This is filed pursuant to Rule 497(c).
File Nos. 33-18647 and 811-5398.



[LOGO]    ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC.
          -ALLIANCEBERNSTEIN INTERMEDIATE BOND PORTFOLIO

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c/o AllianceBernstein Investor Services, Inc.
P. O. Box 786003, San Antonio, Texas 78278-6003
Toll Free: (800) 221-5672
For Literature: Toll Free (800) 227-4618

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                       STATEMENT OF ADDITIONAL INFORMATION
                                 April 28, 2008

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          This Statement of Additional Information ("SAI") is not a prospectus
but supplements and should be read in conjunction with the current prospectus,
dated April 28, 2008, for the AllianceBernstein Intermediate Bond Portfolio (the
"Portfolio") of AllianceBernstein Variable Products Series Fund, Inc. (the
"Fund") that offers Class A shares of the Portfolio and the prospectus dated
April 28, 2008 of the Portfolio that offers Class B shares of the Portfolio
(each a "Prospectus" and together, the "Prospectuses"). Financial statements for
the Portfolio for the year ended December 31, 2007 are included in the
Portfolio's annual report to shareholders and are incorporated into the SAI by
reference. Copies of the Prospectuses and the Portfolio's annual report may be
obtained by contacting AllianceBernstein Investor Services, Inc., ("ABIS") at
the address or the "For Literature" telephone number shown above.

                                TABLE OF CONTENTS
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                                                                          Page
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Description of the Portfolio..............................................   2
Management of the Fund....................................................  39
Purchase and Redemption of Shares.........................................  58
Net Asset Value...........................................................  64
Portfolio Transactions....................................................  67
Dividends, Distributions and Taxes........................................  70
General Information.......................................................  71
Financial Statements and Report of
   Independent Registered Public Accounting Firm..........................  74
Appendix A: Statement of Policies and Procedures
   for Voting Proxies..................................................... A-1

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AllianceBernstein(R) and the AB Logo are registered trademarks and service marks
used by permission of the owner, AllianceBernstein L.P.



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                          DESCRIPTION OF THE PORTFOLIO

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Introduction to the Fund
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          The Fund's shares are offered in separate series referred to as
portfolios. Each portfolio is a separate pool of assets constituting, in effect,
a separate open-end management investment company with its own investment
objective policies. A shareholder in the portfolio will be entitled to his or
her pro-rata share of all dividends and distributions arising from that
portfolio's assets and, upon redeeming shares of that portfolio, the shareholder
will receive the then current net asset value ("NAV") of that portfolio
represented by the redeemed shares.

The Portfolio
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          Except as otherwise indicated, the Portfolio's investment objectives
and policies are not designated "fundamental policies" and, therefore, may be
changed by the Board of Directors (the "Board") without a shareholder vote.
There is no guarantee that the Portfolio will achieve its investment objective.
Whenever any investment policy or restriction states a percentage of the
Portfolio's assets that may be invested in any security or other asset, it is
intended that such percentage limitation be determined immediately after and as
a result of the Portfolio's acquisition of such securities or other assets.
Accordingly, any later increases or decreases in percentage beyond the specified
limitation resulting from a change in values or net assets will not be
considered a violation of this percentage limitation.

          The Portfolio's name was changed on April 28, 2008 from
AllianceBernstein U.S. Government/High Grade Securities Portfolio to
AllianceBernstein Intermediate Bond Portfolio.

          The term "net assets," as used in this SAI, means net assets plus any
borrowings.

Investment Objective
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          The Portfolio's investment objective is to generate income and price
appreciation without assuming what the Adviser considers undue risk.

How the Portfolio Pursues Its Objective
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          Under normal circumstances, the Portfolio invests at least 80% of its
net assets in fixed-income securities. This policy may not be changed without 60
days' prior written notice to shareholders. The Portfolio expects to invest in
readily marketable fixed-income securities with a range of maturities from
short- to long-term and relatively attractive yields that do not involve undue
risk of loss of capital. The Portfolio expects to invest in fixed-income
securities with a dollar-weighted average maturity of generally between three to
ten years and an average duration of three to six years. The Portfolio may
invest up to 25% of its net assets in below-investment grade securities. The
Portfolio may invest without limit in U.S. Dollar-denominated foreign
fixed-income securities and may invest up to 25% of its net assets in foreign
fixed-income securities denominated in currencies other than the U.S. Dollar.
These investments may include, in each case, developed and emerging market
securities.

          The Portfolio may invest in mortgage-related and other asset-backed
securities; loan participations; inflation-protected securities or IPS;
structured securities; variable, floating and inverse floating rate securities;
preferred stock; and may use other investment techniques.

          The Portfolio may use leverage for investment purposes by entering
into reverse repurchase agreements and dollar rolls. The Portfolio may invest
without limit in derivatives, such as options, futures, forwards and swaps.

          In the event that the credit rating of a security held by the
Portfolio is downgraded or the credit quality deteriorates after purchase, the
Portfolio will not be obligated to dispose of that security and may continue to
hold the security if, in the opinion of the Adviser, such investment is
appropriate in the circumstances. For additional information about securities
ratings, please see "Additional Investment Policies and Practices--Securities
Ratings" below.

Additional Investment Policies and Practices
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          The following additional investment policies supplement those set
forth in the Prospectuses.

Derivatives
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          Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. The
Portfolio may, but is not required to, use derivatives for risk management
purposes or as part of its investment practices. These assets, rates, and
indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. 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. The Portfolio may use
derivatives 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 required, under current interpretations of the SEC,
to establish and maintain segregated assets, which must consist of liquid
securities and be marked to market daily, to "cover" its obligations under
derivatives transactions. If the segregation of assets reaches certain levels,
the Portfolio may impair its ability to meet current obligations, to honor
requests for redemption and to manage its investment portfolio consistent with
its investment objectives.

          The four principal types of derivatives, which include options,
futures, forwards and swaps, as well as the methods in which they may be used by
the Portfolio are described below. From the four principal types of derivative
instruments, virtually any type of derivative transaction can be created.

          Forward Contracts. A forward contract is a customized, privately
negotiated agreement for 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. A forward contract generally is settled by
physical delivery of the commodity or other tangible asset underlying the
forward contract to an agreed upon location at a future date (rather than
settled by cash) or will be rolled forward into a new forward contract.
Non-deliverable forward ("NDFs") specify a cash payment upon maturity. NDFs are
normally used when the market for physical settlement of the currency is
underdeveloped, heavily regulated or highly taxed.

          Futures Contracts and Options on Futures Contracts. 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. Options on futures contracts are options that call for
the delivery of futures contracts upon exercise. 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.

          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 (a "call") or sell (a "put") 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. 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). Investments in options are considered speculative. The Portfolio
may lose the premium paid for them if the price of the underlying security or
other asset decreased or remained the same (in the case of a call option) or
increased or remained the same (in the case of a put option). 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.

          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. Swap transactions also include credit default swaps in which one
party pays a periodic fee, typically expressed in basis points on a notational
amount, in return for a contingent payment by the counterparty following a
credit event in a specific debt obligation or obligations. A credit event is
typically a default and the contingent payment may be a cash settlement or by
physical delivery of the reference obligation in return for payment of its face
amount.

          Risks of Derivatives. Investment techniques employing such derivatives
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. Following is a general discussion of
important risk factors and issues concerning the use of derivatives that
investors should understand in considering the proposed amendment of the
Portfolio's investment policies.

               -- Market Risk. This is the general risk attendant to all
               investments that the value of a particular investment will change
               in a way detrimental to the Portfolio's interest.

               -- 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's investment
               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 another party to a
               derivative (usually referred to as a "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 clearinghouse, 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 clearinghouse 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.

          Use of Options, Futures, Forwards and Swaps by the Portfolio.
          -------------------------------------------------------------

          --Forward Currency Exchange Contracts. A forward currency exchange
contract is an obligation by one party to buy, and the other party to sell, a
specific amount of a currency for an agreed upon price at a future date. Forward
currency exchange contracts are customized, privately negotiated agreements
designed to satisfy the objectives of each party. A forward currency exchange
contract usually results in the delivery of the underlying asset upon maturity
of the contract in return for the agreed upon payment. NDFs specify a cash
payment upon maturity. NDFs are normally used when the market for physical
settlement of the currency is underdeveloped, heavily regulated or highly taxed.

          The Portfolio will enter into forward currency exchange contracts to
attempt to minimize the risk to the Portfolio from adverse changes in the
relationship between the U.S. Dollar and other currencies. The Portfolio may
purchase or sell forward currency exchange contracts for hedging purposes
similar to those described below in connection with its transactions in foreign
currency futures contracts. The Portfolio may also purchase or sell forward
currency exchange contracts for non-hedging purposes as direct investments in
foreign currencies, as described below under "Currency Transactions".

          If a hedging transaction in forward currency exchange contracts is
successful, the decline in the value of portfolio securities or the increase in
the cost of securities to be acquired may be offset, at least in part, by
profits on the forward currency exchange contract. Nevertheless, by entering
into such forward currency exchange contracts, the Portfolio may be required to
forego all or a portion of the benefits which otherwise could have been obtained
from favorable movements in exchange rates.

          The Portfolio may also use forward currency exchange contracts to seek
to increase total return when the Adviser anticipates that a foreign currency
will appreciate or depreciate in value but securities denominated in that
currency are not held by the Portfolio and do not present attractive investment
opportunities. For example, the Portfolio may enter into a foreign currency
exchange contract to purchase a currency if the Adviser expects the currency to
increase in value. The Portfolio would recognize a gain if the market value of
the currency is more than the contract value of the currency at the time of
settlement of the contract. Similarly, the Portfolio may enter into a foreign
currency exchange contract to sell a currency if the Adviser expects the
currency to decrease in value. The Portfolio would recognize a gain if the
market value of the currency is less than the contract value of the currency at
the time of settlement of the contract.

          The cost of engaging in forward currency exchange contracts varies
with such factors as the currencies involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currencies are usually conducted on a principal basis, no fees or commissions
are involved.

          --Options on Securities. The Portfolio may write and purchase call and
put 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. The
Portfolio will not write uncovered call or put options on securities. A call
option written by the Portfolio is "covered" if the Portfolio owns the
underlying security, has an absolute and immediate right to acquire that
security upon conversion or exchange of another security it holds, or holds a
call option on the underlying security with an exercise price equal to or less
than 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 of the put option it has written.

          The Portfolio may also write combinations of put and call options on
the same security, known as "straddles," with the same exercise and expiration
date. By writing a straddle, the Portfolio undertakes a simultaneous obligation
to sell and purchase the same security in the event that one of the options is
exercised. If the price of the security subsequently rises above the exercise
price, the call will likely be exercised and the Portfolio will be required to
sell the underlying security at or below market price. This loss may be offset,
however, in whole or part, by the premiums received on the writing of the two
options. Conversely, if the price of the security declines by a sufficient
amount, the put will likely be exercised. The writing of straddles will likely
be effective, therefore, only where the price of the security remains stable and
neither the call nor the put is exercised. In those instances where one of the
options is exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.

          By writing a call option, the Portfolio limits its opportunity to
profit from any increase in the market value of the underlying security above
the exercise price of the option. By writing a put option, the Portfolio assumes
the risk that it may be required to purchase the underlying security for an
exercise price above its then current market value, resulting in a capital loss
unless the security subsequently appreciates in value. Where options are written
for hedging purposes, such transactions constitute only a partial hedge against
declines in the value of portfolio securities or against increases in the value
of securities to be acquired, up to the amount of the premium. The Portfolio may
purchase put options to hedge against a decline in the value of portfolio
securities. If such decline occurs, the put options will permit the Portfolio to
sell the securities at the exercise price or to close out the options at a
profit. By using put options in this way, the Portfolio will reduce any profit
it might otherwise have realized on the underlying security by the amount of the
premium paid for the put option and by transaction costs.

          The Portfolio may purchase call options to hedge against an increase
in the price of securities that the Portfolio anticipates purchasing in the
future. If such increase occurs, the call option will permit the Portfolio to
purchase the securities at the exercise price, or to close out the options at a
profit. The premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by the Portfolio upon exercise of the
option, and, unless the price of the underlying security rises sufficiently, the
option may expire worthless to the Portfolio and the Portfolio will suffer a
loss on the transaction to the extent of the premium paid.

          The Portfolio may purchase or write options on securities of the types
in which it is permitted to invest in privately negotiated (i.e.,
over-the-counter) transactions. The Portfolio will effect such transactions only
with investment dealers and other financial institutions (such as commercial
banks or savings and loan institutions) deemed creditworthy by the Adviser, and
the Adviser has adopted procedures for monitoring the creditworthiness of such
entities.

          --Options on Securities Indices. An option on a securities index is
similar to an option on a security except that, rather than taking or making
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in the case of a
call) or less than (in the case of a put) the exercise price of the option.

          The Portfolio may write (sell) call and put options and purchase call
and put options on securities indices. If the Portfolio purchases put options on
securities indices to hedge its investments against a decline in the value of
portfolio securities, it will seek to offset a decline in the value of
securities it owns through appreciation of the put option. If the value of the
Portfolio's investments does not decline as anticipated, or if the value of the
option does not increase, the Portfolio's loss will be limited to the premium
paid for the option. The success of this strategy will largely depend on the
accuracy of the correlation between the changes in value of the index and the
changes in value of the Portfolio's security holdings.

          The purchase of call options on securities indexes may be used by the
Portfolio to attempt to reduce the risk of missing a broad market advance, or an
advance in an industry or market segment, at a time when the Portfolio holds
uninvested cash or short-term debt securities awaiting investment. When
purchasing call options for this purpose, the Portfolio will also bear the risk
of losing all or a portion of the premium paid if the value of the index does
not rise. The purchase of call options on stock indices when the Portfolio is
substantially fully invested is a form of leverage, up to the amount of the
premium and related transaction costs, and involves risks of loss and of
increased volatility similar to those involved in purchasing call options on
securities the Portfolio owns.

          --Options on Foreign Currencies. The Portfolio may purchase and write
options on foreign currencies for hedging purposes. For example, a decline in
the dollar value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even if their value
in the foreign currency remains constant. In order to protect against such
diminutions in the value of portfolio securities, the Portfolio may purchase put
options on the foreign currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed amount in
dollars and could thereby offset, in whole or in part, the adverse effect on its
portfolio which otherwise would have resulted.

          Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio from purchases of foreign currency options
will be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Portfolio could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.

          The Portfolio may write options on foreign currencies for hedging
purposes or to increase return. For example, where the Portfolio anticipates a
decline in the dollar value of foreign-denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities could be offset by the amount of the premium received.

          Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency, which, if rates
move in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio will be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits that might otherwise have been
obtained from favorable movements in exchange rates.

          In addition to using options for the hedging purposes described above,
the Portfolio may also invest in options on foreign currencies for non-hedging
purposes as a means of making direct investments in foreign currencies. The
Portfolio may use options on currency to seek to increase total return when the
Adviser anticipates that a foreign currency will appreciate or depreciate in
value but securities denominated in that security are not held by the Portfolio
and do not present attractive investment opportunities. For example, the
Portfolio may purchase call options in anticipation of an increase in the market
value of a currency. The Portfolio would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transactions costs. Otherwise, the Portfolio would
realize no gain or a loss on the purchase of the call option. Put options may be
purchased by the Portfolio for the purpose of benefiting from a decline in the
value of a currency that the Portfolio does not own. The Portfolio would
normally realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs. Otherwise, the Portfolio would realize
no gain or loss on the purchase of the put option. For additional information on
the use of options on foreign currencies for non-hedging purposes, see "Currency
Transactions" below.

          Special Risks Associated with Options on Currency. An exchange traded
options position may be closed out only on an options exchange that provides a
secondary marker for an option of the same series. Although the Portfolio will
generally purchase or sell options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option, or at any particular time. For
some options, no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that the Portfolio would have to exercise its options in order to
realize any profit and would incur transaction costs un the sale of the
underlying currency.

          --Futures Contracts and Options on Futures Contracts. Futures
contracts that the Portfolio may buy and sell may include futures contracts on
fixed-income or other securities, and contracts based on interest rates, foreign
currencies or financial indices, including any index of U.S. Government
securities. The Portfolio may purchase or sell futures contracts and options
thereon to hedge against changes in interest rates, securities (through index
futures or options) or currencies.

          Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on
the Portfolio's current or intended investments in fixed-income securities. For
example, if the Portfolio owned long-term bonds and interest rates were expected
to increase, the Portfolio might sell interest rate futures contracts. Such a
sale would have much the same effect as selling some of the long-term bonds in
the Portfolio's portfolio. However, since the futures market is more liquid than
the cash market, the use of interest rate futures contracts as a hedging
technique allows the Portfolio to hedge its interest rate risk without having to
sell its portfolio securities. If interest rates were to increase, the value of
the debt securities in the portfolio would decline, but the value of the
Portfolio's interest rate futures contracts would be expected to increase at
approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. On the other hand,
if interest rates were expected to decline, interest rate futures contracts
could be purchased to hedge in anticipation of subsequent purchases of long-term
bonds at higher prices. Because the fluctuations in the value of the interest
rate futures contracts should be similar to those of long-term bonds, the
Portfolio could protect itself against the effects of the anticipated rise in
the value of long-term bonds without actually buying them until the necessary
cash becomes available or the market has stabilized. At that time, the interest
rate futures contracts could be liquidated and the Portfolio's cash reserves
could then be used to buy long-term bonds on the cash market.

          The Portfolio may purchase and sell foreign currency futures contracts
for hedging purposes in order to protect against fluctuations in currency
exchange rates. Such fluctuations could reduce the dollar value of portfolio
securities denominated in foreign currencies, or increase the cost of
foreign-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant. The
Portfolio may sell futures contracts on a foreign currency, for example, when it
holds securities denominated in such currency and it anticipates a decline in
the value of such currency relative to the dollar. If such a decline were to
occur, the resulting adverse effect on the value of foreign-denominated
securities may be offset, in whole or in part, by gains on the futures
contracts. However, if the value of the foreign currency increases relative to
the dollar, the Portfolio's loss on the foreign currency futures contract may or
may not be offset by an increase in the value of the securities because a
decline in the price of the security stated in terms of the foreign currency may
be greater than the increase in value as a result of the change in exchange
rates.

          Conversely, the Portfolio could protect against a rise in the dollar
cost of foreign-denominated securities to be acquired by purchasing futures
contracts on the relevant currency, which could offset, in whole or in part, the
increased cost of such securities resulting from a rise in the dollar value of
the underlying currencies. When the Portfolio purchases futures contracts under
such circumstances, however, and the price in dollars of securities to be
acquired instead declines as a result of appreciation of the dollar, the
Portfolio will sustain losses on its futures position which could reduce or
eliminate the benefits of the reduced cost of portfolio securities to be
acquired.

          The Portfolio may also engage in currency "cross hedging" when, in the
opinion of the Adviser, the historical relationship among foreign currencies
suggests that the Portfolio may achieve protection against fluctuations in
currency exchange rates similar to that described above at a reduced cost
through the use of a futures contract relating to a currency other than the U.S.
Dollar or the currency in which the foreign security is denominated. Such "cross
hedging" is subject to the same risks as those described above with respect to
an unanticipated increase or decline in the value of the subject currency
relative to the U.S. Dollar.

