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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 and Income 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
----
<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........................... 9
Additional Risk Considerations........................................... 14
MANAGEMENT OF THE PORTFOLIO................................................ 16
PURCHASE AND SALE OF SHARES................................................ 17
How The Portfolio Value its Shares....................................... 17
How To Purchase and Sell Shares.......................................... 17
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 17
DISTRIBUTION ARRANGEMENTS.................................................. 17
FINANCIAL HIGHLIGHTS....................................................... 18
</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
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 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 each 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 and Income Portfolio
Objective: The Portfolio's investment objective is to seek reasonable
current income and reasonable opportunity for appreciation through
investments primarily in dividend-paying common stocks of good quality.
Principal Investment Strategies and Risks: The Portfolio invests primarily
in dividend-paying common stocks of large, well-established "blue-chip"
companies. The Portfolio also may invest in fixed-income and convertible
securities and in securities of foreign issuers.
Among the principal risks of investing in the Portfolio are market risk,
interest rate risk, and credit risk. The Portfolio's investments in foreign
securities have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Portfolio.
Performance Information and Bar Chart
Performance Table*
<TABLE>
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Since
1 Year 5 Years Inception
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<S> <C> <C> <C>
Portfolio....................................... 11.37% 23.91% 15.48%
S&P 500 Index................................... 21.05% 28.56% 20.85%
</TABLE>
The average annual total returns in the performance table are for periods ended
December 31, 1999. Since Inception return information is from January 14, 1991
for the Portfolio and December 31, 1990 for the Index.
Bar Chart*
90 91 92 93 94 95 96 97 98 99
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A 7.9 11.7 -0.4 35.8 24.1 28.8 20.9 11.4
You should consider an investment in the Portfolio as a long-term investment.
The Portfolio's returns will fluctuate over long and short periods. For
example, during the period shown in the bar chart, the Portfolio's:
Best quarter was up 23.67%, 4th quarter, 1998; and
Worst quarter was down - 14.06%, 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 a Portfolio's investments in debt securities, such
as bonds, notes, and asset-backed securities, or other income-producing
securities. Debt securities are obligations of the issuer to make
payments of principal and/or interest in future dates. Interest rate
risk is particularly applicable to a Portfolio that invest in fixed-
income securities. Increases in interest rates may cause the value of a
Portfolio's investments to decline.
Even a Portfolio that invest a substantial portion of its assets in the
highest quality debt securities, including U.S. Government securities,
are subject to interest rate risk.
Interest rate risk is generally greater for a Portfolio that invest 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.
Credit risk is greater for a Portfolio that invest in debt securities
issued in connection with corporate restructurings by highly leveraged
issuers and in debt securities not current in the payment of interest
or principal or are in default. A Portfolio that invest in foreign
securities also are subject to increased credit risk because of the
difficulties of requiring foreign entities, to honor their contractual
commitments, and because a number of foreign governments and other
issuers are already in default.
. Market Risk This is the risk that the value of a Portfolio's
investments will fluctuate as the stock or bond markets fluctuate and
that prices overall will decline over shorter or longer-term periods.
. 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 a 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.
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.
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.
Moody's is Moody's Investors Service, Inc.
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
S&P is Standard & Poor's Ratings Services.
S&P 500 Index is S&P's 500 Composite Stock Price Index, a widely recognized
unmanaged index of market activity.
Other
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Duration is a measure that relates the price volatility of a security to
changes in interest rates. The duration of a debt security is the weighted
average term to maturity, expressed in years, of the present value of all
future cash flows, including coupon payments and principal repayments. Thus, by
definition, duration is always less than or equal to full maturity.
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Exchange is the New York Stock Exchange.
Securities Act is the Securities Act of 1933, as amended.
8
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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 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 and Income Portfolio
The Portfolio's investment objective is to seek reasonable current income and
reasonable opportunity for appreciation through investments primarily in
dividend-paying common stocks of good quality. The Portfolio also may invest in
fixed-income securities and convertible securities.
The Portfolio also may try to realize income by writing covered call options
listed on domestic securities exchanges. The Portfolio also invests in foreign
securities. Since the purchase of foreign securities entails certain political
and economic risks, the Portfolio restricts its investments in these securities
to issues of high quality. The Portfolio also may purchase and sell financial
forward and futures contracts and options on these securities for hedging
purposes. The Portfolio may invest up to 10% of its total assets in illiquid
securities.
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
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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 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
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"derivative" also is sometimes used to describe securities involving rights to
a portion of the cash flows from an underlying pool of mortgages or other
assets from which payments are passed through to the owner of, or that
collateralize, the securities.
While the judicious use of derivatives by highly-experienced investment
managers such as Alliance can be quite beneficial, derivatives involve risks
different from, and, in certain cases, greater than, the risks presented by
more traditional investments. The following is a general discussion of
important risk factors and issues relating to the use of derivatives that
investors should understand before investing in the Portfolio.
. Market Risk--This is the general risk of all investments that the value
of a particular investment will change in a way detrimental to the
Portfolio's interest based on changes in the bond market generally.
. Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from
those associated with stocks and bonds. The use of a derivative
requires an understanding not only of the underlying instrument but
also of the derivative itself, without the benefit of observing the
performance of the derivative under all possible market conditions. In
particular, the use and complexity of derivatives require the
maintenance of adequate controls to monitor the transactions entered
into, the ability to assess the risk that a derivative adds to the
Portfolio, and the ability to forecast price, interest rate, or
currency exchange rate movements correctly.
