ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
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P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (▇▇▇) ▇▇▇-▇▇▇▇
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Alliance Variable Products Series Fund, Inc. (the "Fund") is
an open-end series investment company designed to fund variable
annuity contracts and variable life insurance policies to be
offered by the separate accounts of certain life insurance
companies.
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REAL ESTATE INVESTMENT PORTFOLIO
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The Real Estate Investment Portfolio (the "Portfolio") seeks
a total return on its assets from long-term growth of capital and
from income principally through investing in a portfolio of
equity securities of issuers that are primarily engaged in or
related to the real estate industry.
(R) : This is a registered mark used under license from the
owner, Alliance Capital Management L.P.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS/ , 1996
Investors are advised to carefully read this Prospectus
and to retain it for future reference.
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PURCHASE INFORMATION
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The Fund will offer and sell the Portfolio's shares only
to separate accounts of certain life insurance companies, for the
purpose of funding variable annuity contracts and variable life
insurance policies. Sales will be made without sales charge at
the Portfolio's per share net asset value. Further information
can be obtained from Alliance Fund Services, Inc. at the address
or telephone number shown above.
An investment in the Portfolio is not a deposit or
obligation of, or guaranteed or endorsed by, any bank and is not
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other agency.
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ADDITIONAL INFORMATION
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This Prospectus sets forth concisely the information
which a prospective investor should know about the Fund and the
Portfolio before applying for certain variable annuity contracts
and variable life insurance policies offered by participating
insurance companies. It should be read in conjunction with the
Prospectus of the separate account of the specific insurance
product which accompanies this Prospectus. A "Statement of
Additional Information" dated , 1996 which
provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors, has
been filed with the Securities and Exchange Commission (the
"Commission") and is incorporated herein by reference. For a free
copy, call or write Alliance Fund Services, Inc. at the address
or telephone number shown above.
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EXPENSE INFORMATION
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Shareholder Transaction Expenses
The Portfolio has no sales load on purchases or
reinvested dividends, deferred sales load, redemption fee or
exchange fee.
Annual Portfolio Operating Expenses
(as a percentage of average net assets)
Management Fees.......................... 0%*
Other Expenses........................... .95%*
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Total Portfolio Operating Expenses......... .95%
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* Net of expense reimbursement
Example
You would pay the following expenses on a $1,000
investment, assuming a 5% annual return (cumulatively through the
end of each time period).
1 Year 3 Years
$10 $30
The purpose of the foregoing table is to assist the
investor in understanding the various costs and expenses that an
investor in the Portfolio will bear directly and indirectly.
"Other Expenses" for the Portfolio are based on estimated amounts
for the Portfolio's current fiscal year. The estimated expense
information for the Portfolio is net of voluntary expense
reimbursements which are not required to be continued
indefinitely; however, the Adviser intends to continue such
reimbursements for the foreseeable future. The estimated
Management Fees and Other Expenses of the Portfolio before
expense reimbursements would be .90% and [ %], respectively.
The example should not be considered representative of future
expenses; actual expenses may be greater or less than those
shown.
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DESCRIPTION OF THE PORTFOLIO
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Introduction to the Fund
The Fund was established as a Maryland corporation in
1987. The Fund is an open-end management investment company
commonly known as a "mutual fund" whose shares are offered in
separate series each referred to as a "portfolio." Because the
Fund offers multiple portfolios, it is known as a "series fund."
Each portfolio is a separate pool of assets constituting, in
effect, a separate fund with its own investment objectives and
policies.
A shareholder in the Portfolio will be entitled to his
or her pro rata share of all dividends and distributions arising
from the Portfolio's assets and, upon redeeming shares of the
Portfolio, the shareholder will receive the then current net
asset value of the Portfolio represented by the redeemed shares.
(See "Purchase and Redemption of Shares"). While the Fund has no
present intention of doing so, the Fund is empowered to
establish, without shareholder approval, additional portfolios
which may have different investment objectives.
In addition to the Portfolio, the Fund currently has 18
other portfolios: the Money Market Portfolio, the Premier Growth
Portfolio, the Growth and Income Portfolio, the U.S.
Government/High Grade Securities Portfolio, the High-Yield
Portfolio, the Total Return Portfolio, the International
Portfolio, the Short-Term Multi-Market Portfolio, the Global Bond
Portfolio, the North American Government Income Portfolio, the
Global Dollar Government Portfolio, the Utility Income Portfolio,
the Conservative Investors Portfolio, the Growth Investors
Portfolio, the Growth Portfolio, the Worldwide Privatization
Portfolio, the Technology Portfolio and the Quasar Portfolio.
The Fund is intended to serve as the investment medium
for variable annuity contracts and variable life insurance
policies to be offered by the separate accounts of certain life
insurance companies.
It is conceivable that in the future it may be
disadvantageous for variable annuity and variable life insurance
separate accounts to invest simultaneously in the Fund.
Currently, however, the Fund does not foresee any disadvantage to
4
the holders of variable annuity contracts and variable life
insurance policies arising from the fact that the interests of
the holders of such contracts and policies may differ.
Nevertheless, the Fund's Directors intend to monitor events in
order to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be
taken in response thereto.
The investment objective and policies of the Portfolio
are set forth below. There can be, of course, no assurance that
the Portfolio will achieve its investment objective.
Investment Objective
The Portfolio's investment objective is to seek a total
return on its assets from long-term growth of capital and from
income principally through investing in a portfolio of equity
securities of issuers that are primarily engaged in or related to
the real estate industry.
Investment Policies
Under normal circumstances, at least 65% of the
Portfolio's total assets will be invested in equity securities of
real estate investment trusts ("REITS") and other real estate
industry companies. A "real estate industry company" is a
company that derives at least 50% of its gross revenues or net
profits from the ownership, development, construction,
financing, management or sale of commercial, industrial or
residential real estate or interests therein. The equity
securities in which the Portfolio will invest for this purpose
consist of common stock, shares of beneficial interest of REITs
and securities with common stock characteristics, such as
preferred stock or convertible securities ("Real Estate Equity
Securities").