          The Portfolio may also use foreign currency futures contracts and
options on such contracts for non-hedging purposes. Similar to options on
currencies described above, the Portfolio may use foreign currency futures
contracts and options on such contracts to seek to increase total return when
the Adviser anticipates that a foreign currency will appreciate or depreciate in
value but securities denominated in that security are not held by the Portfolio
and do not present attractive investment opportunities. The risks associated
with foreign currency futures contracts and options on futures are similar to
those associated with options on foreign currencies, as described above. For
additional information on the use of options on foreign currencies for
non-hedging purposes, see "Currency Transactions" below.

          Purchases or sales of stock or bond index futures contracts are used
for hedging purposes to attempt to protect the Portfolio's current or intended
investments from broad fluctuations in stock or bond prices. For example, the
Portfolio may sell stock or bond index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Portfolio's portfolio securities that might otherwise result. If such decline
occurs, the loss in value of portfolio securities may be offset, in whole or
part, by gains on the futures position. When the Portfolio is not fully invested
in the securities market and anticipates a significant market advance, it may
purchase stock or bond index futures contracts in order to gain rapid market
exposure that may, in whole or in part, offset increases in the cost of
securities that the Portfolio intends to purchase. As such purchases are made,
the corresponding positions in stock or bond index futures contracts will be
closed out.

          The Portfolio has claimed an exclusion from the definition of the term
"commodity pool operator" under the Commodity Exchange Act and therefore is not
subject to registration or regulation as a pool operator under that Act.

          Options on futures contracts are options that call for the delivery of
futures contracts upon exercise. Options on futures contracts written or
purchased by the Portfolio will be traded on U.S. exchanges.

          The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities in the Portfolio's
portfolio. If the futures price at expiration of the option is below the
exercise price, the Portfolio will retain the full amount of the option premium,
which provides a partial hedge against any decline that may have occurred in the
Portfolio's portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of the securities
or other instruments required to be delivered under the terms of the futures
contract. If the futures price at expiration of the put option is higher than
the exercise price, the Portfolio will retain the full amount of the option
premium, which provides a partial hedge against any increase in the price of
securities which the Portfolio intends to purchase. If a put or call option the
Portfolio has written is exercised, the Portfolio will incur a loss which will
be reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its options on futures positions, the Portfolio's losses from
exercised options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.

          The Portfolio may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected market-wide decline or changes in interest or exchange
rates, the Portfolio could, in lieu of selling futures contracts, purchase put
options thereon. In the event that such decrease were to occur, it may be
offset, in whole or part, by a profit on the option. If the anticipated market
decline were not to occur, the Portfolio will suffer a loss equal to the price
of the put. Where it is projected that the value of securities to be acquired by
the Portfolio will increase prior to acquisition due to a market advance or
changes in interest or exchange rates, the Portfolio could purchase call options
on futures contracts, rather than purchasing the underlying futures contracts.
If the market advances, the increased cost of securities to be purchased may be
offset by a profit on the call. However, if the market declines, the Portfolio
will suffer a loss equal to the price of the call, but the securities which the
Portfolio intends to purchase may be less expensive.

          --Credit Default Swap Agreements. The "buyer" in a credit default swap
contract is obligated to pay the "seller" a periodic stream of payments over the
term of the contract in return for a contingent payment upon the occurrence of a
credit event with respect to an underlying reference obligation. Generally, a
credit event means bankruptcy, failure to pay, obligation acceleration or
modified restructuring. The Portfolio may be either the buyer or seller in the
transaction. As a seller, the Portfolio receives a fixed rate of income
throughout the term of the contract, which typically is between one month and
five years, provided that no credit event occurs. If a credit event occurs, the
Portfolio typically must pay the contingent payment to the buyer, which is
typically the "par value" (full notional value) of the reference obligation. The
contingent payment may be a cash settlement or by physical delivery of the
reference obligation in return for payment of the face amount of the obligation.
If the Portfolio is a buyer and no credit event occurs, the Portfolio it will
lose its periodic stream of payments over the term of the contract. However, if
a credit event occurs, the buyer typically receives full notional value for a
reference obligation that may have little or no value.

          Credit default swaps may involve greater risks than if the Portfolio
had invested in the reference obligation directly. Credit default swaps are
subject to general market risk, liquidity risk and credit risk. As noted above,
if the Portfolio is a buyer and no credit event occurs, it will lose its
periodic stream of payments over the term of the contract. In addition, the
value of the reference obligation received by the Portfolio as a seller if a
credit event occurs, coupled with the periodic payments previously received, may
be less than the full notional value it pays to the buyer, resulting in a loss
of value to the Portfolio.

          --Currency Swaps. The Portfolio may enter into currency swaps for
hedging purposes to protect against adverse changes in exchange rates between
the U.S. Dollar and other currencies for non-hedging purposes as a means of
making direct investments in foreign currencies, as described below under
"Currency Transactions". Currency swaps involve the exchange by the Portfolio
with another party of a series of payments in specified currencies. Actual
principal amounts of currencies may be exchanged by the counterparties at the
initiation, and again upon the termination of the transaction. Since currency
swaps are individually negotiated, the Portfolio expects to achieve an
acceptable degree of correlation between its portfolio investments and its
currency swaps positions. Therefore the entire principal value of a currency
swap is subject to the risk that the other party to the swap will default on its
contractual delivery obligations. The net amount of the excess, if any, of the
Portfolio's obligations over its entitlements with respect to each currency swap
will be accrued on a daily basis and an amount of liquid assets having an
aggregate net asset value ("NAV") at least equal to the accrued excess will be
maintained in a segregated account by the Portfolio's custodian. If there is a
default by the other party to such a transaction, the Portfolio will have
contractual remedies pursuant to the agreements related to the transactions.

          --Swaps: Interest Rate Transactions. The Portfolio may enter into
interest rate swap, cap or floor transactions, which may include preserving a
return or spread on a particular investment or portion of its portfolio or
protecting against an increase in the price of securities the Portfolio
anticipates purchasing at a later date. The Portfolio also may invest in
interest rate transaction futures.

          Interest Rate Swaps. Interest rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed rate payments)
computed based on a contractually-based principal (or "notional") amount.
Interest rate swaps are entered into on a net basis (i.e., the two payment
streams are netted out, with the Portfolio receiving or paying, as the case may
be, only the net amount of the two payments).

          Interest Rate Caps and Floors. Interest rate caps and floors are
similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to receive payments of interest on a notional amount from the party
selling the interest rate cap or floor.

          The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become well established and relatively liquid. Caps and floors are less
liquid than swaps. These transactions do not involve the delivery of securities
or other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to the Portfolio from interest rate
transactions is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make.

          --Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to the
London Interbank Offered Rate and are subject to the same limitations and risks
as other futures contracts and options.

          --Currency Transactions. The Portfolio may invest in non-U.S. Dollar
securities on a currency hedged or un-hedged basis. The Adviser will actively
manage the Portfolio's currency exposures and may seek investment opportunities
by taking long or short positions in currencies through the use of
currency-related derivatives, including forward currency exchange contracts,
futures and options on futures, swaps and options. The Adviser may enter into
transactions for investment opportunities when it anticipates that a foreign
currency will appreciate or depreciate in value but securities denominated in
that currency are not held by the Portfolio and do not present attractive
investment opportunities. Such transactions may also be used when the Adviser
believes that it may be more efficient than a direct investment in a foreign
currency-denominated security. The Portfolio may also conduct currency exchange
contracts on a spot basis (i.e., for cash at the spot rate prevailing in the
currency exchange market for buying or selling currencies).

Forward Commitments and When-Issued and Delayed Delivery Securities
- -------------------------------------------------------------------

          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, the Portfolio does not pay for the
securities until they are received, and the Portfolio is required to create a
segregated account with its custodian and to maintain in that account liquid
assets in an amount equal to or greater than, on a daily basis, the amount of
the Portfolio's forward commitments and "when-issued" or "delayed delivery"
commitments.

          Forward commitments include "To be announced" ("TBA") mortgage-backed
securities, which are contracts for the purchase or sale of mortgage-backed
securities to be delivered at a future agreed-upon date, whereby the specific
mortgage pool numbers or the number of pools that will be delivered to fulfill
the trade obligation or terms of the contract are unknown at the time of the
trade. Subsequent to the time of the trade, a mortgage pool or pools guaranteed
by the Government National Mortgage Association, or GNMA, the Federal National
Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or
FHLMC (including fixed rate or variable rate mortgages) are allocated to the TBA
mortgage-backed securities transactions.

          The use of forward commitments enables the Portfolio to protect
against anticipated changes in exchange rates, interest rates and/or prices.
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 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.

          At the time the Portfolio intends to enter into a forward commitment,
it will record the transaction and thereafter reflect 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 Portfolio will enter into forward commitments and make commitments
to purchase securities on a "when-issued" or "delayed delivery" basis only with
the intention of actually acquiring the securities. However, the Portfolio may
sell these securities before the settlement date if, in the opinion of the
Adviser, it is deemed advisable as a matter of investment strategy.

          Although the Portfolio does not intend to enter into forward
commitments for speculative purposes and the Portfolio intends to adhere to the
provisions of Commission policies, purchases of securities on such bases may
involve more risk than other types of purchases. For example, by committing to
purchase securities in the future, the Portfolio subjects itself to a risk of
loss on such commitments as well as on its portfolio securities. Also, the
Portfolio may have to sell assets which have been set aside in order to meet
redemptions. In addition, if the Portfolio determines it is advisable as a
matter of investment strategy to sell the forward commitment or "when-issued" or
"delayed delivery" securities before delivery, the Portfolio may incur a gain or
loss because of market fluctuations since the time the commitment to purchase
such securities was made. Any such gain or loss would be treated as a capital
gain or loss for tax purposes. When the time comes to pay for the securities to
be purchased under a forward commitment or on a "when-issued" or "delayed
delivery" basis, the Portfolio will meet its obligations from the then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the forward commitment or "when-issued" or "delayed
delivery" securities themselves (which may have a value greater or less than the
Portfolio's payment obligation). In addition, no interest or dividends accrue to
the purchaser prior to the settlement date for securities purchased or sold
under a forward commitment.

Illiquid Securities
- -------------------

          The Portfolio will limit its investments in illiquid securities to no
more than 15% of its net assets or such other amount permitted by guidance
regarding the 1940 Act. If more than 15% of the net assets of the Portfolio,
taken at market value, are illiquid assets, the Portfolio, as quickly as is
commercially reasonable, will take all necessary steps to reduce the percentage
of its net assets made up of illiquid assets to 15% or less. For this purpose,
illiquid securities include, among others, (a) direct placements or other
securities which are subject to legal or contractual restrictions on resale or
for which there is no readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers do not exist or
will not entertain bids or offers), (b) options purchased by the Portfolio
over-the-counter and the cover for options written by the Portfolio
over-the-counter, and (c) repurchase agreements not terminable within seven
days. Securities that have legal or contractual restrictions on resale but have
a readily available market are not deemed illiquid for purposes of this
limitation.

          Mutual funds do not typically hold a significant amount of restricted
securities (securities that are subject to restrictions on resale to the general
public) or other illiquid securities because of the potential for delays on
resale and uncertainty in valuation. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be
unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemptions
within seven days. A mutual fund may also have to take certain steps or wait a
certain amount of time in order to remove the transfer restrictions for such
restricted securities in order to dispose of them, resulting in additional
expense and delay.

          Rule 144A under the Securities Act allows a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted securities held
by the Portfolio, however, could affect adversely the marketability of such
portfolio securities and the Portfolio might be unable to dispose of such
securities promptly or at reasonable prices.

          The Adviser, acting under the supervision of the Board, will monitor
the liquidity of restricted securities in the Portfolio that are eligible for
resale pursuant to Rule 144A. In reaching liquidity decisions, the Adviser will
consider, among others, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers issuing quotations to
purchase or sell the security; (3) the number of other potential purchasers of
the security; (4) the number of dealers undertaking to make a market in the
security; (5) the nature of the security (including its unregistered nature) and
the nature of the marketplace for the security (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of the
transfer); and (6) any applicable Commission interpretation or position with
respect to such type of securities.

Investments in Investment Companies
- -----------------------------------

          The Portfolio may invest in securities of other investment companies,
including exchange-traded funds, to the extent permitted under the 1940 Act or
the rules and regulations thereunder (as such statute, rules or regulations may
be amended from time to time) or by guidance regarding, interpretations of, or
exemptive orders under, the 1940 Act or the rules or regulations thereunder
published by appropriate regulatory authorities.

Lending of Portfolio Securities
- -------------------------------

          The Portfolio may seek to increase income by lending portfolio
securities. A principal risk in lending portfolio securities, as with other
extensions of credit, consists of the possible loss of rights in the collateral
should the borrower fail financially. In addition, the Portfolio may be exposed
to the risk that the sale of any collateral realized upon the borrower's default
will not yield proceeds sufficient to replace the loaned securities. In
determining whether to lend securities to a particular borrower, the Adviser
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. The loans would be made only to firms deemed
by the Adviser to be of good standing, and when, in the judgment of the Adviser,
the consideration that can be earned currently from securities loans of this
type justifies the attendant risk. The Portfolio may lend portfolio securities
to the extent permitted under the 1940 Act or the rules and regulations
thereunder (as such statute, rules or regulations may be amended from time to
time) or by guidance regarding, interpretations of, or exemptive orders under,
the 1940 Act.

          Under present regulatory policies, including those of the Board of
Governors of the Federal Reserve System and the Commission, such loans may be
made only to member firms of the New York Stock Exchange (the "Exchange") and
will be required to be secured continuously by collateral in cash, cash
equivalents, or U.S. Treasury Bills maintained on a current basis at an amount
at least equal to the market value of the securities loaned. The Portfolio will
have the right to call a loan and obtain the securities loaned at any time on
five days' notice. While securities are on loan, the borrower will pay the
Portfolio any income from the securities. The Portfolio may invest any cash
collateral in portfolio securities and earn additional income or receive an
agreed-upon amount of income from a borrower who has delivered equivalent
collateral. Any such investment of cash collateral will be subject to the
Portfolio's investment risks.

          The Portfolio will not, however, have the right to vote any securities
having voting rights during the existence of the loan. 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.

Loan Participations and Assignments
- -----------------------------------

          The Portfolio may invest in fixed or floating rate corporate loans
("Loans" and each, a "Loan") either by participating as co-lender at the time
the loan is originated ("Participations") or by buying an interest in the loan
in the secondary market from a financial institution or institutional investor
("Assignments"). The financial status of an institution interposed between the
Portfolio and a borrower may affect the ability of the Portfolio to receive
principal and interest payments.

          The success of the Portfolio may depend on the skill with which an
agent bank administers the terms of the corporate loan agreements, monitors
borrower compliance with covenants, collects principal, interest and fee
payments from borrowers and, where necessary, enforces creditor remedies against
borrowers. Agent banks typically have broad discretion in enforcing loan
agreements.

          The Portfolio's investment in Participations typically will result in
the Portfolio having a contractual relationship only with the financial
institution arranging the Loan with the borrower (the "Lender") and not with the
borrower directly. The Portfolio will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, the Portfolio
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any rights of set-off
against the borrower, and the Portfolio may not directly benefit from any
collateral supporting the Loan in which it has purchased the Participation. As a
result, the Portfolio may be subject to the credit risk of both the borrower and
the Lender that is selling the Participation. In the event of the insolvency of
the Lender selling a Participation, the Portfolio may be treated as a general
creditor of the Lender and may not benefit from any set-off between the Lender
and the borrower. Certain Participations may be structured in a manner designed
to avoid purchasers of Participations being subject to the credit risk of the
Lender with respect to the Participation; but even under such a structure, in
the event of the Lender's insolvency, the Lender's servicing of the
Participation may be delayed and the assignability of the Participation
impaired. The Portfolio will acquire Participations only if the Lender
interpositioned between the Portfolio and the borrower is a Lender having total
assets of more than $25 billion and whose senior unsecured debt is rated
investment grade (i.e., Baa3 or higher by Moody's or BBB- or higher by S&P) or
higher.

          When the Portfolio purchases Assignments from Lenders it will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Portfolio as the
purchaser of an assignment may differ from, and be more limited than, those held
by the assigning Lender. The assignability of certain obligations is restricted
by the governing documentation as to the nature of the assignee such that the
only way in which the Portfolio may acquire an interest in a Loan is through a
Participation and not an Assignment. The Portfolio may have difficulty disposing
of Assignments and Participations because to do so it will have to assign such
securities to a third party. Because there is no liquid market for such
securities, the Portfolio anticipates that such securities could be sold only to
a limited number of institutional investors. The lack of a liquid secondary
market may have an adverse impact on the value of such securities and the
Portfolio's ability to dispose of particular Assignments or Participations when
necessary to meet the Portfolio's liquidity needs in response to a specific
economic event such as a deterioration in the creditworthiness of the borrower.
The lack of a liquid secondary market for Assignments and Participations also
may make it more difficult for the Portfolio to assign a value to these
securities for purposes of valuing the Portfolio's portfolio and calculating its
asset value.

Mortgage-Related Securities and Other Asset-Backed Securities
- -------------------------------------------------------------

          The mortgage-related securities in which the Portfolio may invest
typically are securities representing interests in pools of mortgage loans made
by lenders such as savings and loan associations, mortgage bankers and
commercial banks and are assembled for sale to investors (such as the Portfolio)
by governmental, government-related or private organizations. Private
organizations include commercial banks, savings associations, mortgage
companies, investment banking firms, finance companies, special purpose finance
entities (called special purpose vehicles or SPVs) and other entities that
acquire and package loans for resales as mortgage-related securities.
Specifically, these securities may include pass-through mortgage-related
securities, collateralized mortgage obligations ("CMOs"), CMO residuals,
adjustable-rate mortgage securities ("ARMS"), stripped mortgage-backed
securities ("SMBSs"), commercial mortgage-backed securities, "to be announced"
("TBA") mortgage-backed securities, mortgage dollar rolls, collateralized
obligations and other securities that directly or indirectly represent a
participation in or are secured by and payable from mortgage loans on real
property and other assets.

          Pass-Through Mortgage-Related Securities. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment consisting of both interest and principal
payments. In effect, these payments are a "pass-through" of the monthly payments
made by the individual borrowers on their residential mortgage loans, net of any
fees paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Some mortgage-related securities, such as securities issued by
GNMA, are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, regardless of whether or not the mortgagor actually makes
the payment.

          The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying average life
assumptions. The assumed average life of pools of mortgages having terms of less
than 30 years, is less than 12 years, but typically not less than 5 years.

          Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising
interest rates the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool. Historically, actual average life has been
consistent with the 12-year assumption referred to above. Actual prepayment
experience may cause the yield to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of the Portfolio. The compounding
effect from reinvestment of monthly payments received by the Portfolio will
increase the yield to shareholders compared with bonds that pay interest
semi-annually.

