
changes in interest rates. The duration of a debt security is the weighted
average term to maturity, expressed in years, of the present value of all
future cash flows, including coupon payments and principal repayments. Thus, by
definition, duration is always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
Securities Act is the Securities Act of 1933, as amended.
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DESCRIPTION OF THE PORTFOLIO
This section of the Prospectus provides a more complete description of the
Portfolio's investment objectives, principal strategies and risks. Of course,
there can be no assurance that the Portfolio will achieve its investment
objective.
Please note that:
. Additional discussion of the Portfolio's investments, including the
risks of the investments, can be found in the discussion under
Description of Additional Investment Practices following this section.
. The description of the principal risks for the Portfolio may include
risks described in the Summary of Principal Risks above. Additional
information about the risks of investing in the Portfolio can be found
in the discussion under Additional Risk Considerations.
. Additional descriptions of the Portfolio's strategies, investments and
risks can be found in the Portfolio's Statement of Additional
Information or SAI.
. Except as noted, (i) the Portfolio's investment objectives are
"fundamental" and cannot be changed without a shareholder vote, and
(ii) the Portfolio's investment policies are not fundamental and thus
can be changed without a shareholder vote.
INVESTMENT OBJECTIVES AND PRINCIPAL POLICIES AND RISKS
Growth Portfolio
The Portfolio's investment objective is to provide long-term growth of capital.
Current income is only an incidental consideration. The Portfolio seeks to
achieve its objective by investing primarily in equity securities of companies
with favorable earnings outlooks, which have long-term growth rates that are
expected to exceed that of the U.S. economy over time.
The Portfolio may also invest in convertible securities and other fixed-income
securities. The Portfolio may invest up to 25% of its total assets in lower-
rated fixed-income securities rated at the time of purchase as below investment
grade, that is, securities rated Ba or lower by Moody's or BB or lower by S&P,
Duff & Phelps or Fitch or, if unrated, of comparable quality. From time to
time, however, the Portfolio may invest in securities rated in the lowest
grades (i.e., C by Moody's or D or equivalent by S&P, Duff & Phelps or Fitch),
or securities of comparable quality if there are prospects for an upgrade or a
favorable conversion into equity securities. If the credit rating of a security
held by the Portfolio falls below its rating at the time of purchase (or
Alliance determines that the credit quality of the security has deteriorated),
the Portfolio may continue to hold the security if such investment is
considered appropriate under the circumstances.
The Portfolio also may:
. invest in zero coupon securities and payment-in-kind bonds;
. invest in foreign securities although not generally in excess of 15% of
its total assets;
. invest in depository receipts, both ADRs and GDRs, where investments in
ADRs are deemed to be investments in securities issued by U.S. issuers
and those in GDRs and other types of depositary receipts are deemed to
be investments in the underlying securities;
. buy or sell foreign currencies, options on foreign currencies, foreign
currency futures contracts (and related options) and deal in forward
foreign currency exchange contracts;
. enter into forward commitments;
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. buy and sell stock index futures contracts and options on those
contracts and on stock indices;
. purchase and sell futures contracts and options on futures and U.S.
Treasury securities;
. write covered call and put options;
. purchase and sell put and call options;
. make secured loans of portfolio securities of up to 25% of its total
assets;
. invest up to 15% of its total assets in illiquid securities; and
. enter into repurchase agreements of up to 25% of its total assets.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
This section describes the Portfolio's investment practices and associated
risks. Unless otherwise noted, a Portfolio's use of any of these practices was
specified in the previous section.
Derivatives. The 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. Each of these uses entails greater risk than
if derivatives were used solely for hedging purposes. Derivatives are a
valuable tool, which, when used properly, can provide significant benefits to
Portfolio shareholders. The Portfolio may take a significant position in those
derivatives that are within its investment policies if, in Alliance's judgment,
this represents the most effective response to current or anticipated market
conditions. The Portfolio will generally make extensive use of carefully
selected forwards and other derivatives to achieve the currency hedging that is
an integral part of their investment strategy. Alliance's use of derivatives is
subject to continuous risk assessment and control from the standpoint of the
Portfolio's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately-negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards, and swaps--from which virtually any type of derivative transaction
can be created.