The Portfolio may invest up to 35% of its total assets
in (a) securities that directly or indirectly represent
participations in, or are collateralized by and payable from,
mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real
estate mortgage investment conduit ("REMIC") certificates and
collateralized mortgage obligations ("CMOs") and (b) short-term
investments. These instruments are described below. The risks
associated with the Portfolio's transactions in REMICs, CMOs and
other types of mortgage-backed securities, which are considered
to be derivative securities, may include some or all of the
following: market risk, leverage and volatility risk, correlation
5
risk, credit risk and liquidity and valuation risk. See "Risk
Considerations -- Mortgage Backed Securities" for a description
of these and other risks.
As to any investment in Real Estate Equity Securities,
the Adviser's analysis will focus on determining the degree to
which the company involved can achieve sustainable growth in cash
flow and dividend paying capability. The Adviser believes that
the primary determinant of this capability is the economic
viability of property markets in which the company operates and
that the secondary determinant of this capability is the ability
of management to add value through strategic focus and operating
expertise. The Portfolio will purchase Real Estate Equity
Securities when, in the judgment of the Adviser, their market
price does not adequately reflect this potential. In making this
determination, the Adviser will take into account fundamental
trends in underlying property markets as determined by
proprietary models, site visits conducted by individuals
knowledgeable in local real estate markets, price-earnings ratios
(as defined for real estate companies), cash flow growth and
stability, the relationship between asset value and market price
of the securities, dividend payment history, and such other
factors which the Adviser may determine from time to time to be
relevant. The Adviser will attempt to purchase for the Portfolio
Real Estate Equity Securities of companies whose underlying
portfolios are diversified geographically and by property type.
The Portfolio may invest without limitation in shares of
REITs. REITs are pooled investment vehicles which invest
primarily in income producing real estate or real estate related
loans or interests. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage
REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection
of rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. Mortgage REITs invest
the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to
investment companies such as the Portfolio, REITs are not taxed
on income distributed to shareholders provided they comply with
several requirements of the Internal Revenue Code of 1986, as
amended ("the Code"). The Portfolio will indirectly bear its
proportionate share of expenses incurred by REITs in which the
Portfolio invests in addition to the expenses incurred directly
by the Portfolio.
INVESTMENT PROCESS FOR REAL ESTATE EQUITY SECURITIES.
The Portfolio's investment strategy with respect to Real Estate
6
Equity Securities is based on the premise that property market
fundamentals are the primary determinant of growth underlying the
success of Real Estate Equity Securities. Value added management
will further distinguish the most attractive Real Estate Equity
Securities. The Portfolio's research and investment process is
designed to identify those companies with strong property
fundamentals and strong management teams. This process is
comprised of real estate market research, specific property
inspection and securities analysis.
The universe of property-owning real estate industry
firms consists of approximately 115 companies of sufficient size
and quality to merit consideration for investment by the
Portfolio. In implementing the Portfolio's research and
investment process, the Adviser will avail itself of the
consulting services of ▇▇▇▇ Investment Management, a division of
▇▇▇▇ Real Estate Services ("▇▇▇▇"), a national real estate
investment and property manager that oversees a 1,000 property
portfolio. As consultant to the Adviser, ▇▇▇▇ provides access to
a proprietary model (▇▇▇▇'▇ National Real Estate Index) that
analyzes the approximately 9,000 properties owned by these
companies. Using proprietary databases and algorithms, ▇▇▇▇
analyzes local market rent, expense and occupancy trends, market
specific transaction pricing, demographic and economic trends,
and leading indicators of real estate supply such as building
permits. Over 300 asset-type specific geographic markets are
analyzed and ranked on a relative scale by ▇▇▇▇ in compiling its
REIT-SCORE database. The relative attractiveness of these real
estate industry companies is similarly ranked based on the
composite rankings of the properties they own. See "Management
of the Fund -- Consultant To The Adviser" for more information
about ▇▇▇▇.
Once the universe of real estate industry companies has
been distilled through the market research process, ▇▇▇▇'▇ local
market presence provides the capability to perform site specific
inspections of key properties. This analysis examines specific
property location, condition, and sub-market trends. ▇▇▇▇'▇ use
of locally based real estate professionals provides the Adviser
with a window on the operations of the portfolio companies as
information gathered can immediately be put in the context of
local market events. Only those companies whose specific
property portfolios reflect the promise of their general markets
will be considered for initial and continued investment by the
Portfolio.
The Adviser further screens the universe of real estate
industry companies by using rigorous financial models and by
7
engaging in regular contact with management of targeted
companies. Each management's strategic plan and ability to
execute the plan are determined and analyzed. The Adviser will
make extensive use of ▇▇▇▇'▇ network of industry analysts in
order to assess trends in tenant industries. This information is
then used to further interpret management's strategic plans.
Financial ratio analysis is used to isolate those companies with
the ability to make value-added acquisitions. This information
is combined with property market trends and used to project
future earnings potential.
The Adviser believes that this process will result in a
portfolio that will consist of Real Estate Equity Securities of
companies that own assets in the most desirable markets across
the country, diversified geographically and by property type.
MORTGAGE-BACKED SECURITIES AND ASSOCIATED RISKS.