          The principal governmental (i.e., backed by the full faith and credit
of the United States Government) guarantor of mortgage-related securities is
GNMA. GNMA is a wholly-owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages.

          Government-related (i.e., not backed by the full faith and credit of
the United States Government) guarantors include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation and oversight by the Office of Federal Housing
Enterprise Oversight ("OFHEO"). FNMA purchases residential mortgages from a list
of approved seller/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the United States Government. FHLMC is a corporate
instrumentality of the United States Government whose stock is owned by private
stockholders. Participation certificates issued by FHLMC, which represent
interests in mortgages from FHLMC's national portfolio, are guaranteed by FHLMC
as to the timely payment of interest and ultimate collection of principal but
are not backed by the full faith and credit of the United States Government.

          Commercial banks, savings and loan associations, private mortgage
insurance companies, mortgage bankers and other secondary market issuers create
pass-through pools of conventional residential mortgage loans. Securities
representing interests in pools created by non-governmental private issuers
generally offer a higher rate of interest than securities representing interests
in pools created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded.

          The structuring of the pass-through pool may also provide credit
enhancement. Examples of such credit support arising out of the structure of the
transaction include the issue of senior and subordinated securities (e.g., the
issuance of securities by a SPV in multiple classes or "tranches", with one or
more classes being senior to other subordinated classes as to payment of
principal and interest, with the result that defaults on the underlying mortgage
loans are borne first by the holders of the subordinated class); creation of
"reserve funds" (in which case cash or investments sometimes funded from a
portion of the payments on the underlying mortgage loans, are held in reserve
against future losses); and "overcollateralization" (in which case the scheduled
payments on, or the principal amount of, the underlying mortgage loans exceeds
that required to make payment of the securities and pay any servicing or other
fees). There can be no guarantee the credit enhancements, if any will be
sufficient to prevent losses in the event of defaults on the underlying mortgage
loans.

          In addition, mortgage-related securities that are issued by private
issuers are not subject to the underwriting requirements for the underlying
mortgages that are applicable to those mortgage-related securities that have a
government or government-sponsored entity guarantee. As a result, the mortgage
loans underlying private mortgage-related securities may, and frequently do,
have less favorable collateral, credit risk or other underwriting
characteristics than government or government-sponsored mortgage-related
securities and have wider variances in a number of terms, including interest
rate, term, size, purposes and borrower characteristics. Privately issued pools
more frequently include second mortgages, high loan-to-value mortgages and
manufactured housing loans. The coupon rates and maturities of the underlying
mortgage loans in a private-label mortgage-related pool may vary to a greater
extent than those included in a government guaranteed pool, and the pool may
include subprime mortgage loans. Subprime loans refer to loans made to borrowers
with weakened credit histories or with a lower capacity to make timely payments
on their loans. For these reasons, the loans underlying these securities have
had in many cases higher default rates than those loans that meet government
underwriting requirements.

          The structuring of the pass-through pool may also provide credit
enhancement. Examples of such credit support arising out of the structure of the
transaction include the issue of senior and subordinated securities (e.g., the
issuance of securities by a SPV in multiple classes or "tranches", with one or
more classes being senior to other subordinated classes as to payment of
principal and interest, with the result that defaults on the underlying mortgage
loans are borne first by the holders of the subordinated class); creation of
"reserve funds" (in which case cash or investments sometimes funded from a
portion of the payments on the underlying mortgage loans, are held in reserve
against future losses); and "overcollateralization" (in which case the scheduled
payments on, or the principal amount of, the underlying mortgage loans exceeds
that required to make payment of the securities and pay any servicing or other
fees). There can be no guarantee the credit enhancements, if any will be
sufficient to prevent losses in the event of defaults on the underlying mortgage
loans.

          In addition, mortgage-related securities that are issued by private
issuers are not subject to the underwriting requirements for the underlying
mortgages that are applicable to those mortgage-related securities that have a
government or government-sponsored entity guaranteed. As a result, the mortgage
loans underlying private mortgage-related securities may, and frequently do,
have less favorable collateral, credit risk or other underwriting
characteristics than government or government-sponsored mortgage-related
securities and have wider variances in a number of terms, including interest
rate, term, size, purposes and borrower characteristics. Privately issued pools
more frequently include second mortgages, high loan-to-value mortgages and
manufactured housing loans. The coupon rates and maturities of the underlying
mortgage loans in a private-label mortgage-related pool may vary to a greater
extent than those included in a government guaranteed pool, and the pool may
include subprime mortgage loans. Subprime loans refer to loans made to borrowers
with weakened credit histories or with a lower capacity to make timely payments
on their loans. For these reasons, the loans underlying these securities have
had in many cases higher default rates than those loans that meet government
underwriting requirements.

          Collateralized Mortgage Obligations. Another form of mortgage-related
security is a "pay-through" security, which is a debt obligation of the issuer
secured by a pool of mortgage loans pledged as collateral that is legally
required to be paid by the issuer, regardless of whether payments are actually
made on the underlying mortgages. CMOs are the predominant type of "pay-through"
mortgage-related security. In a CMO, a series of bonds or certificates is issued
in multiple classes. Each class of a CMO, often referred to as a "tranche," is
issued at a specific coupon rate and has a stated maturity or final distribution
date. Principal prepayments on collateral underlying a CMO may cause one or more
tranches of the CMO to be retired substantially earlier than the stated
maturities or final distribution dates of the collateral. Although payment of
the principal of, and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
GNMA, FNMA, FHLMC, any other governmental agency or any other person or entity.

          Adjustable-Rate Mortgage Securities. Another type of mortgage-related
security, known as adjustable-rate mortgage securities ("ARMS"), bears interest
at a rate determined by reference to a predetermined interest rate or index.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.

          Stripped Mortgage-Related Securities. Stripped mortgage-related
securities (SMRS) are mortgage related securities that are usually structured
with separate classes of securities collateralized by a pool of mortgages or a
pool of mortgage backed bonds or pass-through securities, with each class
receiving different proportions of the principal and interest payments from the
underlying assets. A common type of SMRS has one class of interest-only
securities (IOs) receiving all of the interest payments from the underlying
assets and one class of principal-only securities (POs) receiving all of the
principal payments from the underlying assets. IOs and POs are extremely
sensitive to interest rate changes and are more volatile than mortgage-related
securities that are not stripped. IOs tend to decrease in value as interest
rates decrease and are extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal prepayments may have a material adverse effect on the yield to
maturity of the IO class. POs generally increase in value as interest rates
decrease. If prepayments of the underlying mortgages are greater than
anticipated, the amount of interest earned on the overall pool will decrease due
to the decreasing principal balance of the assets. Due to their structure and
underlying cash flows, SMRS may be more volatile than mortgage-related
securities that are not stripped. Changes in the values of IOs and POs can be
substantial and occur quickly, such as occurred in the first half of 1994 when
the value of many POs dropped precipitously due to increases in interest rates.

          The Portfolio will only invest in SMRS that are issued by the U.S.
Government, its agencies or instrumentalities and supported by the full faith
and credit of the United States. Although SMRS are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, the complexity of these instruments and the smaller number
of investors in the sector can lend to illiquid markets in the sector.

          Commercial Mortgage-Backed Securities. Commercial mortgage-backed
securities are securities that represent an interest in, or are secured by,
mortgage loans secured by multifamily or commercial properties, such as
industrial and warehouse properties, office buildings, retail space and shopping
malls, and cooperative apartments, hotels and motels, nursing homes, hospitals
and senior living centers. Commercial mortgage-backed securities have been
issued in public and private transactions by a variety of public and private
issuers using a variety of structures, some of which were developed in the
residential mortgage context, including multi-class structures featuring senior
and subordinated classes. Commercial mortgage-backed securities may pay fixed or
floating-rates of interest. The commercial mortgage loans that underlie
commercial mortgage-related securities have certain distinct risk
characteristics. Commercial mortgage loans generally lack standardized terms,
which may complicate their structure, tend to have shorter maturities than
residential mortgage loans and may not be fully amortizing. Commercial
properties themselves tend to be unique and are more difficult to value than
single-family residential properties. In addition, commercial properties,
particularly industrial and warehouse properties, are subject to environmental
risks and the burdens and costs of compliance with environmental laws and
regulations.

          "To Be Announced" Mortgaged-Backed Securities. TBA mortgage-backed
securities are described in "Derivatives--Forward Commitments and When-Issued
and Delayed Delivery Securities" above.

          Certain Risks. The value of mortgage-related securities is affected by
a number of factors. Unlike traditional debt securities, which have fixed
maturity dates, mortgage-related securities may be paid earlier than expected as
a result of prepayments of underlying mortgages. Such prepayments generally
occur during periods of falling mortgage interest rates. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will result
in the early payment of the applicable mortgage-related securities. In that
event, the Portfolio may be unable to invest the proceeds from the early payment
of the mortgage-related securities in investments that provide as high a yield
as the mortgage-related securities. Early payments associated with
mortgage-related securities cause these securities to experience significantly
greater price and yield volatility than is experienced by traditional
fixed-income securities. The level of general interest rates, general economic
conditions and other social and demographic factors affect the occurrence of
mortgage prepayments. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective life of
mortgage-related securities, subjecting them to greater risk of decline in
market value in response to rising interest rates. If the life of a
mortgage-related security is inaccurately predicted, the Portfolio may not be
able to realize the rate of return it expected.

          As with other fixed-income securities, there is also the risk of
nonpayment of mortgage-related securities, particularly for those securities
that are backed by mortgage pools that contain subprime loans. Market factors
adversely affecting mortgage loan repayments include a general economic
downturn, high unemployment, a general slowdown in the real estate market, a
drop in the market prices of real estate, or higher mortgage payments required
to be made by holders of adjustable rate mortgages due to scheduled increases or
increases due to higher interest rates.

          Subordinated mortgage-related securities may have additional risks.
The subordinated mortgage-related security may serve as credit support for the
senior securities purchased by other investors. In addition, the payments of
principal and interest on these subordinated securities generally will be made
only after payments are made to the holders of securities senior to the
subordinated securities. Therefore, if there are defaults on the underlying
mortgage loans, the holders of subordinated mortgage-related securities will be
less likely to receive payments of principal and interest and will be more
likely to suffer a loss.

          Commercial mortgage-related securities, like all fixed-income
securities, generally decline in value as interest rates rise. Moreover,
although generally the value of fixed-income securities increases during periods
of falling interest rates, this inverse relationship is not as marked in the
case of single-family residential mortgage-related securities, due to the
increased likelihood of prepayments during periods of falling interest rates,
and may not be as marked in the case of commercial mortgage-related securities.
The process used to rate commercial mortgage-related securities may focus on,
among other factors, the structure of the security, the quality and adequacy of
collateral and insurance, and the creditworthiness of the originators, servicing
companies and providers of credit support.

          Although the market for mortgage-related securities is becoming
increasingly liquid, those issued by certain private organizations may not be
readily marketable there may be a limited market for these securities,
especially when there is a perceived weakness in the mortgage and real estate
market sectors. In particular, the secondary markets for CMOs, IOs and POs may
be more volatile and less liquid than those for other mortgage-related
securities, thereby potentially limiting the Portfolio's ability to buy or sell
those securities at any particular time. Without an active trading market,
mortgage-related securities held in the Portfolio's portfolio may be
particularly difficult to value because of the complexities involved in the
value of the underlying mortgages. In addition, the rating agencies may have
difficulties in rating commercial mortgage-related securities through different
economic cycles and in monitoring such ratings on a longer-term basis.

          As with fixed-income securities generally, the value of
mortgage-related securities can also be adversely affected by increases in
general interest rates relative to the yield provided by such securities. Such
an adverse effect is especially possible with fixed-rate mortgage securities. If
the yield available on other investments rises above the yield of the fixed-rate
mortgage securities as a result of general increases in interest rate levels,
the value of the mortgage-related securities will decline.

          Other Asset-Backed Securities. The Portfolio may invest in other
asset-backed securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. For
example, the Portfolio may invest in collateralized debt obligations ("CDOs"),
which include collateralized bond obligations ("CBOs"), collateralized loan
obligations ("CLOs"), and other similarly structured securities. CBOs and CLOs
are types of asset-backed securities. A CBO is a trust, which is backed by a
diversified pool of high-risk, below investment grade fixed-income securities. A
CLO is a trust typically collateralized by a pool of loans, which may include,
among others, domestic and foreign senior secured loans, senior unsecured loans,
and subordinate corporate loans, including loans that may be rated below
investment grade or equivalent unrated loans. These asset-backed securities are
subject to risks associated with changes in interest rates, prepayment of
underlying obligations and defaults similar to the risks of investment in
mortgage-related securities discussed above.

          Each type of asset-backed security also entails unique risks depending
on the type of assets involved and the legal structure used. For example, credit
card receivables are generally unsecured obligations of the credit card holder
and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively burdensome
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.

Preferred Stock
- ---------------

          The Portfolio may invest in preferred stock. Preferred stock is an
equity security that has features of debt because it generally entitles the
holder to periodic payments at a fixed rate of return. Preferred stock is
subordinated to any debt the issuer has outstanding but has liquidation
preference over common stock. Accordingly, preferred stock dividends are not
paid until all debt obligations are first met. Preferred stock may be subject to
more fluctuations in market value, due to changes in market participants'
perceptions of the issuer's ability to continue to pay dividends, than debt of
the same issuer.

Repurchase Agreements
- ---------------------

          A repurchase agreement is an agreement by which the Portfolio
purchases a security and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed upon price and date, normally one day or a
few days later. The resale price is greater than the purchase price, reflecting
an agreed-upon "interest rate" that is effective for the period of time the
buyer's money is invested in the security, and which is related to the current
market rate of the purchased security rather than its coupon rate. During the
term of the repurchase agreement, the Portfolio monitors on a daily basis the
market value of the securities subject to the agreement and, if the market value
of the securities falls below the resale amount provided under the repurchase
agreement, the seller under the repurchase agreement is required to provide
additional securities equal to the amount by which the market value of the
securities falls below the resale amount. Because a repurchase agreement permits
the Portfolio to invest temporarily available cash on a fully-collateralized
basis, repurchase agreements permit the Portfolio to earn a return on
temporarily available cash while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. Repurchase agreements may exhibit the
characteristics of loans by the Portfolio.

          The obligation of the seller under the repurchase agreement is not
guaranteed, and there is a risk that the seller may fail to repurchase the
underlying security, whether because of the seller's bankruptcy or otherwise. In
such event, the Portfolio would attempt to exercise its rights with respect to
the underlying security, including possible sale of the securities. The
Portfolio may incur various expenses in the connection with the exercise of its
rights and may be subject to various delays and risks of loss, including (a)
possible declines in the value of the underlying securities, (b) possible
reduction in levels of income and (c) lack of access to the securities (if they
are held through a third-party custodian) and possible inability to enforce the
Portfolio's rights. The Portfolio's Board of Directors has established
procedures, which are periodically reviewed by the Board, pursuant to which the
Adviser monitors the creditworthiness of the dealers with which the Portfolio
enters into repurchase agreement transactions.

          The Portfolio may enter into repurchase agreements pertaining to the
types of securities in which it invests with member banks of the Federal Reserve
System or "primary dealers" (as designated by the Federal Reserve Bank of New
York) in such securities. There is no percentage restriction on the Portfolio's
ability to enter into repurchase agreements. Currently, the Portfolio intends to
enter into repurchase agreements only with its custodian and such primary
dealers.

Reverse Repurchase Agreements and Dollar Rolls
- ----------------------------------------------

          Reverse repurchase agreements are identical to repurchase agreements
except that rather than buying securities for cash subject to their repurchase
by the seller, the Portfolio sells portfolio assets concurrently with an
agreement by the Portfolio to repurchase the same assets at a later date at a
fixed price slightly higher than the sale price. During the reverse repurchase
agreement period, the Portfolio continues to receive principal and interest
payments on these securities. Generally, the effect of a reverse repurchase
agreement is that the Portfolio can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
"interest cost" to the Portfolio of the reverse repurchase transaction, i.e.,
the difference between the sale and repurchase price for the securities, is less
than the cost of otherwise obtaining the cash.

          Dollar rolls involve sales by the Portfolio of securities for delivery
in the current month and the Portfolio's simultaneously contracting to
repurchase substantially similar (same type and coupon) securities on a
specified future date. During the roll period, the Portfolio forgoes principal
and interest paid on the securities. The Portfolio is compensated by the
difference between the current sales price and the lower forward price for the
future purchase (often referred to as the "drop") as well as by the interest
earned on the cash proceeds of the initial sale.

          Reverse repurchase agreements and dollar rolls involve the risk that
the market value of the securities the Portfolio is obligated to repurchase
under the agreement may decline below the repurchase price. In the event the
buyer of securities under a reverse repurchase agreement or dollar roll files
for bankruptcy or becomes insolvent, the Portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Portfolio's obligation to repurchase
the securities. In addition, the use of these investments results in leveraging
the Portfolio's common stocks because the Portfolio uses the proceeds to make
investments in other fixed-income securities. Use of leverage is considered
speculative and has, among other things, the risk that the Portfolio's NAV may
be more volatile.

Securities Ratings
- ------------------

          The ratings of fixed-income securities by Moody's, S&P, and Fitch
Ratings ("Fitch"), Dominion Bond Rating Service Ltd. and A.M. Best Company 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 difference in credit risk of securities within each rating category.

          Securities rated Baa, BBB+, BBB, or BBB_ by S&P or Baa1, Baa2 or Baa3
by Moody's are considered by Moody's 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.

          Non-rated securities will also be considered for investment by the
Portfolio when the Adviser believes that the financial condition of the issuers
of such securities, or the protection afforded by the terms of the securities
themselves, limits the risk to the Portfolio to a degree comparable to that of
rated securities which are consistent with the Portfolio's objectives and
policies.

          The Adviser generally uses ratings issued by S&P, Moody's, Fitch and
Dominion Bond Rating Service Ltd. Some securities are rated by more than one of
these ratings agencies, and the ratings assigned to the security by the rating
agencies may differ. In such an event and for purposes of determining compliance
with restrictions on investments for the Portfolio, if a security is rated by
two or more rating agencies, the Adviser will deem the security to be rated at
the highest rating. For example, if a security is rated by Moody's and S&P only,
with Moody's rating the security as Ba and S&P as BBB, the Adviser will deem the
security to be rated as the equivalent of BBB (i.e., Baa by Moody's and BBB by
S&P). Or, if a security is rated by Moody's, S&P and Fitch, with Moody's rating
the security as Ba, S&P as BBB and Fitch as BB, the Adviser will deem the
security to be rated as the equivalent of BBB (i.e., Ba1 by Moody's, BBB by S&P
and BBB by Fitch).

          The Adviser will try to reduce the risk inherent in the Portfolio's
investment approach through credit analysis, diversification and attention to
current developments and trends in interest rates and economic conditions.
However, there can be no assurance that losses will not occur. In considering
investments for the Portfolio, the Adviser will attempt to identify those
high-yielding securities whose financial condition is adequate to meet future
obligations, has improved, or is expected to improve in the future. The
Adviser's analysis focuses on relative values based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the experience and
managerial strength of the issuer.