. Credit Risk--This is the risk that a loss may be sustained by the
Portfolio as a result of the failure of a derivative counterparty to
comply with the terms of the derivative contract. The credit risk for
exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily
payment system (i.e., margin requirements) operated by the clearing
house in order to reduce overall credit risk. For privately negotiated
derivatives, there is no similar clearing agency guarantee. Therefore,
the Portfolio considers the creditworthiness of each counterparty to a
privately negotiated derivative in evaluating potential credit risk.
. Liquidity Risk--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is
particularly large or if the relevant market is illiquid (as is the
case with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous price.
. Leverage Risk--Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or
index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if the
parties have not made any initial investment. Certain derivatives have
the potential for unlimited loss, regardless of the size of the initial
investment.
. 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.
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.
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Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Portfolio will be traded on U.S. or foreign exchanges and will be used only for
hedging purposes.
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 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 and 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.
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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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.
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 each 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%.
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.
Currency Considerations. The Portfolio invests some portion of its assets in
securities denominated in, and receive revenues in, foreign currencies will be
adversely affected by reductions in the value of those currencies relative to
the U.S. Dollar. These changes will affect the Portfolio's net assets,
distributions and income. If the value of the foreign currencies in which the
Portfolio receives income falls relative to the U.S. Dollar between receipt of
the income and the making of Portfolio distributions, the Portfolio may be
required to liquidate securities in order to make distributions if the
Portfolio has insufficient cash in U.S. Dollars to meet the distribution
requirements that the Portfolio must satisfy to qualify as a regulated
investment company for federal income tax purposes. Similarly, if an exchange
rate declines between the time the Portfolio incurs expenses in U.S. Dollars
and the time cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, the Portfolio may engage in
certain currency hedging transactions, as described above, which involve
certain special risks.
Fixed-Income Securities. The value of the Portfolio's shares will fluctuate
with the value of its investments. The value of the Portfolio's investments
will change as the general level of interest rates fluctuates. During periods
of falling interest rates, the values of the Portfolio's securities will
generally rise, although if falling interest rates are viewed as a precursor to
a recession, the values of the Portfolio's securities may fall along with
interest rates. Conversely, during periods of rising interest rates, the values
of the Portfolio's securities will generally decline. Changes in interest rates
have a greater effect on fixed-income securities with longer maturities and
durations than those with shorter maturities and durations.
In seeking to achieve the Portfolio's investment objective, there will be
times, such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in the Portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of the
Portfolio.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, the Portfolio whose investment portfolio includes
foreign securities may experience greater price volatility and significantly
lower liquidity than a portfolio invested solely in securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase
the cost and expenses of the Portfolio. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances.
The Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require the Portfolio to adopt special procedures or seek local
governmental approvals or
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<PAGE>
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.
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 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.
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.
U.S. and Foreign Taxes. The Portfolio's investment in foreign securities may be
subject to taxes withheld at the source on dividend or interest payments.
Foreign taxes paid by the Portfolio may be creditable or deductible by U.S.
shareholders for U.S. income tax purposes. No assurance can be given that
applicable tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct such foreign
taxes.
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<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 fee paid to Alliance by the Portfolio as a percentage of
average net assets was .63% net of waivers and/or reimbursements.
Portfolio Manager
Paul C. Rissman is primarily responsible for the day-to-day management of the
Portfolio and has been since inception of the Portfolio. He is a Senior Vice
President of Alliance Capital Management Corporation, with which he has been
associated since prior to 1995.
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<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 value 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 may invest in securities that are
primarily listed on foreign exchanges and trade on weekends or other days when
the fund does not price its shares. The Portfolio's NAV may change on days when
shareholders will not be able to purchase or redeem the Portfolio's shares.
Your order for purchase or sale of shares is priced at the next NAV calculated
after your order is received by the Portfolio.
How To Purchase and Sell Shares
The Portfolio offers its shares through the separate accounts of life insurance
companies. You may only purchase and sell shares through these separate
accounts. See the prospectus of the separate account of the participating
insurance company for information on the purchase and sale of the Portfolio's
shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Portfolio declares dividends on 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 period 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 the Portfolio's financial statements, is
included in the SAI, which is available upon request.
<TABLE>
<CAPTION>
Growth and Income Portfolio--Class B
------------------------------------
June 1, 1999(a)
to
December 31, 1999
-----------------
<S> <C>
Net asset value, beginning
of period................ $21.37
------
Income From Investment
Operations
Net investment income(d).. .07
Net realized and
unrealized gain on
investment transactions.. .32
------
Net increase in net asset
value from operations.... .39
------
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................... $21.76
======
Total Return
Total investment return
based on net asset
value(b)................. 1.83%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted).......... $7,993
Ratios to average net
assets of:
Expenses................ .97%(c)
Net investment income... .55%(c)
Portfolio turnover rate... 46%
</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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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 a Portfolio's performance during its last fiscal
year.
Statement of Additional Information (SAI)
The Portfolio has an SAI, which contains more detailed information about the
Portfolio, including its operations and investment policies. The Portfolio's
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 is available on the
EDGAR Database on the Commission's Internet site at http://www.sec.gov.
. Copies of the information may be obtained, after paying a fee, by
electronic request at [email protected], or by writing the Commission's
Public Reference Section, Washington, DC 20549-0102.
You also may find more information about Alliance and the Portfolio on the
internet at: www.Alliancecapital.com.
File No: 811-05398
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