Mortgage-Backed Securities include mortgage pass-through
certificates and multiple-class pass-through securities, such as
REMIC pass-through certificates, CMOs and stripped mortgage-
backed securities ("SMBS"), and other types of Mortgage-Backed
Securities that may be available in the future.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. The
Portfolio may invest in guaranteed mortgage pass-through
securities which represent participation interests in pools of
residential mortgage loans and are issued by U.S. governmental or
private lenders and guaranteed by the U.S. Government or one of
its agencies or instrumentalities, including but not limited to
the Government National Mortgage Association ("▇▇▇▇▇▇ ▇▇▇"), the
Federal National Mortgage Association ("▇▇▇▇▇▇ ▇▇▇") and the
Federal Home Loan Mortgage Corporation ("▇▇▇▇▇▇▇ ▇▇▇"). ▇▇▇▇▇▇
▇▇▇ certificates are guaranteed by the full faith and credit of
the United States Government for timely payment of principal and
interest on the certificates. ▇▇▇▇▇▇ ▇▇▇ certificates are
guaranteed by ▇▇▇▇▇▇ ▇▇▇, a federally chartered and privately-
owned corporation for full and timely payment of principal and
interest on the certificates. Freddie Mac certificates are
guaranteed by Freddie Mac, a corporate instrumentality of the
United States Government, for timely payment of interest and the
ultimate collection of all principal of the related mortgage
loans.
MULTIPLE-CLASS PASS-THROUGH SECURITIES AND
COLLATERALIZED MORTGAGE OBLIGATIONS. Mortgage-Backed Securities
also include CMOs and REMIC pass-through or participation
certificates, which may be issued by, among others, U.S.
Government agencies and instrumentalities as well as private
8
lenders. CMOs and REMIC certificates are issued in multiple
classes and the principal of and interest on the mortgage assets
may be allocated among the several classes of CMOs or REMIC
certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully
retired no later than its final distribution date. Generally,
interest is paid or accrues on all classes of CMOs or REMIC
certificates on a monthly basis. The Portfolio will not invest
in the lowest tranche of CMOs and REMIC certificates.
Typically, CMOs are collateralized by ▇▇▇▇▇▇ ▇▇▇ or
Freddie Mac certificates but also may be collateralized by other
mortgage assets such as whole loans or private mortgage pass-
through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax
treatment under the Code and invests in certain mortgages
primarily secured by interests in real property and other
permitted investments. Investors may purchase "regular" and
"residual" interest shares of beneficial interest in REMIC trusts
although the Portfolio does not intend to invest in residual
interests.
RISKS. Investing in Mortgage-Backed Securities involves
certain unique risks in addition to those generally associated
with investing in the real estate industry in general. These
unique risks include the failure of a counterparty to meet its
commitments, adverse interest rate changes and the effects of
prepayments on mortgage cash flows. See "Risk Considerations"
for a more complete description of the characteristics of
Mortgage-Backed Securities and associated risks.
SHORT-TERM INVESTMENTS. The short-term investments in
which the Portfolio may invest are: corporate commercial paper
and other short-term commercial obligations, in each case rated
or issued by companies with similar securities outstanding that
are rated Prime-1, Aa or better by ▇▇▇▇▇'▇ Investors Service,
Inc. ("Moody's") or A-1, AA or better by Standard & Poor's
Ratings Services ("S&P"); obligations (including certificates of
deposit, time deposits, demand deposits and bankers' acceptances)
of banks with securities outstanding that are rated Prime-1, Aa
or better by Moody's or A-1, AA or better by S&P; and obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities with remaining maturities not exceeding 18
months.
9
The Portfolio may invest in debt securities rated BBB or
higher by S&P or Baa or higher by Moody's or, if not so rated, of
equivalent credit quality as determined by the Adviser.
Securities rated BBB by S&P or Baa by Moody's are considered to
have speculative characteristics. Sustained periods of
deteriorating economic conditions or 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. The Portfolio expects that it will not retain a debt
security which is downgraded below BBB or Baa or, if unrated,
determined by the Adviser to have undergone similar credit
quality deterioration, subsequent to purchase by the Portfolio.
The Portfolio may also engage in the following
investment practices to the extent indicated: (i) invest up to
10% of its net assets in rights or warrants; (ii) invest up to
15% of its net assets in the convertible securities of companies
whose common stocks are eligible for purchase by the Portfolio;
(iii) lend portfolio securities on a short or long term basis
equal in value to not more than 25% of total assets; (iv) enter
into repurchase agreements of up to seven days' duration;
(v) enter into forward commitment transactions as long as the
Portfolio's aggregate commitments under such transactions are not
more than 30% of the Portfolio's total assets; (vi) enter into
standby commitment agreements; (vii) make short sales of
securities or maintain a short position but only if at all times
when a short position is open not more than 25% of the
Portfolio's net assets (taken at market value) is held as
collateral or placed in a segregated account for such sales; and
(viii) invest in illiquid securities unless, as a result, more
than 15% of its net assets would be so invested.
Additional Investment Policies And Practices
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 stock, although the higher yield tends to make
the convertible security less volatile than the underlying common
stock. As with debt securities, the market value of convertible
securities tends to decline as interest rates increase 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
10
investors to benefit from increases in the market price of the
underlying common stock.
RIGHTS AND WARRANTS. The Portfolio will invest in
rights or warrants only if the underlying equity securities are
themselves deemed appropriate by the Adviser for inclusion in the
Portfolio's portfolio. Rights and warrants entitle the holder to
buy equity securities at a specific price for a specific period
of time. Rights are similar to warrants except that they have a
substantially shorter duration. Rights and warrants may be
considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or
voting rights with respect to the underlying securities nor do
they represent any rights in the assets of the issuing company.
The value of a right or warrant does not necessarily change with
the value of the underlying security, although the value of a
right or warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in
perception as to the potential of the underlying security, or any
combination thereof. If the market price of the underlying
security is below the exercise price set forth in the warrant on
the expiration date, the warrant will expire worthless.
Moreover, a right or warrant ceases to have value if it is not
exercised prior to the expiration date.
ILLIQUID SECURITIES. Subject to any more restrictive
applicable investment policy, the Portfolio will not maintain
more than 15% of its net assets in illiquid securities. Illiquid
securities will generally include 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) and repurchase agreements not
terminable within seven days.