          Unless otherwise indicated, references to securities ratings by one
rating agency in this SAI shall include the equivalent rating by another rating
agency.

Short Sales
- -----------

          The Fund may make short sales of securities or maintain a short
position only for the purpose of deferring realization of gain or loss for U.S.
federal income tax purposes, provided that at all times when a short position is
open the Fund owns an equal amount of such securities of the same issue as, and
equal in amount to, the securities sold short. In addition, the Fund may not
make a short sale if more than 10% of the Fund's net assets (taken at market
value) is held as collateral for short sales at any one time. A short sale of a
security involves the risk that, instead of declining, the price of the security
sold short will rise. If the price of the securities sold short increases
between the time of a short sale and the time a Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price declines, the
Fund will realize a gain. The potential for the price of a fixed-income security
sold short to rise is a function of both the remaining maturity of the
obligation, its creditworthiness and its yield. Unlike short sales of equities
or other instruments, potential for the price of a fixed-income security to rise
may be limited due to the fact that the security will be no more than par at
maturity. However, the short sale of other instruments or securities generally,
including fixed-income securities convertible into equities or other
instruments, a fixed-income security trading at a deep discount from par or
which pays a coupon that is high in relative or absolute terms, or which is
denominated in a currency other than the U.S. Dollar, involves the possibility
of a theoretically unlimited loss since there is a theoretically unlimited
potential for the market price of the security sold short to increase. See
"Dividends, Distributions and Taxes-Tax Straddles" for a discussion of certain
special federal income tax considerations that may apply to short sales which
are entered into by the Fund.

Structured Securities
- ---------------------

          The Portfolio may invest securities issued in structured financing
transactions, which generally involve aggregating types of debt assets in a pool
or special purpose entity and then issuing new securities. Types of structured
financings include, for example, mortgage-related and other asset-backed
securities. The Portfolio's investments include investments in structured
securities that represent interests in entities organized and operated solely
for the purpose of restructuring the investment characteristics of debt
obligations. This type of restructuring involves the deposit with or purchase by
an entity, such as a corporation or trust, of specified instruments (such as
commercial bank loans) and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Securities of the type in
which the Portfolio anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.

          The Portfolio is permitted to invest in a class of Structured
Securities that is either subordinated or unsubordinated to the right of payment
of another class. Subordinated Structured Securities typically have higher
yields and present greater risks than unsubordinated Structured Securities.

          Under the terms of subordinated securities, payments that would be
made to their holders may be required to be made to the holders of more senior
securities and/or the subordinated or junior securities may have junior liens,
if they have any rights at all, in any collateral (meaning proceeds of the
collateral are required to be paid first to holders of more senior securities).
As a result, subordinated or junior securities will be disproportionately
affected by a default or even a perceived decline in the creditworthiness of the
issuer.

U.S. Government Securities
- --------------------------

          U.S. Government securities may be backed by the full faith and credit
of the United States, supported only by the right of the issuer to borrow from
the U.S. Treasury or backed only by the credit of the issuing agency itself.
These securities include: (i) the following U.S. Treasury securities, which are
backed by the full faith and credit of the United States and differ only in
their interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less with no interest paid and hence issued at a
discount and repaid at full face value upon maturity), U.S. Treasury notes
(maturities of one to ten years with interest payable every six months) and U.S.
Treasury bonds (generally maturities of greater than ten years with interest
payable every six months); (ii) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities that are supported by the full faith
and credit of the U.S. Government, such as securities issued by GNMA, the
Farmers Home Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and the Small
Business Administration; and (iii) obligations issued or guaranteed by U.S.
government agencies and instrumentalities that are not supported by the full
faith and credit of the U.S. Government or a right to borrow from the U.S.
Treasury, such as securities issued by the FNMA and FHLMC, and governmental
collateralized mortgage obligations ("CMOs"). The maturities of the U.S.
Government securities listed in paragraphs (i) and (ii) above usually range from
three months to 30 years. Such securities, except GNMA certificates, normally
provide for periodic payments of interest in fixed amount with principal
payments at maturity or specified call dates.

          U.S. Government securities also include zero coupon securities and
principal-only securities and certain stripped mortgage-related securities. Zero
coupon securities are described in more detail in "Zero Coupon Securities"
below, and stripped mortgage-related securities and principal-only securities
are described in more detail in "Mortgage-Related Securities and Other
Asset-Backed Securities -Stripped Mortgage-Related Securities" above. In
addition, other U.S. Government agencies and instrumentalities have issued
stripped securities that are similar to SMRS.

          Inflation-protected securities, or IPS, such as Treasury
Inflation-Protected Securities, or TIPS, are fixed income securities whose
principal value is periodically adjusted according to the rate of inflation. If
the index measuring inflation falls, the principal value of these securities
will be adjusted downward, and consequently the interest payable on these
securities (calculated with respect to a smaller principal amount) will be
reduced. Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-protected
securities. For bonds that do not provide a similar guarantee, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal.

          Inflation-protected securities tend to react to changes in real
interest rates. In general, the price of an inflation-protected debt security
can fall when real interest rates rise, and can rise when real interest rates
fall. Interest payments on inflation-protected debt securities can be
unpredictable and will vary as the principal and/or interest is adjusted for
inflation.

          TIPS, which are issued by the U.S Treasury, use the Consumer Price
Index for Urban Consumers, or the CPI, as the inflation measure. The principal
of a TIPS increases with inflation and decreases with deflation, as measured by
the CPI. When a TIPS matures, the holder is paid the adjusted principal or
original principal, whichever is greater. TIPS pay interest twice a year, at a
fixed rate, which is determined by auction at the time the TIPS are issued. The
rate is applied to the adjusted principal; so, like the principal, interest
payments rise with inflation and fall with deflation. TIPS are issued in terms
of 5, 10, and 20 years.

          Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of the Portfolio that holds the securities.

          U.S. Government securities are considered among the safest of
fixed-income investments. As a result, however, their yields are generally lower
than the yields available from other fixed-income securities.

Variable, Floating and Inverse Floating Rate Securities
- -------------------------------------------------------

          These securities have interest rates that are reset at periodic
intervals, usually by reference to some interest rate index or market interest
rate. Some of these securities are backed by pools of mortgage loans. Although
the rate adjustment feature may act as a buffer to reduce sharp changes in the
value of these securities, they are still subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
Because the interest rate is reset only periodically, changes in the interest
rate on these securities may lag behind changes in prevailing market interest
rates. Also, some of these securities (or the underlying mortgages) are subject
to caps or floors that limit the maximum change in the interest rate during a
specified period or over the life of the security.

Zero Coupon Securities
- ----------------------

          A zero coupon security pays no interest to its holder during its life.
An investor acquires a zero coupon security at a discounted price from the face
value of the security, which is generally based upon its present value, and
which, depending upon the time remaining until maturity, may be significantly
less than its face value (sometimes referred to as a "deep discount" price).
Upon maturity of the zero coupon security, the investor receives the face value
of the security.

          The Portfolio may invest in zero coupon Treasury securities, which
consist of Treasury bills or the principal components of U.S. Treasury bonds or
notes. The Portfolio may also invest in zero coupon securities issued by U.S.
Government agencies or instrumentalities that are supported by the full faith
and credit of the United States, which consist of the principal components of
securities of U.S. Government agencies or instrumentalities.

          Currently, the only U.S. Treasury security issued without coupons is
the Treasury bill. The zero coupon securities purchased by the Portfolio may
consist of principal components held in STRIPS form issued through the U.S.
Treasury's STRIPS program, which permits the beneficial ownership of the
component to be recorded directly in the Treasury book-entry system. In
addition, in the last few years a number of banks and brokerage firms have
separated ("stripped") the principal portions ("corpus") from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).

          Because zero coupon securities trade at a discount from their face or
par value but pay no periodic interest, they are subject to greater fluctuations
of market value in response to changing interest rates than debt obligations of
comparable maturities which make periodic distributions of interest.

          Current federal tax law requires that a holder (such as the Portfolio)
of a zero coupon security accrue a portion of the discount at which the security
was purchased as income each year even though the holder receives no interest
payment in cash on the security during the year (generally referred to as
"original issue discount" or "OID"). As a result, in order to make the
distributions necessary for the Portfolio not to be subject to federal income or
excise taxes, the Portfolio may be required to pay out as an income distribution
each year an amount, obtained by liquidation of portfolio securities or
borrowings if necessary, greater than the total amount of cash that the
Portfolio has actually received as interest during the year. The Portfolio
believes, however, that it is highly unlikely that it would be necessary to
liquidate portfolio securities or borrow money in order to make such required
distributions or to meet its investment objective.

Certain Risk Considerations
- ---------------------------

          The value of the Portfolio's shares will be influenced by the factors
that generally affect securities, such as the economic and political outlook,
earnings, dividends and the supply and demand for various classes of securities.
There can be, of course, no assurance that the Portfolio's investment objective
will be achieved.

          Risks of Leverage. The Portfolio may use leverage for investment
purposes by entering into transactions such as reverse repurchase agreements,
forward contracts and dollar rolls. This means that the Portfolio uses the cash
proceeds made available during the term of these transactions to make
investments in other fixed-income securities. The use of leverage is considered
speculative and involves certain risks to the Portfolio's shareholders. These
include a higher volatility of the Portfolio's NAV and the relatively greater
effect on the NAV caused by favorable or adverse changes in market conditions or
interest rates. So long as the Portfolio is able to realize a net return on its
investment portfolio that is higher than the carrying costs of these
transactions, the effect of leverage will be to cause the Portfolio's
shareholders to realize higher current net income than if the Portfolio were not
leveraged. To the extent that the carrying costs of these transactions
approaches the net return on the Portfolio's investment portfolio, or exceed it,
the benefit to the Portfolio's shareholders will be reduced or result in a lower
rate of return than if the Portfolio were not leveraged.

          Risks of Investments in Foreign Securities. Foreign issuers are
subject to accounting and financial standards and requirements that differ, in
some cases significantly, from those applicable to U.S. issuers. In particular,
the assets and profits appearing on the financial statements of a foreign issuer
may not reflect its financial position or results of operations in the way they
would be reflected had the financial statement been prepared in accordance with
U.S. generally accepted accounting principles. In addition, for an issuer that
keeps accounting records in local currency, inflation accounting rules in some
of the countries in which the Portfolio will invest require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Substantially less information is publicly
available about certain non-U.S. issuers than is available about U.S. issuers.

          Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments, such as military
coups, have occurred in the past in countries in which the Portfolio will invest
and could adversely affect the Portfolio's assets should these conditions or
events recur.

          Foreign investment in certain foreign securities is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain foreign securities and increase the
costs and expenses of the Portfolio. Certain countries in which the Portfolio
will invest require governmental approval prior to investments by foreign
persons, limit the amount of investment by foreign persons in a particular
issuer, limit the investment by foreign persons only to a specific class of
securities of an issuer that may have less advantageous rights than the classes
available for purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors.

          Certain countries other than those on which the Portfolio will focus
its investments may require governmental approval for the repatriation of
investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in a country's balance of
payments, the country could impose temporary restrictions on foreign capital
remittances.

          Income from certain investments held by the Portfolio could be reduced
by foreign income taxes, including withholding taxes. It is impossible to
determine the effective rate of foreign tax in advance. The Portfolio's NAV may
also be affected by changes in the rates or methods of taxation applicable to
the Portfolio or to entities in which the Fund has invested. The Adviser
generally will consider the cost of any taxes in determining whether to acquire
any particular investments, but can provide no assurance that the tax treatment
of investments held by the Portfolio will not be subject to change.

          Foreign Currency Transactions. The Portfolio may invest in securities
denominated in foreign currencies and a corresponding portion of the Portfolio's
revenues will be received in such currencies. In addition, the Portfolio may
conduct foreign currency transactions for hedging and non-hedging purposes on a
spot (i.e., cash) basis or through the use of derivatives transactions, such as
forward currency exchange contracts, currency futures and options thereon, and
options on currencies as described above. The dollar equivalent of the
Portfolio's net assets and distributions will be adversely affected by
reductions in the value of certain foreign currencies relative to the U.S.
Dollar. Such changes will also affect the Portfolio's income. The Portfolio
will, however, have the ability to attempt to protect itself against adverse
changes in the values of foreign currencies by engaging in certain of the
investment practices listed above. While the Portfolio has this ability, there
is no certainty as to whether and to what extent the Portfolio will engage in
these practices.

          Currency exchange rates may fluctuate significantly over short periods
of time causing, along with other factors, the Portfolio's NAV to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by the intervention of U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad. To the extent
the Portfolio's total assets adjusted to reflect the Portfolio's net position
after giving effect to currency transactions is denominated or quoted in the
currencies of foreign countries, the Portfolio will be more susceptible to the
risk of adverse economic and political developments within those countries.

          The Portfolio will incur costs in connection with conversions between
various currencies. The Portfolio may hold foreign currency received in
connection with investments when, in the judgment of the Adviser, it would be
beneficial to convert such currency into U.S. Dollars at a later date, based on
anticipated changes in the relevant exchange rate. If the value of the foreign
currencies in which the Portfolio receives its 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
distribution requirements. 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.

          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 the value of a particular foreign currency 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, which themselves, involve certain special risks. See
"Additional Investment Policies and Practices," above.

Additional Risks of Options on Forward Currency Exchange Contracts and Options
on Foreign Currencies
- ------------------------------------------------------------------------------

          Unlike transactions entered into by the Portfolio in futures
contracts, options on foreign currencies and forward currency exchange contracts
are not traded on contract markets regulated by the CFTC or (with the exception
of certain foreign currency options) by the Commission. To the contrary, such
instruments are traded through financial institutions acting as market-makers,
although foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to Commission regulation. Similarly, options on currencies may
be traded over-the-counter. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward currency exchange contracts
could lose amounts substantially in excess of their initial investments, due to
the margin and collateral requirements associated with such positions.

          Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the Commission, as are other securities traded on
such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default. Further,
a liquid secondary market in options traded on a national securities exchange
may be more readily available than in the over-the-counter market, potentially
permitting the Portfolio to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.

          The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions, on exercise.
In addition, options on U.S. Government Securities, futures contracts, options
on futures contracts, forward currency exchange contracts and options on foreign
currencies may be traded on foreign exchanges. Such transactions are subject to
the risk of governmental actions affecting trading in or the prices of foreign
currencies or securities. The value of such positions also could be adversely
affected by (i) other complex foreign political and economic factors, (ii)
lesser availability than in the United States of data on which to make trading
decisions, (iii) delays in the Portfolio's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the United States, (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States, and (v) lesser trading volume
period.

Fundamental Investment Policies
- -------------------------------

          The following restrictions supplement those set forth in the
Prospectuses for the Portfolio. These restrictions may not be changed without
shareholder approval which means the vote of (1) 67% or more of the shares of
the Portfolio represented at a meeting at which more than 50% of the outstanding
shares are represented or (2) more than 50% of the outstanding shares of the
Portfolio, whichever is less.

          The following restrictions provide that the Portfolio may not:

          1. issue any senior security (as that term is defined in the 1940 Act)
          or borrow money, except to the extent permitted by the 1940 Act or the
          rules and regulations thereunder (as such statute, rules or
          regulations may be amended from time to time) or by guidance
          regarding, or interpretations of, or exemptive orders under, the 1940
          Act or the rules or regulations thereunder published by appropriate
          regulatory authorities;(1)

- ----------
(1)  For the purposes of this restriction, margin and collateral arrangements,
     including, for example, with respect to premitted borrowings, options,
     futures contracts, options on futures contracts and other derivatives such
     as swaps, are not deemed to be the issuance of a senior security.

          2. act as an underwriter of securities, except that the Portfolio may
          acquire restricted securities under circumstances in which, if such
          securities were sold, the Portfolio might be deemed to be an
          underwriter for purposes of the Securities Act of 1933, as amended;

          3. purchase or sell real estate except that it may dispose of real
          estate acquired as a result of the ownership of securities or other
          instruments. This restriction does not prohibit the Portfolio from
          investing in securities or other instruments backed by real estate or
          in securities of companies engaged in the real estate business;

          4. purchase or sell commodities regulated by the Commodity Futures
          Trading Commission under the Commodity Exchange Act or commodities
          contracts except for futures contracts and options on futures
          contracts;

          5. make loans except through (i) the purchase of debt obligations in
          accordance with its investment objectives and policies; (ii) the
          lending of portfolio securities; (iii) the use of repurchase
          agreements; or (iv) the making of loans to affiliated funds as
          permitted under the 1940 Act, the rules and regulations thereunder (as
          such statutes, rule or regulations may be amended from time to time),
          or by guidance regarding, and interpretations of, or exemptive orders
          under, the 1940 Act; or

          6. concentrate investments in an industry, as concentration may be
          defined under the 1940 Act or the rules and regulations thereunder (as
          such statute, rules or regulations may be amended from time to time)
          or by guidance regarding, interpretations of, or exemptive orders
          under, the 1940 Act or the rules or regulations thereunder published
          by appropriate regulatory authorities.

          As a fundamental policy, the Fund is diversified (as that term is
defined in the 1940 Act). This means that at least 75% of the Fund's assets
consist of:

     o    Cash or cash items;
     o    Government securities;
     o    Securities of other investment companies; and
     o    Securities of any one issuer that represent not more than 10% of the
          outstanding voting securities of the issuer of the securities and not
          more than 5% of the total assets of the Fund.

Non-Fundamental Investment Policy
- ---------------------------------

          The following is a description of an operating policy that the
Portfolio has adopted but that is not fundamental and is subject to change
without shareholder approval.

          The Portfolio may not purchase securities on margin, except (i) as
otherwise provided under rules adopted by the Commission under the 1940 Act or
by guidance regarding the 1940 Act, or interpretations thereof, and (ii) that
the Portfolio may obtain such short-term credits as are necessary for the
clearance of portfolio transactions, and the Portfolio may make margin payments
in connection with futures contracts, options, forward contracts, swaps, caps,
floors, collars and other financial instruments.



- --------------------------------------------------------------------------------

                             MANAGEMENT OF THE FUND

- --------------------------------------------------------------------------------

Board of Directors Information
- ------------------------------

          The business and affairs of the Fund are managed under the direction
of the Board of Directors. Certain information concerning the Fund's Directors
is set forth below.



                                                          PORTFOLIOS
                                                          IN FUND       OTHER
NAME, ADDRESS*,                                           COMPLEX       DIRECTORSHIPS
AGE AND                       PRINCIPAL OCCUPATION(S)     OVERSEEN      HELD
(YEAR FIRST ELECTED**)        DURING PAST 5 YEARS         BY DIRECTOR   BY DIRECTOR
- ---------------------------   -------------------------   -----------   -------------
                                                               
INTERESTED DIRECTOR

Marc O. Mayer,***             Executive Vice President      98          SCB Partners
1345 Avenue of the            of the Adviser since 2001                 Inc. and SCB,
Americas,                     and Executive Managing                    Inc.
New York, NY 10105            Director of
50                            AllianceBernstein
(2003)                        Investments, Inc. ("ABI")
                              since 2003; prior
                              thereto, he was head of
                              AllianceBernstein
                              Institutional
                              Investments, a unit of
                              the Adviser, from
                              2001-2003. Prior thereto,
                              Chief Executive Officer
                              of Sanford C. Bernstein &
                              Co., LLC (institutional
                              research and brokerage
                              arm of Bernstein & Co.
                              LLC) ("SCB & Co.") and
                              its predecessor since
                              prior to 2003.