. Options--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a
premium payment or fee, gives the option holder (the buyer) the right
but not the obligation to buy or sell the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index) at a
specified price (the exercise price) during a period of time or on a
specified date. A call option entitles the holder to purchase, and a
put option entitles the holder to sell, the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index).
Likewise, when an option is exercised the writer of the option is
obligated to sell (in the case of a call option) or to purchase (in the
case of a put option) the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index).
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. Futures--A futures contract is an agreement that obligates the buyer to
buy and the seller to sell a specified quantity of an underlying asset
(or settle for cash the value of a contract based on an underlying
asset, rate or index) at a specific price on the contract maturity
date. Futures contracts are standardized, exchange-traded instruments
and are fungible (i.e., considered to be perfect substitutes for each
other). This fungibility allows futures contracts to be readily offset
or cancelled through the acquisition of equal but opposite positions,
which is the primary method in which futures contracts are liquidated.
A cash-settled futures contract does not require physical delivery of
the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered
into and its maturity date.
. Forwards--A forward contract is an obligation by one party to buy, and
the other party to sell, a specific quantity of an underlying commodity
or other tangible asset for an agreed upon price at a future date.
Forward contracts are customized, privately negotiated agreements
designed to satisfy the objectives of each party. A forward contract
usually results in the delivery of the underlying asset upon maturity
of the contract in return for the agreed upon payment.
. Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to
changes in specified prices or rates (interest rates in the case of
interest rate swaps, currency exchange rates in the case of currency
swaps) for a specified amount of an underlying asset (the "notional"
principal amount). The payment flows are netted against each other,
with the difference being paid by one party to the other. Except for
currency swaps, the notional principal amount is used solely to
calculate the payment streams but is not exchanged. With respect to
currency swaps, actual principal amounts of currencies may be exchanged
by the counterparties at the initiation, and again upon the
termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the cash
flows from an underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the securities.
While the judicious use of derivatives by highly-experienced investment
managers such as Alliance can be quite beneficial, derivatives involve risks
different from, and, in certain cases, greater than, the risks presented by
more traditional investments. The following is a general discussion of
important risk factors and issues relating to the use of derivatives that
investors should understand before investing in 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
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clearing house, which is the issuer or counterparty to each exchange-
traded derivative, provides a guarantee of performance. This guarantee
is supported by a daily payment system (i.e., margin requirements)
operated by the clearing house in order to reduce overall credit risk.
For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Portfolio considers the
creditworthiness of each counterparty to a privately negotiated
derivative in evaluating potential credit risk.
. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
. Leverage Risk--Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial
investment.
. 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 Portfolios. The following describes specific
derivatives the Portfolio may use.
Forward Foreign Currency Exchange Contracts. The Portfolio purchases or sells
forward foreign currency exchange contracts ("forward contracts") to minimize
the risk from adverse changes in the relationship between the U.S. Dollar and
other currencies. The Portfolio may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price
of the security (a "transaction hedge"). When the Portfolio believes that a
foreign currency may suffer a substantial decline against the U.S. Dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency, or when the Portfolio believes that the
U.S. Dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount (a "position hedge"). Instead of entering into a position
hedge, the Portfolio may, in the alternative, enter into a forward contract to
sell a different foreign currency for a fixed U.S. Dollar amount where the
Portfolio believes that the U.S. Dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a decline in the
U.S. Dollar value of the currency in which portfolio securities of the
Portfolio are denominated (a "cross-hedge").
Futures Contracts and Options on Futures Contracts. The Portfolio may buy and
sell futures contracts on fixed-income or other securities or foreign
currencies, and contracts based on interest rates or financial indices,
including any index of U.S. Government securities, foreign government
securities or corporate debt securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by
the Portfolio will be traded on U.S. or foreign exchanges and will be used
only for hedging purposes.
Options on Foreign Currencies. The Portfolio invests in options on foreign
currencies that are privately negotiated or traded on U.S. or foreign
exchanges for the purpose of protecting against declines in the U.S.
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Dollar value of foreign currency denominated securities held by the Portfolio
and against increases in the U.S. Dollar cost of securities to be acquired. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although if rates move adversely, the
Portfolio may forfeit the entire amount of the premium plus related transaction
costs.