Because of the absence of a trading market for illiquid
securities, the Portfolio may not be able to realize their full
value upon sale. The Adviser will monitor the illiquidity of
such securities with respect to the Portfolio under the
supervision of the Directors of the Fund. To the extent
permitted by applicable law, securities that may be resold
pursuant to Rule 144A under the Securities Act of 1933, as
amended ("the "Securities Act") ("Rule 144A securities") will not
be treated as "illiquid" for purposes of the foregoing
restriction so long as such securities meet liquidity guidelines
established by the Fund's Directors. The Portfolio may not be
11
able to readily sell securities for which there is no ready
market.
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 (i.e., a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the
price is fixed at the time the commitment is made, but delivery
and payment for 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. At the
time the Portfolio intends to enter into a forward commitment, it
records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a "when, as and if
issued" security would be canceled in the event that the required
conditions did not occur and the trade was canceled.
The use of forward commitments enables 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
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. However, if the Adviser were to
forecast incorrectly the direction of interest rate movements,
the Portfolio might be required to complete such when-issued or
forward transactions at prices inferior to the then current
market values. When-issued securities and forward commitments
may be sold prior to the settlement date, but the Portfolio
enters into when-issued and forward commitments only with the
intention of actually receiving securities or delivering them, as
the case may be. If the Portfolio 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 incur a gain or loss. Any significant
12
commitment of Portfolio assets to the purchase of securities on a
"when, as and if issued" basis may increase the volatility of the
Portfolio's net asset value. In the event the other party to a
forward commitment transaction were to default, the Portfolio
might lose the opportunity to invest money at favorable rates or
to dispose of securities at favorable prices.
STANDBY COMMITMENT AGREEMENTS. Standby commitment
agreements commit the Portfolio, for a stated period of time, to
purchase a stated amount of a security that may be issued and
sold to the Portfolio at the option of the issuer. The price and
coupon of the security are fixed at the time of the commitment.
At the time of entering into the agreement the Portfolio is paid
a commitment fee, regardless of whether the security ultimately
is issued, typically equal to approximately 0.5% of the aggregate
purchase price of the security the Portfolio has committed to
purchase. The Portfolio will enter into such agreements only for
the purpose of investing in the security underlying the
commitment at a yield and price considered advantageous to the
Portfolio and unavailable on a firm commitment basis.
Investments in standby commitments will be limited so that the
aggregate purchase price of the securities subject to the
commitments will not exceed 25% of the Portfolio's total assets
taken at the time of making the commitment.
There is no guarantee that the securities subject to a
standby commitment will be issued, and the value of the security,
if issued, on the delivery date may be more or less than its
purchase price. Since the issuance of the security underlying
the commitment is at the option of the issuer, the Portfolio will
bear the risk of capital loss in the event the value of the
security declines and may not benefit from an appreciation in the
value of the security during the commitment period if the issuer
decides not to issue and sell the security to the Portfolio.
REPURCHASE AGREEMENTS. A repurchase agreement arises
when a buyer purchases a security and simultaneously agrees to
resell it to the vendor at an agreed-upon future date, normally a
day or a few days later. The resale price is greater than the
purchase price, reflecting an agreed-upon interest rate for the
period the buyer's money is invested in the security. Such
agreements permit the Portfolio to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. 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
13
benefit. The Adviser monitors the creditworthiness of the
vendors with which the Portfolio enters into repurchase
agreements.
SHORT SALES. A short sale is a transaction in which the
Portfolio sells a security it does not own but has borrowed in
anticipation that the market price of that security will decline.
When the Portfolio makes a short sale of a security that it does
not own, it must borrow from a broker-dealer the security sold
short and deliver the security to the broker-dealer upon
conclusion of the short sale. The Portfolio may be required to
pay a fee to borrow particular securities and is often obligated
to pay over any payments received on such borrowed securities.
The Portfolio's obligation to replace the borrowed security will
be secured by collateral deposited with a broker-dealer qualified
as a custodian and will consist of cash or securities. Depending
on the arrangements the Portfolio makes with the broker-dealer
from which it borrowed the security regarding remittance of any
payments received by the Portfolio on such security, the
Portfolio may not receive any payments (including interest) on
its collateral deposited with the broker-dealer.
If the price of the security sold short increases
between the time of the short sale and the time the Portfolio
replaces the borrowed security, the Portfolio will incur a loss;
conversely, if the price declines, the Portfolio will realize a
short-term capital gain. Any gain will be decreased, and any
loss increased, by the transaction costs described above.
Although the Portfolio's gain is limited to the price at which it
sold the security short, its potential loss is theoretically
unlimited. In order to defer realization of gain or loss for
U.S. federal income tax purposes, the Portfolio may also make
short sales "against the box." In this type of short sale, at
the time of the sale, the Portfolio owns or has the immediate and
unconditional right to acquire at no additional cost the
identical security.
The Portfolio may not make a short sale unless at all
times when a short position is open not more than 25% of the
Portfolio's net assets (taken at market value) is held as
collateral for such sales at any one time. Certain special
federal income tax considerations may apply to short sales
entered into by the Portfolio. See "Dividends, Distributions and
Taxes."
LOANS OF PORTFOLIO SECURITIES. The risks in lending
portfolio securities, as with other extensions of credit, consist
of possible loss of rights in the collateral should the borrower
14
fail financially. In determining whether the Portfolio is to
lend securities to a particular borrower, the Adviser 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 thereon,
and the Portfolio may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed upon amount of income from a borrower who has delivered
equivalent collateral. The Portfolio will have the right to
regain record ownership of loaned securities or equivalent
securities in order to exercise ownership rights such as voting
rights, subscription rights and rights to dividends, interest or
distributions. The Portfolio may pay reasonable finders',
administrative and custodial fees in connection with a loan. The
Portfolio will not lend portfolio securities in excess of 25% of
the value of its total assets, nor will the Portfolio lend its
portfolio securities to any officer, director, employee or
affiliate of the Portfolio or the Adviser. The Board of
Directors of the Fund will monitor the Portfolio's lending of
portfolio securities.