DISINTERESTED DIRECTORS

Chairman of the Board

William H. Foulk, Jr., +, #   Investment Adviser and an    100          None
75                            Independent Consultant.
(1998)                        He was formerly Senior
                              Manager of Barrett
                              Associates, Inc., a
                              registered investment
                              adviser, with which he
                              had been associated since
                              prior to 2003. He was
                              formerly Deputy
                              Comptroller and Chief
                              Investment Officer of the
                              State of New York and,
                              prior thereto, Chief
                              Investment Officer of the
                              New York Bank for
                              Savings.

David H. Dievler,             Independent Consultant.       99          None
78                            Until December 1994, he
(1987)                        was Senior Vice
                              President of
                              AllianceBernstein
                              Corporation ("AB Corp.")
                              (formerly, Alliance
                              Capital Management
                              Corporation) responsible
                              for mutual fund
                              administration. Prior to
                              joining AB Corp. in 1984,
                              he was Chief Financial
                              Officer of Eberstadt
                              Asset Management since
                              1968. Prior to that, he
                              was a Senior Manager at
                              Price Waterhouse & Co.
                              Member of American
                              Institute of Certified
                              Public Accountants since
                              1953.

John H. Dobkin, #             Consultant.  Formerly,        98          None
66                            President of Save Venice,
(1998)                        Inc. (preservation
                              organization) from 2001 -
                              2002, Senior Advisor from
                              June 1999 - June 2000 and
                              President of Historic
                              Hudson Valley (historic
                              preservation) from
                              December 1989 - May 1999.
                              Previously, Director of
                              the National Academy of
                              Design and during
                              1988-1992, Director and
                              Chairman of the Audit
                              Committee of AB Corp.

Michael J. Downey, #          Private Investor since        98          Asia Pacific
64                            January 2004.  Formerly,                  Fund, Inc.,
(2005)                        managing partner of                       The Merger
                              Lexington Capital, LLC                    Fund and
                              (investment advisory                      Prospect
                              firm) from December 1997                  Acquisition
                              until December 2003.                      Corp.
                              Prior thereto, Chairman                   (financial
                              and CEO of Prudential                     services)
                              Mutual Fund Management
                              from 1987 to 1993.

D. James Guzy, #              Chairman of the Board of      98          Intel
71                            PLX Technology                            Corporation
(2005)                        (semi-conductors) and of                  (semi-conductors)
                              SRC Computers Inc., with                  and Cirrus Logic
                              which he has been                         Corporation
                              associated since prior                    (semi-conductors)
                              to 2003.

Nancy P. Jacklin, #           Formerly, U.S. Executive      98          None
59                            Director of the
(2006)                        International Monetary
                              Fund (December 2002-May
                              2006); Partner, Clifford
                              Chance (1992-2002);
                              Sector Counsel,
                              International Banking and
                              Finance, and Associate
                              General Counsel, Citicorp
                              (1985-1992); Assistant
                              General Counsel
                              (International), Federal
                              Reserve Board of
                              Governors (1982-1985);
                              and Attorney Advisor,
                              U.S. Department of the
                              Treasury (1973-1982).
                              Member of the Bar of the
                              District of Columbia and
                              New York; and member of
                              the Council on Foreign
                              Relations.

Garry L. Moody, #             Formerly, Partner,            97          None
55                            Deloitte & Touche LLP,
(2008)                        Vice Chairman, and U.S.
                              and Global Managing
                              Partner, Investment
                              Management Services Group
                              1995 - 2008. President,
                              Fidelity Accounting and
                              Custody Services Company
                              from 1993 - 1995.
                              Partner, Ernst & Young
                              LLP, partner in charge of
                              the Chicago Office's Tax
                              Department, National
                              Director of Investment
                              Management Tax Services
                              from 1975 - 1993.

Marshall C. Turner, Jr., #    Consultant.  Formerly,        98          Xilinx, Inc.
66                            President and CEO,                        (semi-conductors)
(2005)                        Toppan Photomasks, Inc.                   and MEMC
                              (semi-conductor                           Electronic
                              manufacturing services)                   Materials, Inc.
                              2005-2006, and Chairman                   (semi-conductor
                              and CEO from 2003 until                   substrates)
                              2005, when the company
                              was acquired and renamed
                              from Dupont Photomasks,
                              Inc.  Principal, Turner
                              Venture Associates
                              (venture capital and
                              consulting) 1993-2003.

Earl D. Weiner, #             Of Counsel, and Partner       98          None
68                            prior to January 2007, of
(2007)                        the law firm Sullivan &
                              Cromwell LLP; member of
                              ABA Federal Regulation of
                              Securities Committee Task
                              Force on Fund Director's
                              Guidebook; and member of
                              Advisory Board of
                              Sustainable Forestry
                              Management Limited.


- ----------
*    The address for each of the Fund's disinterested Directors is
     AllianceBernstein L.P., c/o Philip L. Kirstein, 1345 Avenue of the
     Americas, New York, NY 10105.
**   There is no stated term of office for the Fund's Directors.
***  Mr. Mayer is an "interested person", as defined in the 1940 Act, due to his
     position as Executive Vice President of the Adviser.
+    Member of the Fair Value Pricing Committee.
#    Member of the Audit Committee, the Governance and Nominating Committee and
     the Independent Directors Committee.

          The Fund's Board has four standing committees of the Board -- an Audit
Committee, a Governance and Nominating Committee, a Fair Value Pricing Committee
and an Independent Directors Committee. The members of the Audit and Governance,
Nominating, Fair Value Pricing and Independent Directors Committees are
identified above.

          The function of the Audit Committee is to assist the Board in its
oversight of the Portfolio's financial reporting process. The Audit Committee
met six times during the Portfolio's most recently completed fiscal year.

          The function of the Governance and Nominating Committee includes the
nomination of persons to fill any vacancies or newly created positions on the
Board. The Governance and Nominating Committee met six times during the
Portfolio's most recently completed fiscal year.

          The Governance and Nominating Committee has a charter and, pursuant to
the charter, the Governance and Nominating Committee will consider candidates
for nomination as a director submitted by a shareholder or group of shareholders
who have beneficially owned at least 5% of the Portfolio's common stock or
shares of beneficial interest for at least two years at the time of submission
and who timely provide specified information about the candidates and the
nominating shareholder or group. To be timely for consideration by the
Governance and Nominating Committee, the submission, including all required
information, must be submitted in writing to the attention of the Secretary at
the principal executive offices of the Fund not less than 120 days before the
date of the proxy statement for the previous year's annual meeting of
shareholders. If the Fund did not hold an annual meeting of shareholders in the
previous year, the submission must be delivered or mailed and received within a
reasonable amount of time before the Portfolio begins to print and mail its
proxy materials. Public notice of such upcoming annual meeting of shareholders
may be given in a shareholder report or other mailing to shareholders or by
other means deemed by the Governance and Nominating Committee or the Board to be
reasonably calculated to inform shareholders.

          Shareholders submitting a candidate for consideration by the
Governance and Nominating Committee must provide the following information to
the Governance and Nominating Committee: (i) a statement in writing setting
forth (A) the name, date of birth, business address and residence address of the
candidate; (B) any position or business relationship of the candidate, currently
or within the preceding five years, with the shareholder or an associated person
of the shareholder as defined below; (C) the class or series and number of all
shares of the Portfolio owned of record or beneficially by the candidate; (D)
any other information regarding the candidate that is required to be disclosed
about a nominee in a proxy statement or other filing required to be made in
connection with the solicitation of proxies for election of Directors pursuant
to Section 20 of the 1940 Act and the rules and regulations promulgated
thereunder; (E) whether the shareholder believes that the candidate is or will
be an "interested person" of the Fund (as defined in the 1940 Act) and, if
believed not to be an "interested person," information regarding the candidate
that will be sufficient for the Fund to make such determination; and (F)
information as to the candidate's knowledge of the investment company industry,
experience as a director or senior officer of public companies, directorships on
the boards of other registered investment companies and educational background;
(ii) the written and signed consent of the candidate to be named as a nominee
and to serve as a Director if elected; (iii) the written and signed agreement of
the candidate to complete a directors' and officers' questionnaire if elected;
(iv) the shareholder's consent to be named as such by the Fund; (v) the class or
series and number of all shares of each portfolio of the Fund owned beneficially
and of record by the shareholder and any associated person of the shareholder
and the dates on which such shares were acquired, specifying the number of
shares owned beneficially but not of record by each, and stating the names of
each as they appear on the Fund's record books and the names of any nominee
holders for each; and (vi) a description of all arrangements or understandings
between the shareholder, the candidate and/or any other person or persons
(including their names) pursuant to which the recommendation is being made by
the shareholder. "Associated Person of the shareholder" means any person who is
required to be identified under clause (vi) of this paragraph and any other
person controlling, controlled by or under common control with, directly or
indirectly, (a) the shareholder or (b) the associated person of the shareholder.

          The Governance and Nominating Committee may require the shareholder to
furnish such other information as it may reasonably require or deem necessary to
verify any information furnished pursuant to the nominating procedures described
above or to determine the qualifications and eligibility of the candidate
proposed by the shareholder to serve on the Board. If the shareholder fails to
provide such other information in writing within seven days of receipt of
written request from the Governance and Nominating Committee, the recommendation
of such candidate as a nominee will be deemed not properly submitted for
consideration, and will not be considered, by the Committee.

          The Governance and Nominating Committee will consider only one
candidate submitted by such a shareholder or group for nomination for election
at an annual meeting of shareholders. The Governance and Nominating Committee
will not consider self-nominated candidates. The Governance and Nominating
Committee will consider and evaluate candidates submitted by shareholders on the
basis of the same criteria as those used to consider and evaluate candidates
submitted from other sources. These criteria include the candidate's relevant
knowledge, experience, and expertise, the candidate's ability to carry out his
or her duties in the best interests of the Fund, the candidate's ability to
qualify as a disinterested Director and such other criteria as the Governance
and Nominating Committee determines to be relevant in light of the existing
composition of the Board and any anticipated vacancies or other factors.

          The function of the Fair Value Pricing Committee is to consider, in
advance if possible, any fair valuation decision of the Adviser's Valuation
Committee relating to a security held by the Fund made under unique or highly
unusual circumstances not previously addressed by the Valuation Committee that
would result in a change in the Fund's NAV by more than $0.01 per share. The
Fair Value Pricing Committee did not meet during the Fund's most recently
completed fiscal year.

          The function of the Independent Directors Committee is to consider and
take action on matters that the Board or Committee believes should be addressed
in executive session of the disinterested Directors, such as review and approval
of the Advisory and Distribution Services Agreements. The Independent Directors
Committee met six times during the Fund's most recently completed fiscal year.

          The dollar range of the Portfolio's securities owned by each Director
and the aggregate dollar range of securities in all the registered investment
companies to which the Adviser provides investment advisory services
(collectively, the "AllianceBernstein Fund Complex") owned by each Director are
set forth below.

                                                    AGGREGATE DOLLAR
                                                    RANGE OF EQUITY
                             DOLLAR RANGE OF        SECURITIES IN THE
                             EQUITY SECURITIES IN   ALLIANCEBERNSTEIN
                             THE PORTFOLIO AS OF    FUND COMPLEX AS OF
                             DECEMBER 31, 2007*     DECEMBER 31, 2007
                             ------------------     -----------------

Marc O. Mayer                None                   Over $100,000
David H. Dievler             None                   Over $100,000
John H. Dobkin               None                   Over $100,000
Michael J. Downey            None                   Over $100,000
William H. Foulk, Jr.        None                   Over $100,000
D. James Guzy                None                   $50,001-$100,000
Nancy P. Jacklin             None                   Over $100,000
Garry L. Moody**             None                   None
Marshall C. Turner, Jr.      None                   Over $100,000
Earl D. Weiner               None                   Over $100,000

- ----------
*    The Directors cannot directly invest in the Portfolio, because direct
     investments in the Portfolio may be made only by variable annuity and
     variable life insurance separate accounts.
**   Mr. Moody was elected as a Director of the Fund to be effective February 1,
     2008.



Certain information concerning the Fund's officers is set forth below.

NAME, ADDRESS,*             POSITION(S)             PRINCIPAL OCCUPATION
AND AGE                     HELD WITH FUND          DURING PAST 5 YEARS
- -------                     --------------          -------------------

Marc O. Mayer,              President and           See biography above.
50                          Chief Executive
                            Officer

Philip L. Kirstein,         Senior Vice President   Senior Vice President and
62                          and Independent         Independent Compliance
                            Officer Compliance      Officer of the
                                                    AllianceBernstein Funds,
                                                    with which he has been
                                                    associated since October
                                                    2004. Prior thereto, he was
                                                    Of Counsel to Kirkpatrick &
                                                    Lockhart, LLP from October
                                                    2003 to October 2004, and
                                                    General Counsel of Merrill
                                                    Lynch Investment Managers
                                                    L.P. since prior to 2003.

Shawn E. Keegan,            Vice President          Vice President of the
36                                                  Adviser,** with which he has
                                                    been associated since prior
                                                    to 2003.

Joran Laird,                Vice President          Vice President of the
32                                                  Adviser,** with which he has
                                                    been associated since prior
                                                    to 2003.

Alison M. Martier,          Vice President          Senior Vice President of
51                                                  the Adviser,** with which
                                                    she has been associated
                                                    since prior to 2003.

Douglas J. Peebles,         Senior Vice President   Executive Vice President of
42                                                  the Adviser,** with which
                                                    he has been associated
                                                    since prior to 2003.

Jeffrey S. Phlegar,         Vice President          Executive Vice President of
41                                                  the Adviser,** with which
                                                    he has been associated
                                                    since prior to 2003.

Greg Wilensky,              Vice President          Senior Vice President of the
41                                                  Adviser,** with which he has
                                                    been associated since prior
                                                    to 2003.

Emilie D. Wrapp,            Secretary               Senior Vice President and
52                                                  Assistant General Counsel
                                                    of ABI,** with which she
                                                    has been associated since
                                                    prior to 2003.

Joseph J. Mantineo,         Treasurer and Chief     Senior Vice President of
49                          Financial Officer       ABIS,** with which he has
                                                    been associated since prior
                                                    to 2003.

Thomas R. Manley,           Controller              Vice President of the
56                                                  Adviser,** with which he
                                                    has been associated since
                                                    prior to 2003.

- ----------
*    The address for each of the Fund's officers is 1345 Avenue of the Americas,
     New York, NY 10105.

**   The Adviser, ABI and ABIS are affiliates of the Fund.

          The Fund does not pay any fees to, or reimburse expenses of, its
Directors who are considered "interested persons" of the Fund. The aggregate
compensation paid by the Fund to each of the Directors during its fiscal year
ended December 31, 2007, the aggregate compensation paid to each of the
Directors during calendar year 2007 by the AllianceBernstein Fund Complex, and
the total number of registered investment companies (and separate investment
portfolios within the companies) in the AllianceBernstein Fund Complex with
respect to which each of the Directors serves as a director or trustee are set
forth below. Neither the Fund nor any other fund in the AllianceBernstein Fund
Complex provides compensation in the form of pension or retirement benefits to
any of its directors or trustees.




                                                           Total Number of     Total Number of
                                                           Registered          Investment
                                                           Investment          Portfolios
                                                           Companies in the    within the
                                                           AllianceBernstein   AllianceBernstein
                                       Total               Fund Complex,       Fund Complex,
                                       Compensation        Including the       Including the
                                       from the            Fund, as to         Fund, as to
                        Aggregate      AllianceBernstein   which the           which the
                        Compensation   Fund Complex,       Director is a       Director is a
                        from the       Including           Director or         Director or
Name of Director        Fund           the Fund            Trustee             Trustee
- ---------------------   ------------   -----------------   -----------------   -----------------
                                                                           
Marc O. Mayer           $    0         $      0               35                       103
David H. Dievler        $4,015         $216,700               36                       104
John H. Dobkin          $4,417         $241,700               35                       103
Michael J. Downey       $4,279         $226,300               35                       103
William H. Foulk, Jr.   $7,877         $443,600               37                       105
D. James Guzy           $4,279         $226,300               35                       103
Nancy P. Jacklin        $4,279         $226,300               35                       103
Garry L. Moody*         $0             $      0               33                       101
Marshall C. Turner      $4,279         $225,700               35                       103
Earl D. Weiner          $4,331         $226,900               35                       103


- ----------
*    Mr. Moody was elected as a Director of the Fund to be effective February 1,
     2008.

          As of April 5, 2008, the Directors and officers of the Fund as a group
owned less than 1% of the shares of the Portfolio.

Investment Adviser
- ------------------

          The Adviser, a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained under
an investment advisory agreement (the "Advisory Agreement") to provide
investment advice and, in general, to conduct the management and investment
program of the Portfolio under the supervision of the Fund's Board (see
"Management of the Portfolio" in the Prospectuses).

          The Adviser is a leading global investment management firm supervising
client accounts with assets as of December 31, 2008, totaling approximately $800
billion. The Adviser provides management services for many of the largest U.S.
public and private employee benefit plans, endowments, foundations, public
employee retirement funds, banks, insurance companies and high net worth
individuals worldwide. The Adviser is also one of the largest mutual fund
sponsors, with a diverse family of globally distributed mutual fund portfolios.
As one of the world's leading global investment management organizations, the
Adviser is able to compete for virtually any portfolio assignment in any
developed capital market in the world.

          The Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. As of December 31, 2007, AllianceBernstein
Holding, L.P. ("Holding"), a Delaware limited partnership, owned approximately
33.4% of the issued and outstanding units of limited partnership interest in the
Adviser ("AllianceBernstein Units"). Units representing assignments of
beneficial ownership of limited partnership interests in Holding ("Holding
Units") trade publicly on the New York Stock Exchange ("Exchange") under the
ticker symbol "AB." AllianceBernstein Units do not trade publicly and are
subject to significant restrictions on transfer. AllianceBernstein Corporation
("AB Corp.") is the general partner of both the Adviser and Holding. AB Corp.
owns 100,000 general partnership units in Holding and a 1% general partnership
interest in the Adviser. AB Corp. is an indirect wholly-owned subsidiary of AXA
Financial, Inc. ("AXA Financial"), a Delaware corporation.

          As of December 31, 2007, AXA, AXA Financial, AXA Equitable Life
Insurance Company ("AXA Equitable") and certain subsidiaries of AXA Equitable
beneficially owned approximately 62.8% of the issued and outstanding
AllianceBernstein Units and approximately 1.7% of the issued and outstanding
Holding Units that, including the general partnership interests in the Adviser
and Holding, represent an economic interest of approximately 63.2% in the
Adviser. As of December 31, 2007, SCB Partners Inc., a wholly-owned subsidiary
of SCB, Inc., beneficially owned approximately 3.1% of the issued and
outstanding AllianceBernstein Units.