Options on Securities. In purchasing an option on securities, the Portfolio
would be in a position to realize a gain if, during the option period, the
price of the underlying securities increased (in the case of a call) or
decreased (in the case of a put) by an amount in excess of the premium paid;
otherwise the Portfolio would experience a loss not greater than the premium
paid for the option. Thus, the Portfolio would realize a loss if the price of
the underlying security declined or remained the same (in the case of a call)
or increased or remained the same (in the case of a put) or otherwise did not
increase (in the case of a put) or decrease (in the case of a call) by more
than the amount of the premium. If a put or call option purchased by the
Portfolio were permitted to expire without being sold or exercised, its premium
would represent a loss to the Portfolio.
The Portfolio may write a put or call option in return for a premium, which is
retained by the Portfolio whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, the
Portfolio will not write uncovered call or put options on securities. A call
option written by the Portfolio is "covered" if the Portfolio owns the
underlying security, has an absolute and immediate right to acquire that
security upon conversion or exchange of another security it holds, or holds a
call option on the underlying security with an exercise price equal to or less
than that of the call option it has written. A put option written by the
Portfolio is covered if the Portfolio holds a put option on the underlying
securities with an exercise price equal to or greater than that of the put
option it has written.
The risk involved in writing an uncovered call option is that there could be an
increase in the market value of the underlying security, and the Portfolio
could be obligated to acquire the underlying security at its current price and
sell it at a lower price. The risk of loss from writing an uncovered put option
is limited to the exercise price of the option.
The Portfolio may write a call option on a security that it does not own in
order to hedge against a decline in the value of a security that it owns or has
the right to acquire, a technique referred to as "cross-hedging." The Portfolio
would write a call option for cross-hedging purposes, instead of writing a
covered call option, when the premium to be received from the cross-hedge
transaction exceeds that to be received from writing a covered call option,
while at the same time achieving the desired hedge. The correlation risk
involved in cross-hedging may be greater than the correlation risk involved
with other hedging strategies.
Options on Securities Indices. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which provide
a stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings.
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Depositary Receipts. Depositary receipts may not necessarily be denominated in
the same currency as the underlying securities into which they may be
converted. In addition, the issuers of the stock of unsponsored depositary
receipts are not obligated to disclose material information in the United
States and, therefore, there may not be a correlation between such information
and the market value of the depositary receipts. ADRs are depositary receipts
typically issued by a U.S. bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation. GDRs and other types of
depositary receipts are typically issued by foreign banks or trust companies
and evidence ownership of underlying securities issued by either a foreign or
U.S. company. Generally, depositary receipts in registered form are designed
for use in the U.S. securities markets, and depositary receipts in bearer form
are designed for use in foreign securities markets. For purposes of determining
the country of issuance, investments in depositary receipts of either type are
deemed to be investments in the underlying securities.
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 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.
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
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<PAGE>
the buyer's money is invested in the security. Such agreements permit the
Portfolio to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. The Portfolio
requires continual maintenance of collateral in an amount equal to, or in
excess of, the resale price. If a vendor defaults on its repurchase obligation,
the Portfolio would suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. If a vendor goes
bankrupt, the Portfolio might be delayed in, or prevented from, selling the
collateral for its benefit.
Secured Loans of Portfolio Securities. The Portfolio may make secured loans of
portfolio securities to brokers, dealers and financial institutions, provided
that cash, liquid high grade debt securities or bank letters of credit equal to
at least 100% of the market value of the securities loaned is deposited and
maintained by the borrower with the Portfolio's Custodian. The risks in lending
portfolio securities, as with other secured extensions of credit, consist of
possible loss of rights in the collateral should the borrower fail financially.
In determining whether to lend securities to a particular borrower, Alliance
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. While securities are on loan, the borrower
will pay the Portfolio any income earned from the securities. The Portfolio may
invest any cash collateral in portfolio securities and earn additional income
or receive an agreed-upon amount of income from a borrower who has delivered
equivalent collateral.
Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
The Portfolio may invest in fixed-income securities that pay interest at a
coupon rate equal to a base rate, plus additional interest for a certain period
of time if short-term interest rates rise above a predetermined level or "cap."
The amount of such an additional interest payment typically is calculated under
a formula based on a short-term interest rate index multiplied by a designated
factor.