GENERAL. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
adviser's ability to forecast price movements correctly. Should
prices move unexpectedly, the Portfolio may not achieve the
anticipated benefits of the transactions or may realize losses
and thus be in a worse position than if such strategies had not
been used. In addition, the correlation between movements in the
prices of such instruments and movements in the prices of the
securities hedged will not be perfect and could produce
unanticipated losses.
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 exceed those involved in the activities described
above.
DEFENSIVE POSITION. For temporary defensive purposes,
the Portfolio may increase without limit its position in short-
term, liquid, high-grade debt securities, which may include
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government securities"),
15
bank deposits, money market instruments, short-term debt
securities, including notes and bonds. For a description of the
types of securities in which the Portfolio may invest while in a
temporary defensive position, please see the Statement of
Additional Information.
PORTFOLIO TURNOVER. The Adviser anticipates that the
Portfolio's annual rate of turnover will not exceed 100%. A 100%
annual turnover rate would occur if all of the securities in the
Portfolio's portfolio are replaced once in a period of one year.
A higher rate of portfolio turnover involves correspondingly
greater brokerage and other expenses than a lower rate, which
must be borne by the Portfolio and its shareholders. High
portfolio turnover also may result in the realization of
substantial net short-term capital gains. See "Dividends,
Distributions and Taxes."
Risk Considerations
RISK FACTORS ASSOCIATED WITH THE REAL ESTATE INDUSTRY.
Although the Portfolio does not invest directly in real estate,
it does invest primarily in Real Estate Equity Securities and
does have a policy of concentration of its investments in the
real estate industry. Therefore, an investment in the Portfolio
is subject to certain risks associated with the direct ownership
of real estate and with the real estate industry in general.
These risks include, among others: possible declines in the value
of real estate; risks related to general and local economic
conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in
competition, property taxes and operating expenses; changes in
zoning laws; costs resulting from the clean-up of, and liability
to third parties for damages resulting from, environmental
problems; casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on
and variations in rents; and changes in interest rates. To the
extent that assets underlying the Portfolio's investments are
concentrated geographically, by property type or in certain other
respects, the Portfolio may be subject to certain of the
foregoing risks to greater extent.
In addition, if the Portfolio receives rental income or
income from the disposition of real property acquired as a result
of a default on securities the Portfolio owns, the receipt of
such income may adversely affect the Portfolio's ability to
retain its tax status as a regulated investment company. See
"Dividends, Distributions and Taxes." Investments by the
Portfolio in securities of companies providing mortgage servicing
16
will be subject to the risks associated with refinancings and
their impact on servicing rights.
REITS. Investing in REITs involves certain unique risks
in addition to those risks associated with investing in the real
estate industry in general. Equity REITs may be affected by
changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any
credit extended. REITs are dependent upon management skills, are
not diversified, are subject to heavy cash flow dependency,
default by borrowers and self-liquidation. REITs are also
subject to the possibilities of failing to qualify for tax free
pass-through of income under the Code and failing to maintain
their exemptions from registration under the Investment Company
Act of 1940, as amended (the "1940 Act").
REITs (especially mortgage REITs) are also subject to
interest rate risks. When interest rates decline, the value of a
REIT's investment in fixed rate obligations can be expected to
rise. Conversely, when interest rates rise, the value of a
REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate
mortgage loans are reset periodically, yields on a REIT's
investments in such loans will gradually align themselves to
reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to
interest rate fluctuations than would investments in fixed rate
obligations.
Investing in REITs involves risks similar to those
associated with investing in small capitalization companies.
REITs may have limited financial resources, may trade less
frequently and in a limited volume and may be subject to more
abrupt or erratic price movements than larger company securities.
Historically, small capitalization stocks, such as REITs, have
been more volatile in price than the larger capitalization stocks
included in the S&P Index of 500 Common Stocks.
MORTGAGE-BACKED SECURITIES. As discussed above,
investing in Mortgage-Backed Securities involves certain unique
risks in addition to those risks associated with investment in
the real estate industry in general. These risks include the
failure of a counterparty to meet its commitments, adverse
interest rate changes and the effects of prepayments on mortgage
cash flows. When interest rates decline, the value of an
investment in fixed rate obligations can be expected to rise.
Conversely, when interest rates rise, the value of an investment
in fixed rate obligations can be expected to decline. In
17
contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on investments in such loans will
gradually align themselves to reflect changes in market interest
rates, causing the value of such investments to fluctuate less
dramatically in response to interest rate fluctuations than would
investments in fixed rate obligations.
Further, the yield characteristics of Mortgage-Backed
Securities, such as those in which the Portfolio may invest,
differ from those of traditional fixed income securities. The
major differences typically include more frequent interest and
principal payments (usually monthly), the adjustability of
interest rates, and the possibility that prepayments of principal
may be made substantially earlier than their final distribution
dates.
Prepayment rates are influenced by changes in current
interest rates and a variety of economic, geographic, social and
other factors, and cannot be predicted with certainty. Both
adjustable rate mortgage loans and fixed rate mortgage loans may
be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of
principal prepayments in an increasing interest rate environment.
Early payment associated with Mortgage-Backed Securities causes
these securities to experience significantly greater price and
yield volatility than that experienced by traditional fixed-
income securities. Under certain interest rate and prepayment
rate scenarios, the Portfolio may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any
direct or indirect governmental or agency guarantee. When the
Portfolio reinvests amounts representing payments and unscheduled
prepayments of principal, it may receive a rate of interest that
is lower than the rate on existing adjustable rate mortgage pass-
through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular,
may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.