          AXA, a French company, is the holding company for an international
group of companies and a worldwide leader in financial protection and wealth
management. AXA operates primarily in Western Europe, North America and the
Asia/Pacific region and, to a lesser extent, in other regions including the
Middle East, Africa and South America. AXA has five operating business segments:
life and savings, property and casualty insurance, international insurance
(including reinsurance), asset management and other financial services. AXA
Financial is a wholly-owned subsidiary of AXA. AXA Equitable is an indirect
wholly-owned subsidiary of AXA Financial.

          The Advisory Agreement became effective on July 22, 1992. The Advisory
Agreement was approved by the unanimous vote, cast in person, of the Fund's
Directors including the Directors who are not parties to the Advisory Agreement
or "interested persons" as defined in the 1940 Act, of any such party, at a
meeting called for the purpose and held on September 10, 1991. At a meeting held
on June 11, 1992, a majority of the outstanding voting securities of the Fund
approved the Advisory Agreement.

          The Advisory Agreement was amended as of June 2, 1994 to provide for
the addition of the AllianceBernstein Americas Government Income Portfolio, the
AllianceBernstein Global Dollar Government Portfolio and the AllianceBernstein
Utility Income Portfolio. The amendment to the Advisory Agreement was approved
by the unanimous vote, cast in person, of the disinterested Directors at a
meeting called for that purpose and held on December 7, 1993.

          The Advisory Agreement was amended as of October 24, 1994 to provide
for the addition of the AllianceBernstein Growth Portfolio and the
AllianceBernstein International Growth Portfolio. The amendment to the Advisory
Agreement was approved by the unanimous vote, cast in person of the
disinterested Directors at a meeting called for that purpose and held on June
14, 1994.

          The Advisory Agreement was amended as of February 1, 1996 to provide
for the addition of the AllianceBernstein Global Technology Portfolio. The
amendment to the Advisory Agreement was approved by the unanimous vote, cast in
person, of the disinterested Directors at a meeting called for that purpose and
held on November 28, 1995.

          The Advisory Agreement was amended as of July 22, 1996 to provide for
the addition of the AllianceBernstein Small Cap Growth Portfolio. The amendment
to the Advisory Agreement was approved by the unanimous vote, cast in person, of
the disinterested Directors at a meeting called for that purpose and held on
June 4, 1996.

          The Advisory Agreement was amended as of December 31, 1996 to provide
for the addition of the AllianceBernstein Real Estate Investment Portfolio. The
amendment to the Advisory Agreement was approved by the unanimous vote, cast in
person, of the disinterested Directors at a meeting called for that purpose and
held on September 10, 1996.

          The Advisory Agreement was amended as of May 1, 1997 to provide for
the addition of the AllianceBernstein High Yield Portfolio. The amendment to the
Advisory Agreement was approved by the unanimous vote, cast in person, of the
disinterested Directors at a meeting called for that purpose and held on April
12, 1997.

          The Advisory Agreement was amended as of May 1, 2001 to provide for
the addition of the AllianceBernstein Small/Mid Cap Value Portfolio, the
AllianceBernstein Value Portfolio and the AllianceBernstein International Value
Portfolio. The amendment to the Advisory Agreement was approved by the unanimous
vote, cast in person, of the disinterested Directors at a meeting called for
that purpose and held on January 31, 2001.

          The Advisory Agreement was amended as of May 1, 2003 to provide for
the addition of the AllianceBernstein U.S. Large Cap Blended Style Portfolio.
The amendment to the Advisory Agreement was approved by the unanimous vote, cast
in person, of the disinterested Directors at a meeting called for that purpose
and held on April 15-17, 2003.

          The Advisory Agreement was amended as of May 1, 2004 to provide for
the addition of the AllianceBernstein Wealth Appreciation Strategy Portfolio and
the AllianceBernstein Balanced Wealth Strategy Portfolio. The amendment to the
Advisory Agreement was approved by the unanimous vote, cast in person, of the
disinterested Directors at a meeting called for that purpose and held on March
16-18, 2004.

          The Advisory Agreement was amended as of May 1, 2005 to provide for
the addition of the AllianceBernstein Global Research Growth Portfolio. The
amendment to the Advisory Agreement was approved by the unanimous vote, cast in
person, of the disinterested Directors at a meeting called for that purpose and
held on February 8-10, 2005.

          The Adviser provides investment advisory services and order placement
facilities for the Portfolio 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 to serve as the Fund's officers.

          The Fund has, under the Advisory Agreement, assumed obligation to pay
for all other expenses. As to the obtaining of services other than those
specifically provided to the Fund by the Adviser, the Fund may employ its own
personnel. For such services, the Fund may also utilize personnel employed by
the Adviser or its affiliates and, in such event, the services will be provided
to the Fund at cost and the payments therefore must be specifically approved by
the Board. For the fiscal year ended December 31, 2007, the amount the Adviser
received from the Portfolio for such services was $94,000.

          For services rendered by the Adviser under the Advisory Agreement, the
Portfolio paid the Adviser a fee effective September 7, 2004 of .45 of 1% of the
first $2.5 billion of the Portfolio's average net assets and .40 of 1% of the
excess of $2.5 billion up to 5 billion and .40 of 1% of the excess over $5
billion as a percentage of aggregate daily net assets (for the year 2004, the
Portfolio's previously effective advisory fee was waived to this amount by the
Adviser after January 1, 2004). The fee is accrued daily and paid monthly.

          For the fiscal years ended December 31, 2005, 2006 and 2007 the
Adviser received under the Advisory Agreement the amount of $537,925, $448,128
and $409,731, respectively, as advisory fees from the Portfolio.

          Certain other clients of the Adviser may have investment objectives
and policies similar to those of the Fund. The Adviser may, from time to time,
make recommendations that result in the purchase or sale of the particular
security by its other clients simultaneously with the Fund. If transactions on
behalf of more than one client during the same period increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price. It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner that is deemed equitable
by the Adviser to the accounts involved, including the Fund. When two or more of
the clients of the Adviser (including the Fund) are purchasing or selling the
same security on a given day from the same broker or dealer, such transactions
may be averaged as to price.

          The Advisory Agreement is terminable without penalty on 60 days'
written notice, by a vote of a majority of the Fund's outstanding voting
securities or by a vote of a majority of the Fund's Directors or by the Adviser
on 60 days' written notice, and will automatically terminate in the event of its
assignment. The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Adviser, or of
reckless disregard of its obligations thereunder, the Adviser shall not be
liable for any action or failure to act in accordance with its duties
thereunder.

          The Advisory Agreement continues in effect, provided that such
continuance is specifically approved at least annually by a vote of a majority
of the Fund's outstanding voting securities or by the Fund's Board, including in
either case approval by a majority of the Directors who are not parties to the
Advisory Agreement or "interested persons" of such parties, as defined by the
1940 Act. Most recently, continuance of the Agreement was approved for an
additional annual term by the Board, including a majority of the Directors who
are not parties to the Advisory Agreement or interested persons of any such
party, at a meeting held on October 30 - November 1, 2007.

          The Adviser may act as an investment adviser to other persons, firms
or corporations, including investment companies, and is the investment adviser
to the following registered investment companies: AllianceBernstein Balanced
Shares, Inc., AllianceBernstein Blended Style Series, Inc., AllianceBernstein
Bond Fund, Inc., AllianceBernstein Cap Fund, Inc., AllianceBernstein Corporate
Shares, AllianceBernstein Diversified Yield Fund, Inc., AllianceBernstein
Exchange Reserves, AllianceBernstein Fixed-Income Shares, Inc.,
AllianceBernstein Focused Growth & Income Fund, Inc., AllianceBernstein Global
Bond Fund, Inc., AllianceBernstein Global Health Care Fund, Inc.,
AllianceBernstein Global Real Estate Investment Fund, Inc., AllianceBernstein
Global Research Growth Fund, Inc., AllianceBernstein Global Technology Fund,
Inc., AllianceBernstein Greater China '97 Fund, Inc., AllianceBernstein Growth
and Income Fund, Inc., AllianceBernstein High Income Fund, Inc.,
AllianceBernstein Institutional Funds, Inc., AllianceBernstein International
Growth Fund, Inc., AllianceBernstein International Research Growth Fund, Inc.,
AllianceBernstein Large Cap Growth Fund, Inc., AllianceBernstein Mid-Cap Growth
Fund, Inc., AllianceBernstein Municipal Income Fund, Inc., AllianceBernstein
Municipal Income Fund II, AllianceBernstein Trust, AllianceBernstein Utility
Income Fund, Inc., Sanford C. Bernstein Fund, Inc., Sanford C. Bernstein Fund
II, Inc., The AllianceBernstein Pooling Portfolios and The AllianceBernstein
Portfolios, all registered open-end investment companies; and to
AllianceBernstein Global High Income Fund, Inc., AllianceBernstein Income Fund,
Inc., ACM Managed Dollar Income Fund, Inc., Alliance All-Market Advantage Fund,
Inc., AllianceBernstein National Municipal Income Fund, Inc., Alliance
California Municipal Income Fund, Inc., Alliance New York Municipal Income Fund,
Inc., and The Spain Fund, Inc., all registered closed-end investment companies.

Additional Information About the Portfolio's Portfolio Managers
- ---------------------------------------------------------------

          The management of and investment decisions for the Portfolio's
portfolio are made by the U.S. Core Fixed Income Investment Team. Mr. Greg J.
Wilensky, Ms. Alison M. Martier, Mr. Shawn Keegan, Mr. Joran Laird, Mr. Douglas
Peebles and Mr. Jeffery Phlegar are the investment professionals(2) with the
most significant responsibility for the day-to-day management of the Portfolio's
portfolio. For additional information about the portfolio management of the
Portfolio, see "Management of the Portfolio - Portfolio Managers" in the
Portfolio's prospectuses.

- ----------
(2)  Investment professionals at the Adviser include portfolio managers and
     research analysts. Investment professionals are part of investment groups
     (or teams) that service individual fund portfolios. The number of
     investment professionals assigned to a particular Portfolio will vary from
     Portfolio to Portfolio.

          None of the investment professionals identified below owned any equity
securities of the Portfolio directly or indirectly because shares of the
Portfolio are held through the separate accounts of certain life insurance
companies (the "Insurers").

          The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the Portfolio's portfolio managers also have
day-to-day management responsibilities. The tables provide the numbers of such
accounts, the total assets in such accounts and the number of accounts and total
assets whose fees are based on performance. The information is provided as of
December 31, 2007.

- --------------------------------------------------------------------------------
                         REGISTERED INVESTMENT COMPANIES
                              (excluding the Fund)
- --------------------------------------------------------------------------------

                                                    Number of     Total Assets
                                                    Registered    of Registered
                      Total Number   Total Assets   Investment    Investment
                      of Registered  of Registered  Companies     Companies
                      Investment     Investment     Managed with  Managed with
                      Companies      Companies      Performance-  Performance-
Portfolio Manager     Managed        Managed        based Fees    based Fees
- --------------------------------------------------------------------------------
Mr. Greg J. Wilensky  20             $17,057,000,000      1       $20,000,000
Ms. Alison Martier    5              $12,577,000,000   None       None
Mr. Shawn Keegan      5              $12,577,000,000   None       None
Mr. Joran Laird       5              $12,577,000,000   None       None
Mr. Jeffery Phlegar   31             $20,779,000,000      1       $20,000,000
Mr. Douglas Peebles   30             $21,659,000,000      1       $20,000,000
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

                        OTHER POOLED INVESTMENT VEHICLES
- --------------------------------------------------------------------------------
                                                  Number of     Total Assets
                                                  Pooled        of Pooled
                      Total Number  Total Assets  Investment    Investment
                      of Pooled     of Pooled     Vehicles      Vehicles
                      Investment    Investment    Managed with  Managed with
                      Vehicles      Vehicles      Performance-  Performance-
Portfolio Manager     Managed       Managed       based Fees    based Fees
- --------------------------------------------------------------------------------
Mr. Greg J. Wilensky  34            $6,742,000,000       3       $479,000,000
Ms. Alison Martier    7             $306,000,000       None      None
Mr. Shawn Keegan      7             $306,000,000       None      None
Mr. Joran Laird       7             $306,000,000       None      None
Mr. Jeffery Phlegar   66            $28,536,000,000      4       $3,341,000,000
Mr. Douglas Peebles   54            $29,723,000,000      2       $3,090,000,000
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

                                OTHER ACCOUNTS
- --------------------------------------------------------------------------------
                                                    Number of     Total
                                                    Other         Assets of
                      Total Number  Total Assets    Accounts      Other Accounts
                      of Other      of Other        Managed with  Managed with
                      Accounts      Accounts        Performance-  Performance-
Portfolio Manager     Managed       Managed         based Fees    based Fees
- --------------------------------------------------------------------------------
Mr. Greg J. Wilensky  1,103         $17,192,000,000    10         $1,271,000,000
Ms. Alison Martier    226           $11,525,000,000    4          $563,000,000
Mr. Shawn Keegan      232           $11,536,000,000    4          $563,000,000
Mr. Joran Laird       226           $11,525,000,000    4          $563,000,000
Mr. Jeffery Phlegar   1,328         $96,631,000,000    19         $6,033,000,000
Mr. Douglas Peebles   495           $94,067,000,000    15         $5,450,000,000
- --------------------------------------------------------------------------------

Investment Professional Conflict of Interest Disclosure
- -------------------------------------------------------

          As an investment adviser and fiduciary, the Adviser owes its clients
and shareholders an undivided duty of loyalty. We recognize that conflicts of
interest are inherent in our business and accordingly have developed policies
and procedures (including oversight monitoring) reasonably designed to detect,
manage and mitigate the effects of actual or potential conflicts of interest in
the area of employee personal trading, managing multiple accounts for multiple
clients, including AllianceBernstein Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. We place the
interests of our clients first and expect all of our employees to meet their
fiduciary duties.

          Employee Personal Trading. The Adviser has adopted a Code of Business
Conduct and Ethics that is designed to detect and prevent conflicts of interest
when investment professionals and other personnel of the Adviser own, buy or
sell securities which may be owned by, or bought or sold for, clients. Personal
securities transactions by an employee may raise a potential conflict of
interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or sale
by an employee to a client. Subject to the reporting requirements and other
limitations of its Code of Business Conduct and Ethics, the Adviser permits its
employees to engage in personal securities transactions, and also allows them to
acquire investments in the AllianceBernstein Mutual Funds through direct
purchase and/or notionally in connection with deferred incentive compensation
awards. The Adviser's Code of Ethics and Business Conduct requires disclosure of
all personal accounts and maintenance of brokerage accounts with designated
broker-dealers approved by the Adviser. The Code also requires preclearance of
all securities transactions (except transactions in open-end mutual funds) and
imposes a one-year holding period for securities purchased by employees to
discourage short-term trading.

          Managing Multiple Accounts for Multiple Clients. The Adviser has
compliance policies and oversight monitoring in place to address conflicts of
interest relating to the management of multiple accounts for multiple clients.
Conflicts of interest may arise when an investment professional has
responsibilities for the investments of more than one account because the
investment professional may be unable to devote equal time and attention to each
account. The investment professional or investment professional teams for each
client may have responsibilities for managing all or a portion of the
investments of multiple accounts with a common investment strategy, including
other registered investment companies, unregistered investment vehicles, such as
hedge funds, pension plans, separate accounts, collective trusts and charitable
foundations. Among other things, the Adviser's policies and procedures provide
for the prompt dissemination to investment professionals of initial or changed
investment recommendations by analysts so that investment professionals are
better able to develop investment strategies for all accounts they manage. In
addition, investment decisions by investment professionals are reviewed for the
purpose of maintaining uniformity among similar accounts and ensuring that
accounts are treated equitably. No investment professional that manages client
accounts carrying performance fees is compensated directly or specifically for
the performance of those accounts. Investment professional compensation reflects
a broad contribution in multiple dimensions to long-term investment success for
our clients and is not tied specifically to the performance of any particular
client's account, nor is it directly tied to the level or change in level of
assets under management.

          Allocating Investment Opportunities. The Adviser has policies and
procedures intended to address conflicts of interest relating to the allocation
of investment opportunities. These policies and procedures are designed to
ensure that information relevant to investment decisions is disseminated
promptly within its portfolio management teams and investment opportunities are
allocated equitably among different clients. The investment professionals at the
Adviser routinely are required to select and allocate investment opportunities
among accounts. Portfolio holdings, position sizes, and industry and sector
exposures tend to be similar across similar accounts, which minimizes the
potential for conflicts of interest relating to the allocation of investment
opportunities. Nevertheless, investment opportunities may be allocated
differently among accounts due to the particular characteristics of an account,
such as size of the account, cash position, tax status, risk tolerance and
investment restrictions or for other reasons.

          The Adviser's procedures are also designed to prevent potential
conflicts of interest that may arise when the Adviser has a particular financial
incentive, such as a performance-based management fee, relating to an account.
An investment professional may perceive that he or she has an incentive to
devote more time to developing and analyzing investment strategies and
opportunities or allocating securities preferentially to accounts for which the
Adviser could share in investment gains.

          To address these conflicts of interest, the Adviser's policies and
procedures require, among other things, the prompt dissemination to investment
professionals of any initial or changed investment recommendations by analysts;
the aggregation of orders to facilitate best execution for all accounts; price
averaging for all aggregated orders; objective allocation for limited investment
opportunities (e.g., on a rotational basis) to ensure fair and equitable
allocation among accounts; and limitations on short sales of securities. These
procedures also require documentation and review of justifications for any
decisions to make investments only for select accounts or in a manner
disproportionate to the size of the account.

Portfolio Manager Compensation
- ------------------------------

          The Adviser's compensation program for investment professionals is
designed to be competitive and effective in order to attract and retain the
highest caliber employees. The compensation program for investment professionals
is designed to reflect their ability to generate long-term investment success
for our clients, including shareholders of the AllianceBernstein Mutual Funds.
Investment professionals do not receive any direct compensation based upon the
investment returns of any individual client account, nor is compensation tied
directly to the level or change in level of assets under management. Investment
professionals' annual compensation is comprised of the following:

          (i) Fixed base salary: This is generally the smallest portion of
compensation. The base salary is a relatively low, fixed salary within a similar
range for all investment professionals. The base salary is determined at the
outset of employment based on level of experience, does not change significantly
from year-to-year and hence, is not particularly sensitive to performance.

          (ii) Discretionary incentive compensation in the form of an annual
cash bonus: The Adviser's overall profitability determines the total amount of
incentive compensation available to investment professionals. This portion of
compensation is determined subjectively based on qualitative and quantitative
factors. In evaluating this component of an investment professional's
compensation, the Adviser considers the contribution to his/her team or
discipline as it relates to that team's overall contribution to the long-term
investment success, business results and strategy of the Adviser. Quantitative
factors considered include, among other things, relative investment performance
(e.g., by comparison to competitor or peer group funds or similar styles of
investments, and appropriate, broad-based or specific market indices), and
consistency of performance. There are no specific formulas used to determine
this part of an investment professional's compensation and the compensation is
not tied to any pre-determined or specified level of performance. The Adviser
also considers qualitative factors such as the complexity and risk of investment
strategies involved in the style or type of assets managed by the investment
professional; success of marketing/business development efforts and client
servicing; seniority/length of service with the firm; management and supervisory
responsibilities; and fulfillment of the Adviser's leadership criteria.