Leveraged inverse floating rate debt instruments are sometimes known as
"inverse floaters." The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse
floater is indexed. An inverse floater may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds the magnitude
of the change in the index rate of interest. The higher degree of leverage
inherent in inverse floaters is associated with greater volatility in market
value, such that, during periods of rising interest rates, the market values of
inverse floaters will tend to decrease more rapidly than those of fixed rate
securities.
Zero Coupon and Principal-Only Securities. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
15
<PAGE>
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal portions from the
coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which are generally held by a bank in a custodial or trust
account).
Future Developments. 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, in
some cases in response to market conditions, the Portfolio's turnover may
exceed 100%. The Portfolio engages in more active trading and has a
significantly higher portfolio turnover. A higher rate of portfolio turnover
increases brokerage and other expenses, which must be borne by the Portfolio
and its shareholders.
Temporary Defensive Position. For temporary defensive purposes, 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, they may not meet their investment objective.
ADDITIONAL RISK CONSIDERATIONS
Investment in the Portfolios involves the special risk considerations described
below. Certain of these risks may be heightened when investing in emerging
markets.
Currency Considerations. The Portfolio invests some portion of its assets in
securities denominated in, and receive revenues in, foreign currencies and will
be adversely affected by reductions in the value of those currencies relative
to the U.S. Dollar. These changes will affect the Portfolio's net assets,
distributions and income. If the value of the foreign currencies in which the
Portfolio receives income falls relative to the U.S. Dollar between receipt of
the income and the making of Portfolio distributions, the Portfolio may be
required to liquidate securities in order to make distributions if the
Portfolio has insufficient cash in U.S. Dollars to meet the distribution
requirements that the Portfolio must satisfy to qualify as a regulated
investment company for federal income tax purposes. Similarly, if an exchange
rate declines between the time the Portfolio incurs expenses in U.S. Dollars
and the time cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, the Portfolio may engage in
certain currency hedging transactions, as described above, which involve
certain special risks.
Fixed-Income Securities. The value of the Portfolio's shares will fluctuate
with the value of its investments. The value of the Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of the Portfolio's securities will
generally rise, although if falling interest rates are viewed as a precursor to
a recession, the values of the Portfolio's securities may fall along with
interest rates. Conversely, during periods of rising interest rates, the values
of the Portfolio's securities will generally decline. Changes in interest rates
have a greater effect on fixed-income securities with longer maturities and
durations than those with shorter maturities and durations.
16
<PAGE>
In seeking to achieve the Portfolio's investment objective, there will be
times, such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in the Portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of the
Portfolio.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, the Portfolio whose investment portfolio includes
foreign securities may experience greater price volatility and significantly
lower liquidity than a portfolio invested solely in securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase
the cost and expenses of the Portfolio. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
The Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require the Portfolio to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to the Portfolio. These factors may affect the liquidity of the
Portfolio's investments in any country and Alliance will monitor the effect of
any such factor or factors on the Portfolio's investments. Furthermore,
transaction costs including brokerage commissions for transactions both on and
off the securities exchanges in many foreign countries are generally higher
than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, or diplomatic
developments could affect adversely the economy of a foreign country. In the
event of nationalization, expropriation or other confiscation, a Portfolio
could lose its entire investment in securities in the country involved. In
addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Portfolio than that provided by U.S. laws.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on the Portfolio's investments in the securities
of Canadian issuers or investments denominated in Canadian Dollars. The factors
described above are
17
<PAGE>
more likely to have a material adverse effect on the Portfolio's investments in
the securities of Mexican and other non-Canadian foreign issuers, including
investments in securities denominated in Mexican Pesos or other non-Canadian
foreign currencies. If not hedged, however, currency fluctuations could affect
the unrealized appreciation and depreciation of Canadian Government securities
as expressed in U.S. Dollars.
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 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.
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.
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
18
<PAGE>
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.
Unrated Securities. Unrated securities will also be considered for investment
by the Portfolio when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Portfolio to a degree comparable
to that of rated securities which are consistent with the Portfolio's objective
and policies.
U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which the Portfolio invests 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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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 .75% as a percentage of average
net assets.
Portfolio Manager
Tyler J. Smith is the person primarily responsible for the day-to-day
management of the Portfolio and has been since the Portfolio's inception. Mr.
Tyler is a Senior Vice President of Alliance Capital Management Corporation
with which he has been associated since prior to 1995.