SECURITIES RATINGS. The ratings of securities by S&P,
▇▇▇▇▇'▇, ▇▇▇▇ & ▇▇▇▇▇▇ Credit Rating Co. ("▇▇▇▇ & ▇▇▇▇▇▇") and
Fitch Investors Service, Inc. ("Fitch") are a generally accepted
barometer of credit risk. They are, however, subject to certain
limitations from an investor's standpoint. The rating of an
issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
18
difference in credit risk of securities within each rating
category.
Certain Fundamental Investment Policies
In addition to its fundamental investment objective, the
Portfolio has adopted the following fundamental investment
policies, which may not be changed without the approval of its
shareholders. Additional fundamental and non-fundamental
investment policies are set forth in the Statement of Additional
Information.
The Portfolio may not: (i) with respect to 75% of its
total assets, have such assets represented by other than:
(a) cash and cash items, (b) U.S. Government securities, or
(c) securities of any one issuer (other than the U.S. Government
and its agencies or instrumentalities) not greater in value than
5% of the Portfolio's total assets, and not more than 10% of the
outstanding voting securities of such issuer; (ii) purchase the
securities of any one issuer, other than the U.S. Government and
its agencies or instrumentalities, if as a result (a) the value
of the holdings of the Portfolio in the securities of such issuer
exceeds 25% of its total assets, or (b) the Portfolio owns more
than 25% of the outstanding securities of any one class of
securities of such issuer; (iii) invest 25% or more of its total
assets in the securities of issuers conducting their principal
business activities in any one industry, other than the real
estate industry in which the Portfolio will invest at least 25%
or more of its total assets, except that this restriction does
not apply to U.S. Government securities; (iv) purchase or sell
real estate, except that it may purchase and sell securities of
companies which deal in real estate or interests therein,
including Real Estate Equity Securities; or (v) borrow money
except for temporary or emergency purposes or to meet redemption
requests, in an amount not exceeding 5% of the value of its total
assets at the time the borrowing is made.
_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
Directors
▇▇▇▇ ▇. ▇▇▇▇▇▇, Chairman of the Board and President, is
President of Alliance Capital Management Corporation ("ACMC"),
the sole general partner of the Adviser, with which he has been
associated since prior to 1991.
19
▇▇▇▇ ▇▇▇▇▇ is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas). She
was formerly an Executive Vice President and the Chief Insurance
Officer of The Equitable Life Assurance Society of the United
States since prior to 1991.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ was formerly President of the Fund, and
a Senior Vice President of ACMC, with which he has been
associated since prior to 1991.
▇▇▇▇ ▇. ▇▇▇▇▇▇ is President of Historic ▇▇▇▇▇▇ Valley
(historic preservation) since prior to 1991. Previously, he was
Director of the National Academy of Design. From 1987 to 1992,
he was a Director of ACMC.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. was formerly a Senior Manager of
▇▇▇▇▇▇▇ Associates, Inc., a registered investment adviser, with
which he has been associated since prior to 1991.
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ is President of the ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ Foundation and a Director of Union Carbide Corporation
since prior to 1991. He was formerly President of New York
University, The New York Botanical Garden and ▇▇▇▇▇▇ of the
United Nations University.
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ is a member of the law firm of ▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, with which he has been associated since prior
to 1991.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ is a Vice President and the Chief
Financial Officer of the ▇▇▇▇▇▇ ▇▇▇▇▇▇ Medical Institute, with
which he has been associated since prior to 1991.
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ has been retained under an
investment advisory agreement (the "Investment Advisory
Agreement") to provide investment advice and, in general, to
conduct the management and investment program of the Portfolio
subject to the general supervision and control of the Board of
Directors of the Fund. The employee of the Adviser principally
responsible for the Portfolio's investment program since its
inception is ▇▇▇▇▇▇ ▇. ▇▇▇▇. ▇▇. ▇▇▇▇ is a Senior Vice President
and Research Analyst of the Adviser and has been associated with
the Adviser since May of 1996. Prior thereto, ▇▇. ▇▇▇▇ was
20
Senior Vice President of ▇▇▇▇▇ Capital Management since prior to
1991.
The Adviser is a leading international investment
manager supervising client accounts with assets as of June 30,
1996 totaling $168 billion (of which more than $55 billion
represented the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundations and endowment funds. The 50 registered investment
companies managed by the Adviser comprising over 100 separate
investment portfolios currently have over two million
shareholders. As of June 30, 1996, the Adviser was retained as
an investment manager by 33 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1%
general partnership interest in, the Adviser, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society
of the United States ("Equitable"), one of the largest life
insurance companies in the United States and a wholly owned
subsidiary of the Equitable Companies Incorporated, a holding
company which is controlled by AXA, a French insurance holding
company. Certain information concerning the ownership and
control of Equitable by AXA is set forth in the Statement of
Additional Information under "Management of the Fund."
The Adviser provides investment advisory services and
order placement facilities for each of the Fund's portfolios and
pays all compensation of Directors and officers of the Fund who
are affiliated persons of the Adviser. The Adviser or its
affiliates also furnish the Fund, without charge, management
supervision and assistance and office facilities and provide
persons satisfactory to the Fund's Board of Directors to serve as
the Fund's officers. The Portfolio pays the Adviser at an annual
rate of .90% of the average daily value of its net assets. The
fees are accrued daily and paid monthly.
Consultant To The Adviser
In providing advisory services to the Portfolio and
other clients investing in real estate securities, the Adviser
has access to the research services of ▇▇▇▇ Investment
Management, the Investment Management Division of ▇▇▇▇, which
acts as a consultant to the Adviser with respect to the real
estate market. As a consultant, ▇▇▇▇ provides to the Adviser, at
The Adviser's expense, such in-depth information regarding the
real-estate market, the factors influencing regional valuations
and analysis of recent transactions in office, retail, industrial
21
and multi-family properties as the Adviser shall from time to
time request. ▇▇▇▇ will not furnish investment advice or make
recommendations regarding the purchase or sale of securities by
the Portfolio nor will it be responsible for making investment
decisions involving Portfolio assets.