          (iii) Discretionary incentive compensation in the form of awards under
the Adviser's Partners Compensation Plan ("deferred awards"): The Adviser's
overall profitability determines the total amount of deferred awards available
to investment professionals. The deferred awards are allocated among investment
professionals based on criteria similar to those used to determine the annual
cash bonus. There is no fixed formula for determining these amounts. Deferred
awards, for which there are various investment options, vest over a four-year
period and are generally forfeited if the employee resigns or the Adviser
terminates his/her employment. Investment options under the deferred awards plan
include many of the same AllianceBernstein Mutual Funds offered to mutual fund
investors, thereby creating a close alignment between the financial interests of
the investment professionals and those of the Adviser's clients and mutual fund
shareholders with respect to the performance of those mutual funds. The Adviser
also permits deferred award recipients to allocate up to 50% of their award to
investments in the Adviser's publicly traded equity securities.(3)

- ----------
(3)  Prior to 2002, investment professional compensation also included
     discretionary long-term incentive in the form of restricted grants of the
     Adviser's Master Limited Partnership Units.

          (iv) Contributions under the Adviser's Profit Sharing/401(k) Plan: The
contributions are based on the Adviser's overall profitability. The amount and
allocation of the contributions are determined at the sole discretion of the
Adviser.

Distribution Services Agreement
- -------------------------------

          The Fund has entered into a Distribution Services Agreement (the
"Agreement") with AllianceBernstein Investments, Inc. ("ABI"), the Fund's
principal underwriter, to permit ABI to distribute the Fund's shares and to
permit the Fund to pay distribution services fees to defray expenses associated
with distribution of its Class B shares in accordance with a plan of
distribution which has been duly adopted and approved in accordance with Rule
12b-1 adopted by the Commission under the 1940 Act (the "Rule 12b-1 Plan").

          Distribution services fees are accrued daily and paid monthly and
charged as expenses of the Fund as accrued. Under the Agreement, the Treasurer
of the Fund reports the amounts expended under the Rule 12b-1 Plan and the
purposes for which such expenditures were made to the Directors of the Fund on a
quarterly basis. Also, the Agreement provides that the selection and nomination
of Directors who are not "interested persons" of the Fund, as defined in the
1940 Act, are committed to the discretion of such disinterested Directors then
in office. The Agreement was initially approved by the Directors of the Fund at
a meeting held on January 6, 1999. Most recently, continuance of the Agreement
was approved for an additional annual term by the Board, including a majority of
the Directors who are not parties to the Agreement or interested persons of such
party, at a meeting held on October 30 - November 1, 2007.

          The Agreement continues in effect from year to year, provided that
such continuance is specifically approved at least annually by the Directors of
the Fund or by vote of the holders of a majority of the outstanding Class B
shares (as defined in the 1940 Act) and, in either case, by a majority of the
Directors of the Fund who are not parties to the Agreement or interested
persons, as defined in the 1940 Act, of any such party (other than as directors
of the Fund) and who have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan or any agreement related thereto.

          The Adviser may from time to time and from its own funds or such other
resources as may be permitted by rules of the Commission make payments for
distribution services to ABI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance. ABI
will pay for printing and distributing prospectuses or reports prepared for its
use in connection with the offering of the Class B shares to the public and
preparing, printing and mailing any other literature or advertising in
connection with the offering of the Class B shares to the public. ABI will pay
all fees and expenses in connection with its qualification and registration as a
broker or dealer under federal and state laws and of any activity which is
primarily intended to result in the sale of Class B shares issued by the Fund,
unless the plan of distribution in effect for Class B shares provides that the
Fund shall bear some or all of such expenses.

          In the event that the Agreement is terminated or not continued with
respect to the Class B shares of the Portfolio, (i) no distribution services
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to ABI with respect to Class B shares of the Portfolio and (ii) the Fund
would not be obligated to pay ABI for any amounts expended under the Agreement
not previously recovered by ABI from distribution services fees in respect of
shares of such class or through deferred sales charges.

          During the Portfolio's fiscal year ended December 31, 2007, with
respect to Class B shares, the distribution services fees for expenditures
payable to ABI amounted to $52,521, which constituted .25%, annually, of the
Portfolio's aggregate average daily net assets attributable to Class B shares
during the fiscal year, and the Adviser made payments from its own resources
aggregating $454,119. Of the $506,640 paid by the Portfolio and the Adviser
under the Rule 12b-1 Plan with respect to Class B shares, $265 was spent on
advertising, $25 on the printing and mailing of prospectuses for persons other
than current shareholders, $334,241 for compensation to broker-dealers and other
financial intermediaries (including $88,021 to the ABI), $86,127 for
compensation to sales personnel, $85,982 was spent on printing of sales
literature, travel, entertainment, due diligence and other promotional expenses
and $0 was spent on financing of interest relating to Class B shares.



- --------------------------------------------------------------------------------

                        PURCHASE AND REDEMPTION OF SHARES

- --------------------------------------------------------------------------------

          The following information supplements that set forth in the
Portfolio's Prospectuses under the heading "Investing in the Portfolio."

          Shares of the Portfolio are offered at NAV on a continuous basis to
the separate accounts of the Insurers without any sales or other charge. The
separate accounts of insurance companies place orders to purchase shares based
on, among other things, the amount of premium payments to be invested and
surrendered and transfer requests to be effected pursuant to variable contracts
funded by shares of the Portfolio. The Fund reserves the right to suspend the
sale of its shares in response to conditions in the securities markets or for
other reasons. See the prospectus of the separate account of the participating
insurance company for more information on the purchase of shares.

          The Insurers maintain omnibus account arrangements with the Fund in
respect of the Portfolio and place aggregate purchase, redemption and exchange
orders for shares of the Portfolio corresponding to orders placed by the
Insurer's customers ("Contractholders") who have purchased contracts from the
Insurers, in each case, in accordance with the terms and conditions of the
relevant contract. Omnibus account arrangements maintained by the Insurers are
discussed below under "Limitations on Ability to Detect and Curtail Excessive
Trading Practices."

          The Fund's Board has adopted polices and procedures designed to detect
and deter frequent purchases and redemptions of Portfolio shares or excessive or
short-term trading that might disadvantage long-term Contractholders. These
policies are described below. The Portfolio reserves the right to restrict,
reject or cancel, without any notice, any purchase or exchange order for any
reason, including any purchase or exchange order accepted by any Insurer or a
Contractholder's financial intermediary.

Risks Associated with Excessive or Short-term Trading Generally.
- ----------------------------------------------------------------

          While the Fund will try to prevent market timing by utilizing the
procedures described below, these procedures may not be successful in
identifying or stopping excessive or short-term trading attributable to
particular Contractholders in all circumstances. By realizing profits through
short-term trading, Contractholders that engage in rapid purchases and sales or
exchanges of the Portfolio's shares dilute the value of shares held by long-term
Contractholders. Volatility resulting from excessive purchases and sales or
exchanges of shares of the Portfolio, especially involving large dollar amounts,
may disrupt efficient portfolio management. In particular, the Portfolio may
have difficulty implementing its long-term investment strategies if it is forced
to maintain a higher level of its assets in cash to accommodate significant
short-term trading activity. Excessive purchases and sales or exchanges of
shares of the Portfolio may force the Portfolio to sell portfolio securities at
inopportune times to raise cash to accommodate short-term trading activity. In
addition, the Portfolio may incur increased expenses if one or more
Contractholders engage in excessive or short-term trading. For example, the
Portfolio may be forced to liquidate investments as a result of short-term
trading attributable to one or more Contractholders and incur increased
brokerage costs without attaining any investment advantage. Similarly, the
Portfolio may bear increased administrative costs due to asset level and
investment volatility that accompanies patterns of short-term trading activity.
All of these factors may adversely affect the Portfolio's performance.

          Investments in foreign securities may be particularly susceptible to
short-term trading strategies. This is because foreign securities are typically
traded on markets that close well before the time a fund calculates its NAV at
the close of regular trading on the Exchange (ordinarily, 4:00 p.m., Eastern
Time), which gives rise to the possibility that developments may have occurred
in the interim that would affect the value of these securities. The time zone
differences among international stock markets can allow a Contractholder
engaging in a short-term trading strategy to exploit differences in share prices
that are based on closing prices of foreign securities established some time
before the Fund calculates its own share price (referred to as "time zone
arbitrage").

          Contractholder engaging in a short-term trading strategy to exploit
differences in share prices that are based on closing prices of foreign
securities established some time before the Fund calculates its own share price
(referred to as "time zone arbitrage"). Contractholders engaging in a short-term
trading strategy may also target a Portfolio that does not invest primarily in
foreign securities. Any Portfolio that invests in securities that are, among
other things, thinly traded, traded infrequently, or relatively illiquid has the
risk that the current market price for the securities may not accurately reflect
current market values. Contractholders may seek to engage in short-term trading
to take advantage of these pricing differences (referred to as "price
arbitrage"). Portfolios that may be adversely affected by price arbitrage
include, in particular, those Portfolios that significantly invest in small cap
securities, technology and other specific industry sector securities, and in
certain fixed-income securities, such as high yield bonds, asset-backed
securities, or municipal bonds.

          Policy Regarding Short-Term Trading. Purchases and exchanges of shares
of the Portfolio should be made for investment purposes only. The Fund seeks to
prevent patterns of excessive purchases and sales or exchanges of shares of the
Portfolio. The Fund will seek to prevent such practices to the extent they are
detected by the procedures described below, subject to the Fund's ability to
monitor purchase, sale and exchange activity, and subject to such limitations as
may result from the terms and conditions contained in certain of the contracts
described below. The Fund reserves the right to modify this policy, including
any surveillance or account blocking procedures established from time to time to
effectuate this policy, at any time without notice.

     o    Transaction Surveillance Procedures. The Fund, through its agents, ABI
          and ABIS, maintains surveillance procedures to detect excessive or
          short-term trading in Portfolio shares. This surveillance process
          involves several factors, which include scrutinizing individual
          Insurers' omnibus transaction activity in Portfolio shares in order to
          seek to ascertain whether any such activity attributable to one or
          more Contractholders might constitute excessive or short-term trading.
          Insurers' omnibus transaction activity identified by these
          surveillance procedures, or as a result of any other information
          actually available at the time, will be evaluated to determine whether
          such activity might indicate excessive or short-term trading activity
          attributable to one or more Contractholders. These surveillance
          procedures may be modified from time to time, as necessary or
          appropriate to improve the detection of excessive or short-term
          trading or to address specific circumstances.

     o    Account Blocking Procedures. If the Fund determines, in its sole
          discretion, that a particular transaction or pattern of transactions
          identified by the transaction surveillance procedures described above
          is excessive or short-term trading in nature, the relevant Insurers'
          omnibus account(s) will be immediately "blocked" and no future
          purchase or exchange activity will be permitted, except to the extent
          the Fund, ABI or ABIS has been informed in writing that the terms and
          conditions of a particular contract may limit the Fund's ability to
          apply its short-term trading policy to Contractholder activity as
          discussed below. As a result, any Contractholder seeking to engage
          through an Insurer in purchase or exchange activity in shares of one
          or more Portfolios under a particular contract will be prevented from
          doing so. However, sales of Portfolio shares back to the Portfolio or
          redemptions will continue to be permitted in accordance with the terms
          of the Portfolio's current Prospectus. In the event an account is
          blocked, certain account-related privileges, such as the ability to
          place purchase, sale and exchange orders over the internet or by
          phone, may also be suspended. An Insurer's omnibus account that is
          blocked will generally remain blocked unless and until the Insurer
          provides evidence or assurance acceptable to the Fund that one or more
          Contractholders did not or will not in the future engage in excessive
          or short-term trading.

     o    Applications of Surveillance Procedures and Restrictions to Omnibus
          Accounts. Omnibus account arrangements are common forms of holding
          shares of the Portfolio, particularly among certain financial
          intermediaries, including sponsors of retirement plans and variable
          insurance products. The Fund applies its surveillance procedures to
          these omnibus account arrangements. As required by Commission rules,
          the Fund has entered into agreements with all of its financial
          intermediaries that require the financial intermediaries to provide
          the Fund, upon the request of the Fund or its agents, with individual
          account level information about their transactions. If the Fund
          detects excessive trading through its monitoring of omnibus accounts,
          including trading at the individual account level, the financial
          intermediaries will also execute instructions from the Fund to take
          actions to curtail the activity, which may include applying blocks to
          accounts to prohibit future purchases and exchanges of Fund shares.
          For certain retirement plan accounts, the Fund may request that the
          retirement plan or other intermediary revoke the relevant
          participant's privilege to effect transactions in Fund shares via the
          internet or telephone, in which case the relevant participant must
          submit future transaction orders via the U.S. Postal Service (i.e.,
          regular mail).

          Risks to Contractholders Resulting From Imposition of Account Blocks
in Response to Excessive Short-Term Trading Activity. A Contractholder
identified as having engaged in excessive or short-term trading activity whose
account is "blocked" and who may not otherwise wish to redeem his or her shares
effectively may be "locked" into an investment in shares of the Portfolio that
the Contractholder did not intend to hold on a long-term basis or that may not
be appropriate for the Contractholder's risk profile. To rectify this situation,
a Contractholder with a "blocked" account may be forced to redeem Portfolio
shares, which could be costly if, for example, these shares have declined in
value, the Contractholder recently paid a front-end sales charge or the shares
are subject to a CDSC, or the sale results in adverse tax consequences to the
shareholder. To avoid this risk, a Contractholder should carefully monitor the
purchases, sales, and exchanges of Portfolio shares and avoid frequent trading
in Portfolio shares.

Limitations on Ability to Detect and Curtail Excessive Trading Practices.
- -------------------------------------------------------------------------

          Insurers utilizing omnibus account arrangements may not identify to
the Fund, ABI or ABIS Contractholders' transaction activity relating to shares
of a particular Portfolio on an individual basis. Consequently, the Fund, ABI
and ABIS may not be able to detect excessive or short-term trading in shares of
the Portfolio attributable to a particular Contractholder who effects purchase
and redemption and/or exchange activity in shares of the Portfolio through an
Insurer acting in an omnibus capacity. In seeking to prevent excessive or
short-term trading in shares of the Portfolio, including the maintenance of any
transaction surveillance or account blocking procedures, the Fund, ABI and ABIS
consider the information actually available to them at the time.

          Contractholders should be aware that, even if the Fund, ABI or ABIS,
in its sole discretion, determines that a particular Insurer's omnibus
transaction activity in shares of the Portfolio attributable to one or more
other Contractholders may constitute excessive or short-term trading, the terms
and conditions of the relevant contract may limit the ability of the Fund, ABI
or ABIS, or the Insurer to curtail the Contractholder's activity. This means
that even after the detection of such possible Contractholder activity, the
affected Portfolio may continue to suffer the effects of excessive or short-term
trading.

Redemption Of Shares
- --------------------

          An insurance company separate account may redeem all or any portion of
the shares in its account at any time at the NAV next determined after a
redemption request in the proper form is furnished to the Fund. Any certificates
representing shares being redeemed must be submitted with the redemption
request. Shares do not earn dividends on the day they are redeemed, regardless
of whether the redemption request is received before or after the time of
computation of NAV that day. There is no redemption charge. The redemption
proceeds will normally be sent within seven days.

          The right of redemption may be suspended or the date or 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
Portfolio. For information regarding how to redeem shares in the Portfolio,
please see your insurance company's separate account prospectus.

          The value of a shareholder's shares on redemption or repurchase may be
more or less than the cost of such shares to the shareholder, depending upon the
market value of the Portfolio's securities at the time of such redemption or
repurchase. Payment either in cash or in portfolio securities received by a
shareholder upon redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term or short-term
capital gains (or loss) depending upon the shareholder's holding period and
basis in respect of the shares redeemed.

Payments To Financial Intermediaries
- ------------------------------------

          Financial intermediaries, such as the Insurers, market and sell shares
of the Portfolio and typically receive compensation for selling shares of the
Portfolio. This compensation is paid from various sources, including any Rule
12b-1 fee that you or the Portfolio may pay.

          In the case of Class B shares, up to 100% of the Rule 12b-1 fee
applicable to Class B shares each year may be paid to the financial intermediary
that sells Class B shares. Insurers or your financial intermediary receives
compensation from the Portfolio, ABI and/or the Adviser in several ways from
various sources, which include some or all of the following:

          o    Rule 12b-1 fees;

          o    defrayal of costs for educational seminars and training;

          o    additional distribution support; and

          o    payments related to providing Contractholder record-keeping
               and/or administrative services.

          Please read your Portfolio's Prospectus carefully for information on
this compensation.

          ABI and/or the Adviser may pay Insurers or other financial
intermediaries to perform record-keeping and administrative services in
connection with the Portfolio. Such payments will generally not exceed 0.35% of
the average daily net assets of the Portfolio attributable to the Insurer.

          Other Payments for Educational Support and Distribution Assistance. In
addition to the fees described above, ABI, at its expense, currently provides
additional payments to the Insurers. These sums include payments to reimburse
directly or indirectly the costs incurred by the Insurers and their employees in
connection with educational seminars and training efforts about the Portfolio
for the Insurers' employees and/or their clients and potential clients. The
costs and expenses associated with these efforts may include travel, lodging,
entertainment and meals.

          For 2008, ABI's additional payments to these firms for educational
support and distribution assistance related to the Portfolios is expected to be
approximately $1.5 million. In 2007, ABI paid additional payments of
approximately $1.2 million for the Portfolios.

          If one mutual fund sponsor that offers shares to separate accounts of
an Insurer makes greater distribution assistance payments than another, the
Insurer may have an incentive to recommend or offer the shares of funds of one
fund sponsor over another.

          Please speak with your financial intermediary to learn more about the
total amounts paid to your financial intermediary by the Funds, the Adviser, ABI
and by other mutual fund sponsors that offer shares to Insurers that may be
recommended to you. You should also consult disclosures made by your financial
intermediary at the time of purchase.

          ABI anticipates that the Insurers or their affiliates that will
receive additional payments for educational support include:

     AIG SunAmerica
     Ameriprise Financial
     Genworth Financial
     ING
     ING USA Life and Annuity Company
     Lincoln Financial Distributors
     Merrill Lynch
     Prudential Financial
     RiverSource Distributors
     Transamerica Capital
     Principal Financial Group
     Reliastar Life Insurance Co.
     Hartford Life Insurance
     Great West Life & Annuity Co.

          Although the Portfolio may use brokers and dealers who sell shares of
the Portfolio to effect portfolio transactions, the Portfolio does not consider
the sale of AllianceBernstein Mutual Fund Shares as a factor when selecting
brokers or dealers to effect portfolio transactions.