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PURCHASE AND SALE OF SHARES
How The Portfolio Values Its Shares
The Portfolio's net asset value or NAV is calculated at 4:00 p.m., Eastern
time, each day the Exchange is open for business. To calculate NAV, the
Portfolio's assets are valued and totaled, liabilities are subtracted, and the
balance, called net assets, is divided by the number of shares outstanding. The
Portfolio values its securities at their current market value determined on the
basis of market quotations or, if such quotations are not readily available,
such other methods as the Portfolio's Directors or Trustees believe accurately
reflect fair market value. The Portfolios 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. Therefore, 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.
DISTRIBUTION ARRANGEMENTS
This Prospectus offers Class B shares of the Portfolio. The Class B shares
have an asset-based sales charge or Rule 12b-1 fee. The Portfolio has adopted a
plan under Commission Rule 12b-1 that allows the Portfolio to pay asset-based
sales charges or distribution fees for the distribution and sale of its shares.
The amount of these fees for the Class B shares as a percentage of average
daily net assets is 0.25%. Because these fees are paid out of the Portfolio's
assets on an on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales fees.
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<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Fund's Class B shares. The information reflects the
financial results of the Portfolio's Class B shares for the Fund's fiscal year
ending December 31, 1999. The total returns in the table represent the rate
than an investor would have earned (or lost) on an investment in the Class B
shares of the Portfolio (assuming reinvestment of dividends and distributions).
The information has been audited by Ernst & Young LLP, the Fund's independent
auditors, whose report, along with each Portfolio's financial statements, is
included in the SAI, which is available upon request.
Growth Portfolio
<TABLE>
<CAPTION>
June 1,
1999(a)
to
December 31,
1999
------------
<S> <C>
Net asset value, beginning of period............................. $26.83
------
Income From Investment Operations
Net investment loss(d)........................................... (.03)
Net realized and unrealized gain on investment transactions...... 6.74
------
Net increase in net asset value from operations.................. 6.71
------
Less: Dividends and Distributions
Dividends from net investment income............................. -0-
Distributions from net realized gains............................ -0-
------
Total dividends and distributions................................ -0-
------
Net asset value, end of period................................... $33.54
======
Total Return
Total investment return based on net asset value(b).............. 25.01%
Ratios/Supplemental Data
Net assets, end of period (000's omitted)........................ $5,707
Ratios to average net assets of:
Expenses....................................................... 1.12%(c)
Net investment loss............................................ (.20)%(c)
Portfolio turnover rate.......................................... 54 %
</TABLE>
Footnotes:
(a) Commencement of distribution.
(b) 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.
(c) Annualized.
(d) Based on average shares outstanding.
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APPENDIX A
BOND RATINGS
Moody's Investors Service, Inc.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
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Suspension or withdrawal may occur if: new and material circumstances arise,
the effects of which preclude satisfactory analysis; there is no longer
available reasonable up-to-date data to permit a judgment to be formed; or a
bond is called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Standard & Poor's Ratings Services
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
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Duff & Phelps Credit Rating Co.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- --High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- --Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- --Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- --Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC--Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP--Preferred stock with dividend arrearages.
Fitch Ibca, Inc.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
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B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
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For more information about the Portfolios, the following documents are
available upon request:
Annual/Semi-annual Reports to Shareholders
The Portfolios' annual and semi-annual reports to shareholders contain
additional information on the Portfolios' investments. In the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected a Portfolio's performance during its last fiscal
year.
Statement of Additional Information (SAI)
The Portfolios have an SAI, which contains more detailed information about the
Portfolios, including their operations and investment policies. The Portfolios'
SAI is incorporated by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the
SAI, or make shareholder inquiries of the Portfolios, by contacting your broker
or other financial intermediary, or by contacting Alliance:
By mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By phone: For Information:
(800) 221-5672
For Literature:(800) 227-4618
Or you may view or obtain these documents from the Commission:
. Call the Commission at 1-202-942-8090 for information on the operation
of the Public Reference Room.
. Reports and other information about the Portfolios are available on the
EDGAR Database on the Commission's Internet site at http://www.sec.gov.
. Copies of the information may be obtained, after paying a fee, by
electronic request at [email protected], or by writing the Commission's
Public Reference Section, Washington, DC 20549-0102.
You also may find more information about Alliance and the Portfolios on the
internet at: www.Alliancecapital.com.
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