▇▇▇▇ is one of the largest fee-based property management
firms in the United States as well as one of the largest
publishers of real estate research, with approximately 2,600
employees nationwide. ▇▇▇▇ will provide the Adviser with
exclusive access to its REIT-SCORE model which ranks
approximately 115 REITs based on the relative attractiveness of
the property markets in which they own real estate. This model
scores the approximately 9,000 individual properties owned by
these companies. REIT-SCORE is in turn based on ▇▇▇▇'▇ National
Real Estate Index which gathers, analyzes and publishes targeted
research data for the 65 largest U.S. real estate markets based
on a variety of public- and private-sector sources as well as
▇▇▇▇'▇ proprietary database of 45,000 commercial property
transactions representing over $250 billion of investment
property and over 2,000 tracked properties which report rent and
expense data quarterly. ▇▇▇▇ has previously provided access to
its REIT-SCORE model results primarily to the institutional
market through subscriptions. The model is no longer provided to
any research publications, and the Portfolio and another mutual
fund managed by the Adviser are currently the only mutual funds
available to retail investors that have access to ▇▇▇▇'▇ REIT-
SCORE model.
Expenses of the Portfolio
In addition to the payments to the Adviser under the
Investment Advisory Agreement described above, the Portfolio pays
certain other costs including (a) custody, transfer and dividend
disbursing expenses, (b) fees of Directors who are not affiliated
with the Adviser, (c) legal and auditing expenses, (d) clerical,
accounting and other office costs, (e) costs of printing the
Fund's prospectuses and shareholder reports, (f) cost of
maintaining the Fund's existence, (g) interest charges, taxes,
brokerage fees and commissions, (h) costs of stationery and
supplies, (i) expenses and fees related to registration and
filing with the Commission and with state regulatory authorities,
and (j) cost of certain personnel of the Adviser or its
affiliates rendering clerical, accounting and other services to
the Fund.
As to the obtaining of clerical and accounting services
not required to be provided to the Fund by the Adviser under the
22
Investment Advisory Agreement, the Fund may employ its own
personnel. For such services, it may also utilize personnel
employed by the Adviser or by its affiliates; in such event, the
services are provided to the Fund at cost and the payments
specifically approved in advance by the Fund's Board of
Directors.
_________________________________________________________________
PURCHASE AND REDEMPTION OF SHARES
_________________________________________________________________
Purchase of Shares
Shares of the Portfolio are offered on a continuous
basis directly by the Fund and by Alliance Fund Distributors,
Inc., the Fund's Principal Underwriter, to the separate accounts
of certain life insurance companies without any sales or other
charge, at the Portfolio's net asset value, as described below.
The separate accounts of insurance companies place orders to
purchase shares of the Portfolio based on, among other things,
the amount of premium payments to be invested and surrender and
transfer requests to be effected on that day pursuant to variable
annuity contracts and variable life insurance policies which are
funded by shares of the Portfolios. The Fund reserves the right
to suspend the sale of the Fund's shares in response to
conditions in the securities markets or for other reasons.
Individuals may not place orders directly with the Fund. See the
Prospectus of the separate account of the participating insurance
company for more information on the purchase of Portfolio shares.
The public offering price of the Portfolio's shares is
their net asset value. The per share net asset value of the
Portfolio is computed in accordance with the Fund's Articles of
Incorporation and By-Laws, at the next close of regular trading
on the New York Stock Exchange (the "Exchange") (currently 4:00
p.m. Eastern time), following receipt of a purchase or redemption
order by the Fund, on each Fund business day on which such an
order is received and trading in the types of securities in which
the Fund invests might materially affect the value of Fund
shares. The Fund's per share net asset value is computed by
dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday exclusive of days on which the
Exchange is closed (most national holidays and Good Friday). For
purposes of this computation, the securities in the Portfolio are
valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily
23
available, such other methods as the Directors believe would
accurately reflect fair market value. Portfolio securities may
also be valued on the basis of prices provided by a pricing
service when such prices are believed by the Adviser to reflect
the fair market value of such securities.
Redemption of Shares
An insurance company separate account may redeem all or
any portion of the shares of the Portfolio in its account at any
time at the net asset value per share of the Portfolio next
determined after a redemption request in proper form is furnished
to the Fund or the Principal Underwriter. Any certificates
representing shares being redeemed must be submitted with the
redemption request. Shares redeemed are entitled to earn
dividends, if any, up to and including the day redemption is
effected. There is no redemption charge. Payment of the
redemption price will normally be made within seven days after
receipt of such tender for redemption. The right of redemption
may be suspended or the date of payment may be postponed for any
period during which the Exchange is closed (other than customary
weekend and holiday closings) or during which the Commission
determines that trading thereon is restricted, or for any period
during which an emergency (as determined by the Commission)
exists as a result of which disposal by the Fund of securities
owned by the Portfolio is not reasonably practicable or as a
result of which it is not reasonably practicable for the Fund
fairly to determine the value of the Portfolio's net assets, or
for such other periods as the Commission may by order permit for
the protection of security holders of the Fund. For information
regardign how to redeem shares in the Fund, please see your
insurance company separate accuont prospectus.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
The Portfolio will declare and distribute dividends from
net investment income and will distribute its net capital gains,
if any, at least annually. Such income and capital gains
distributions will be made in shares of the Portfolio.
The Portfolio intends to qualify to be taxed as a
regulated investment company under Subchapter M of the Internal
Revenue Code (the "Code"). If so qualified, the Portfolio will
not be subject to Federal income or excise taxes on its
investment company taxable income and net capital gains to the
24
extent such investment company taxable income and net capital
gains are distributed to the separate accounts of insurance
companies which hold its shares. Under current tax law, capital
gains or dividends from the Portfolio are not currently taxable
when left to accumulate within a variable annuity (other than an
annuity interest owned by a person who is not a natural person)
or variable life insurance contract. Distributions of net
investment income and net short-term capital gain will be treated
as ordinary income and distributions of net long-term capital
gain will be treated as long-term capital gain in the hands of
the insurance companies.
Section 817(h) of the Code requires that the investments
of a segregated asset account of an insurance company be
"adequately diversified," in accordance with Treasury Regulations
promulgated thereunder, in order for the holders of the variable
annuity contracts or variable life insurance policies underlying
the account to receive the tax-deferred or tax-free treatment
generally afforded holders of annuities or life insurance
policies under the Code. The Department of the Treasury has
issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account
will treat investments in a regulated investment company for
purposes of the applicable diversification requirements. Under
the Regulations, if a regulated investment company satisfies
certain conditions, a segregated asset account owning shares of
the regulated investment company will not be treated as a single
investment for these purposes, but rather the account will be
treated as owning its proportionate share of each of the assets
of the regulated investment company. The Portfolio plans to
satisfy these conditions at all times so that the shares of the
Portfolio owned by a segregated asset account of a life insurance
company will be subject to this treatment under the Code. For
information concerning federal income tax consequences for the
holders of variable annuity contracts and variable rate insurance
policies, such holders should consult the prospectus used in
connection with the issuance of their particular contracts or
policies.
25
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
Portfolio Transactions
Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions for the Portfolio.
The Fund has no obligation to enter into transactions in
portfolio securities with any broker, dealer, issuer, underwriter
or other entity. In placing orders, it is the policy of the Fund
to obtain the best price and execution for its transactions.
Consistent with the objective of obtaining best execution, the
Fund may use brokers and dealers who provide research,
statistical and other information to the Adviser. There may be
occasions where the transaction cost charged by a broker may be
greater than that which another broker may charge if the Fund
determines in good faith that the amount of such transaction cost
is reasonable in relation to the value of the brokerage and
research and statistical services provided by the executing
broker. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Fund may consider sales of shares
of the Fund as a factor in the selection of brokers and dealers
to enter into portfolio transactions with the Fund. The Fund may
from time to time place orders for the purchase or sale of
securities on an agency basis with ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
Securities Corporation, an affiliate of the Adviser, and with
brokers which may have their transactions cleared or settled, or
both, by the Pershing Division of ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇
Securities Corporation, for which ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇
Securities Corporation may receive a portion of the brokerage
commission. In such instances, the placement of orders with such
brokers would be consistent with the Fund's objective of
obtaining best execution and would not be dependent upon the fact
that ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities Corporation is an
affiliate of the Adviser.
Organization
The Fund is a Maryland corporation organized on
November 17, 1987. The authorized capital stock of the Fund
consists solely of 10,000,000,000 shares of Common Stock having a
par value of $.001 per share, which may, without shareholder
26
approval, be divided into an unlimited number of series. Such
shares are currently divided into 18 series, one underlying each
portfolio. Shares of each portfolio are normally entitled to one
vote for all purposes. Generally, shares of all portfolios vote
as a single series on matters, such as the election of Directors,
that affect all portfolios in substantially the same manner.
Maryland law does not require a registered investment company to
hold annual meetings of shareholders and it is anticipated that
shareholder meetings will be held only when specifically required
by federal or state law. Shareholders have available certain
procedures for the removal of Directors. Shares of each
portfolio are freely transferable, are entitled to dividends as
determined by the Board of Directors and, in liquidation of the
Fund, are entitled to receive the net assets of that portfolio.
Shareholders have no preference, pre-emptive or conversion
rights. In accordance with current law, it is anticipated that
an insurance company issuing a variable annuity contract or
variable life insurance policy that participates in the Fund will
request voting instructions from contract or policyholders and
will vote shares in the separate account in accordance with the
voting instructions received.
Principal Underwriter
Alliance Fund Distributors, Inc., ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, an indirect wholly-owned
subsidiary of the Adviser, is the Principal Underwriter of shares
of the Fund.
Custodian
State Street Bank and Trust Company, ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, acts as Custodian for the
securities and cash of the Fund and as its dividend disbursing
agent, but plays no part in deciding on the purchase or sale of
portfolio securities.
Registrar and Dividend-Disbursing Agent
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇, acts as the Fund's registrar and dividend-
disbursing agent.
Performance Information
From time to tome the Fund advertises its "total return." The
Fund's "total return" is its average annual compounded total
27
return for its most recently completed one, five, and ten-year
periods (or the period since the Fund's inception). The Fund's
total return for such a period is computed by finding, through
the use of a formula prescribed by the Commission, the average
annual compounded rate of return over the period that would
equate an assumed initial amount invested to the value of such
investment at the end of the period. For purposes of computing
total return, income dividends and capital gains distributions
paid on shares of the Fund are assumed to have been reinvested
when paid and the maximum sales charge applicable to purchases of
Fund shares is assumed to have been paid.
The Fund's total return is not fixed and will fluctuate in
response to prevailing market conditions or as a function of the
type and quality of the securities in the Fund's portfolio and
the Fund's expenses. Total return information is useful in
reviewing the Fund's performance but such information may not
provide a basis for comparison with bank deposits or other
investments which pay a fixed yield for a stated period of time.
An investor's principal invested in the Fund is not fixed and
will fluctuate in response to prevailing market conditions.
Advertisements quoting performance rankings of the Fund as
measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc., and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers,
magazines such as the Wall Street Journal, the New York Times,
Barrons, Investor's Daily, Money Magazine, Changing Times,
Business Week and Forbes or other media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to Alliance
Fund Services, Inc. at the address or telephone number shown on
the front cover of this Prospectus. This Prospectus and the
Statement of Additional Information which has been incorporated
by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission under the Securities Act of 1933, as amended. Copies
of the Registration Statement may be obtained at a reasonable
charge from the Commission or may be examined, without charge, at
the offices of the Commission in Washington, D.C.
This Prospectus does not constitute an offering in any
state in which such offering may not lawfully be made.
28
00250292.BA1
29