- --------------------------------------------------------------------------------

                                 NET ASSET VALUE

- --------------------------------------------------------------------------------

          The NAV is computed at the next close of regular trading on the
Exchange (ordinarily 4:00 p.m., Eastern time) following receipt of a purchase or
redemption order by the Portfolio on each Fund business day on which such an
order is received and on such other days as the Board deems appropriate or
necessary in order to comply with Rule 22c-1 under the 1940 Act. The Portfolio's
NAV is calculated by dividing the value of the Portfolio's total assets, less
its liabilities, by the total number of its shares then outstanding. As noted
above, a Fund business day is any weekday on which the Exchange is open for
trading.

          In accordance with applicable rules under the 1940 Act and the Fund's
pricing policies and procedures adopted by the Board (the "Pricing Policies"),
portfolio securities are valued at current market value or at fair value. The
Board has delegated to the Adviser, subject to the Board's continuing oversight,
certain of its duties with respect to the Pricing Policies.

          With respect to securities for which market quotations are readily
available, the market value of a security will be determined as follows:

          (a) securities listed on the Exchange, other national securities
exchanges (other than securities listed on The NASDAQ Stock Market, Inc.
("NASDAQ")) or on a foreign securities exchange are valued at the last sale
price reflected on the consolidated tape at the close of the exchange or foreign
securities exchange on the business day as of which such value is being
determined. If there has been no sale on such day, the securities are valued at
the mean of the closing bid and asked prices on such day. If no bid or asked
prices are quoted on such day, then the security is valued in good faith at fair
value by, or in accordance with procedures established by, the Board;

          (b) securities traded on NASDAQ are valued in accordance with the
NASDAQ Official Closing Price;

          (c) securities traded on the Exchange or on a foreign securities
exchange and on one or more other national or foreign securities exchanges, and
securities not traded on the Exchange but traded on one or more other national
or foreign securities exchanges, are valued in accordance with paragraph (a)
above by reference to the principal exchange on which the securities are traded;

          (d) listed put or call options purchased by the Portfolio are valued
at the last sale price. If there has been no sale on that day, such securities
will be valued at the closing bid prices on that day;

          (e) open futures contracts and options thereon will be valued using
the closing settlement price or, in the absence of such a price, the most recent
quoted bid price. If there are no quotations available for the day of
valuations, the last available closing settlement price will be used;

          (f) securities traded in the over-the-counter market, including
securities listed on a national securities exchange whose primary market is
believed to be over-the-counter are valued at the mean of the current bid and
asked prices as reported by the National Quotation Bureau or other comparable
sources;

          (g) U.S. Government securities and other debt instruments having 60
days or less remaining until maturity are valued at amortized cost if their
original maturity was 60 days or less, or by amortizing their fair value as of
the 61st day prior to maturity if their original term to maturity exceeded 60
days (unless in either case it is determined, in accordance with procedures
established by the Board, that this method does not represent fair value);

          (h) fixed-income securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities. The prices provided by a pricing service take
into account many factors, including institutional size, trading in similar
groups of securities and any developments related to specific securities. For
securities where the Adviser has determined that an appropriate pricing service
does not exist, such securities may be valued on the basis of a quoted bid price
or spread from a major broker-dealer in such security;

          (i) mortgage-backed and asset-backed securities may be valued at
prices obtained from a bond pricing service or at a price obtained from one or
more of the major broker-dealers in such securities when such prices are
believed to reflect the fair market value of such securities. In cases where
broker-dealer quotes are obtained, the Adviser may establish procedures whereby
changes in market yields or spreads are used to adjust, on a daily basis, a
recently obtained quoted bid price on a security;

          (j) OTC and other derivatives are valued on the basis of a quoted bid
price or spread from a major broker-dealer in such security; and

          (k) all other securities will be valued in accordance with readily
available market quotations as determined in accordance with procedures
established by the Board.

          The Portfolio values its securities at their current market value
determined on the basis of market quotations or, if market quotations are not
readily available or are unreliable, at "fair value" as determined in accordance
with procedures established by and under the general supervision of the Board.
When the Portfolio uses fair value pricing, it may take into account any factors
it deems appropriate. The Portfolio may determine fair value based upon
developments related to a specific security and/or U.S. sector or broader stock
market indices. The prices of securities used by the Portfolio to calculate its
NAV may differ from quoted or published prices for the same securities. Fair
value pricing involves subjective judgments and it is possible that the fair
value determined for a security is materially different than the value that
could be realized upon the sale of that security.

          Securities for which market quotations are not readily available or
deemed unreliable are valued at fair market value. Factors considered in making
this determination may include, but not limited to, information obtained by
contacting the issuer or analysts, or by analysis of the issuer's financial
statements. The Portfolio may use fair value pricing more frequently for
securities primarily traded in non-U.S. markets because, among other things,
most foreign markets close well before the Portfolio values its securities at
4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise
to the possibility that significant events, including broad market moves, may
have occurred in the interim and may materially affect the value of these
foreign securities. The Portfolio may value these securities using fair value
prices based on independent pricing services or third party vendor modeling
tools to the extent available.

          Subject to the Board's oversight, the Fund's Board has delegated
responsibility for valuing the Portfolio's assets to the Adviser. The Adviser
has established a Valuation Committee, which operates under the policies and
procedures approved by the Board, to value the Portfolio's assets on behalf of
the Portfolio. The Valuation Committee values Portfolio assets as described
above.

          The Portfolio may suspend the determination of its NAV (and the
offering and sale of shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the Exchange is closed,
other than customary weekend and holiday closings, (2) an emergency exists as a
result of which it is not reasonably practicable for the Portfolio to dispose of
securities owned by it or to determine fairly the value of its net assets, or
(3) for the protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the date of payment
on redemption.

          For purposes of determining the Portfolio's NAV per share, all assets
and liabilities initially expressed in a foreign currency will be converted into
U.S. Dollars at the mean of the current bid and asked prices of such currency
against the U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such major
banks. If such quotations are not available as of the close of the Exchange, the
rate of exchange will be determined in good faith by, or under the direction of,
the Board.

          The assets attributable to the Class A shares and Class B shares will
be invested together in a single portfolio. The NAV of each class will be
determined separately by subtracting the liabilities allocated to that class
from the assets belonging to that class in conformance with the provisions of a
plan adopted by the Fund in accordance with Rule 18f-3 under the 1940 Act (the
"18f-3 Plan").

- --------------------------------------------------------------------------------

                             PORTFOLIO TRANSACTIONS

- --------------------------------------------------------------------------------

          Subject to the general oversight of the Board of the Fund, the Adviser
is responsible for the investment decisions and the placing of the orders for
portfolio transactions for the Portfolio. The Adviser determines the broker or
dealer to be used in each specific transaction with the objective of negotiating
a combination of the most favorable commission (for transactions on which a
commission is payable) and the best price obtainable on each transaction
(generally defined as best execution). In connection with seeking best price and
execution, the Fund does not consider sales of shares of the Portfolio or other
investment companies managed by the Adviser as a factor in the selection of
brokers and dealers to effect portfolio transactions and has adopted a policy
and procedures reasonably designed to preclude such considerations.

          Neither the Fund nor the Adviser entered into agreements or
understandings with any brokers regarding the placement of securities
transactions because of research or statistical services they provide. To the
extent that such persons or firms supply investment information to the Adviser
for use in rendering investment advice to the Fund, such information may be
supplied at no cost to the Adviser and, therefore, may have the effect of
reducing the expenses of the Adviser in rendering advice to the Fund. While it
is impracticable to place an actual dollar value on such investment information,
its receipt by the Adviser probably does not reduce the overall expenses of the
Adviser to any material extent.

          The investment information provided to the Adviser is of the type
described in Section 28(e)(3) of the Securities Exchange Act of 1934 and is
designed to augment the Adviser's own internal research and investment strategy
capabilities. Research services furnished by brokers through which the Fund
effects securities transactions are used by the Adviser in carrying out its
investment management responsibilities with respect to all its client accounts.

          The Fund will deal in some instances in securities that are not listed
on a national stock exchange but are traded in the over-the-counter market. The
Fund may also purchase listed securities through the third market, i.e., from a
dealer that is not a member of the Exchange on which a security is listed. Where
transactions are executed in the over-the-counter market or third market, the
Fund will seek to deal with the primary market makers; but when necessary in
order to obtain the best price and execution, it will utilize the services of
others. In all cases, the Fund will attempt to negotiate best execution.

          The Fund may from time to time place orders for the purchase or sale
of securities (including listed call options) with SCB & Co., an affiliate of
the Adviser. 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 SCB & Co. is an affiliate of the Adviser.
With respect to orders placed with SCB & Co. for execution on a national
securities exchange, commissions received must conform to Section 17(e)(2)(A) of
the 1940 Act and Rule 17e-1 thereunder, which permit an affiliated person of a
registered investment company (such as the Fund), or any affiliated person of
such person, to receive a brokerage commission from such registered investment
company provided that such commission is reasonable and fair compared to the
commissions received by other brokers in connection with comparable transactions
involving similar securities during a comparable period of time.

          During the fiscal years ended December 31, 2007, December 31, 2006,
and December 31, 2005, the Portfolio incurred brokerage commissions amounting in
the aggregate to $0, $0, and $0, respectively. During the fiscal years ended
December 31, 2007, December 31, 2006, and December 31, 2005, brokerage
commissions amounting in the aggregate to $0, $0, and $0, respectively, were
paid to SCB & Co.

Disclosure of Portfolio Holdings
- --------------------------------

          The Fund believes that the ideas of the Adviser's investment staff
should benefit the Portfolio and its shareholders, and does not want to afford
speculators an opportunity to profit by anticipating Portfolio trading
strategies or using Portfolio information for stock picking. However, the Fund
also believes that knowledge of the Portfolio's portfolio holdings can assist
shareholders in monitoring their investment, making asset allocation decisions,
and evaluating portfolio management techniques.

          The Adviser has adopted, on behalf of the Portfolio, policies and
procedures relating to disclosure of the Portfolio's portfolio securities. The
policies and procedures relating to disclosure of the Portfolio's portfolio
securities are designed to allow disclosure of portfolio holdings information
where necessary to the Portfolio's operation or useful to the Portfolio's
shareholders without compromising the integrity or performance of the Portfolio.
Except when there are legitimate business purposes for selective disclosure and
other conditions (designed to protect the Portfolio and its shareholders) are
met, the Fund does not provide or permit others to provide information about the
Portfolio's portfolio holdings on a selective basis.

          The Portfolio includes portfolio holdings information as required in
regulatory filings and shareholder reports, discloses portfolio holdings
information as required by federal or state securities laws and may disclose
portfolio holdings information in response to requests by governmental
authorities. In addition, the Adviser posts portfolio holdings information on
the Adviser's website (www.AllianceBernstein.com). For each portfolio security,
the posted information includes its name, the number of shares held by the
Portfolio, the market value of the Portfolio's holdings, and the percentage of
the Portfolio's assets represented by the portfolio security. The day after
portfolio holdings information is publicly available on the website, it may be
mailed, e-mailed or otherwise transmitted to any person.

          The Adviser may distribute or authorize the distribution of
information about the Portfolio's portfolio holdings that is not publicly
available, on the website or otherwise, to the Adviser's employees and
affiliates that provide services to the Fund. In addition, the Adviser may
distribute or authorize distribution of information about the Portfolio's
portfolio holdings that is not publicly available, on the website or otherwise,
to the Fund's service providers who require access to the information in order
to fulfill their contractual duties relating to the Portfolio (including,
without limitation, pricing services and proxy voting services), and to
facilitate the review of the Portfolio by rating agencies, for the purpose of
due diligence regarding a merger or acquisition, or for the purpose of effecting
in-kind redemption of securities to facilitate orderly redemption of portfolio
assets and minimal impact on remaining Portfolio shareholders. The Adviser does
not expect to disclose information about the Portfolio's portfolio holdings that
is not publicly available to the Portfolio's individual or institutional
investors or to intermediaries that distribute the Fund's shares. Information
may be disclosed with any frequency and any lag, as appropriate.

          Before any non-public disclosure of information about the Portfolio's
portfolio holdings is permitted, however, the Adviser's Chief Compliance Officer
(or his designee) must determine that the Portfolio has a legitimate business
purpose for providing the portfolio holdings information, that the disclosure is
in the best interests of the Portfolio's shareholders, and that the recipient
agrees or has a duty to keep the information confidential and agrees not to
trade directly or indirectly based on the information or to use the information
to form a specific recommendation about whether to invest in the Portfolio or
any other security. Under no circumstances may the Adviser or its affiliates
receive any consideration or compensation for disclosing the information.

          The Adviser has established procedures to ensure that the Portfolio's
portfolio holdings information is only disclosed in accordance with these
policies. Only the Adviser's Chief Compliance Officer (or his designee) may
approve the disclosure, and then only if he or she and a designated senior
officer in the Adviser's product management group determines that the disclosure
serves a legitimate business purpose of the Portfolio and is in the best
interest of the Portfolio's shareholders. The Adviser's Chief Compliance Officer
(or his designee) approves disclosure only after considering the anticipated
benefits and costs to the Portfolio and its shareholders, the purpose of the
disclosure, any conflicts of interest between the interests of the Portfolio and
its shareholders and the interests of the Adviser or any of its affiliates, and
whether the disclosure is consistent with the policies and procedures governing
disclosure. Only someone approved by the Adviser's Chief Compliance Officer (or
his designee) may make approved disclosures of portfolio holdings information to
authorized recipients. The Adviser reserves the right to request certifications
from senior officers of authorized recipients that the recipient is using the
portfolio holdings information only in a manner consistent with the Adviser's
policy and any applicable confidentiality agreement. The Adviser's Chief
Compliance Officer or another member of the compliance team reports all
arrangements to disclose portfolio holdings information to the Board on a
quarterly basis. If the Board determines that disclosure was inappropriate, the
Adviser will promptly terminate the disclosure arrangement.

          In accordance with these procedures, each of the following third
parties have been approved to receive information concerning the Portfolio's
portfolio holdings: (i) the Fund's independent registered public accounting
firm, for use in providing audit opinions; (ii) RR Donnelley Financial, Data
Communique International and, from time to time, other financial printers, for
the purpose of preparing Fund regulatory filings; (iii) the Fund's custodian in
connection with its custody of the Portfolio's assets; (iv) Institutional
Shareholder Services, Inc. for proxy voting services; and (v) data aggregators,
such as Vestek. Information may be provided to these parties at any time with no
time lag. Each of these parties is contractually and ethically prohibited from
sharing the Portfolio's portfolio holdings information unless specifically
authorized.

- --------------------------------------------------------------------------------

                       DIVIDENDS, DISTRIBUTIONS AND TAXES

- --------------------------------------------------------------------------------

          The Portfolio qualified and intends to continue to qualify to be taxed
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). If so qualified, the Portfolio will not be subject to
federal income and excise taxes on its investment company taxable income and net
capital gain to the extent such investment company taxable income and net
capital gain 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 to the holder of a variable annuity or
variable life insurance contract when left to accumulate within such variable
annuity or variable life insurance contract. Distributions of net investment
income and net short-term capital gains will be treated as ordinary income and
distributions of net long-term capital gains will be treated as long-term
capital gain in the hands of the insurance companies.

          Investment income received by the Portfolio from sources within
foreign countries may be subject to foreign income taxes withheld at the source.
If more than 50% of the value of the Portfolio's total assets at the close of
its taxable year consists of stocks or securities of foreign corporations (which
for this purpose should include obligations issued by foreign governments), the
Portfolio will be eligible to file an election with the Internal Revenue Service
to pass through to its shareholders the amount of foreign taxes paid by the
Portfolio. If eligible, the Portfolio intends to file such an election, although
there can be no assurance that the Portfolio will be able to do so.

          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)
that, 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 the federal income tax consequences for the
holders of variable annuity contracts and variable life insurance policies, such
holders should consult the prospectus used in connection with the issuance of
their particular contracts or policies.

- --------------------------------------------------------------------------------

                               GENERAL INFORMATION

- --------------------------------------------------------------------------------

Capitalization
- --------------

          The Fund was organized as a Maryland corporation in 1987 under the
name "Alliance Variable Products Series Fund, Inc." and the Portfolio was known
as Alliance U.S. Government/High Grade Securities Portfolio. The name of the
Fund became "AllianceBernstein Variable Products Series Fund, Inc." on May 1,
2003. The Portfolio's name became AllianceBernstein U.S. Government/High Grade
Securities Portfolio on May 1, 2003 and AllianceBernstein Intermediate Bond
Portfolio on April 28, 2008.

          The Fund's shares have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of Directors
can elect 100% of the Directors if they choose to do so, and in such election of
Directors will not be able to elect any person or persons to the Board.

          The Portfolio offers its shares through the separate accounts of life
insurance companies or Insurers. Under current SEC interpretations, the
Insurers, which are the recordholders of shares of the Portfolio, are required
to provide pass-through voting privileges to all Contractholders. In the event
that an Insurer does not receive voting instructions from Contractholders, the
Insurer is obligated to vote the shares corresponding to the uninstructed
Contractholders in the same proportion as instructions received from
Contractholders who provided voting instructions. Due to the proportional voting
of shares corresponding to uninstructed Contractholders, a small proportion of
Contractholders may determine the outcome of a vote of the Portfolio's
shareholders.

          All shares of the Fund when duly issued will be fully paid and
nonassessable. The Board is authorized to reclassify any unissued shares into
any number of additional series and classes without shareholder approval.
Accordingly, the Board in the future, for reasons such as the desire to
establish one or more additional Portfolio's with different investment
objectives, policies or restrictions or to establish additional channels of
distribution, may create additional series and classes of shares. Any issuance
of shares of such additional series and classes would be governed by the 1940
Act and the laws of the State of Maryland.

          If shares of another series were issued in connection with the
creation of the new portfolio, each share of any of the Fund's Portfolios would
normally be entitled to one vote for all purposes. Generally, shares of each
Portfolio would vote as a single series for the election of directors and on any
other matter that affected each Portfolio in substantially the same manner. As
to matters affecting each Portfolio differently, such as approval of the
Advisory Agreement and changes in investment policy, shares of each Portfolio
would vote as separate series. Moreover, the Class B shares of each Portfolio
will vote separately with respect to matters relating to the 12b-1 Plan(s)
adopted in accordance with Rule 12b-1 under the 1940 Act. Meetings of
shareholders may be called by 10% of the Fund's outstanding shareholders.

          As of the close of business on April 4, 2008, there were 7,391,930
shares of common stock outstanding, including 5,565,670 Class A shares and
1,826,260 Class B shares. To the knowledge of the Portfolio, the following
persons owned of record or beneficially, 5% or more of the outstanding shares of
the Portfolio as of January 7, 2007:

Name and Address                             No. of Shares    % of Class
- ----------------                             -------------    ----------

CLASS A SHARES
- --------------

American International Life
Insurance Company of NY
Attn: Ed Bacon
2727A Allen Parkway
Mail Stop 4D-1
Houston, TX 77019-2107                         560,625           10.07%

AIG Life Insurance Company
Attn: Ed Bacon
2727A Allen Park
Houston, TX 77019-2107                       4,799,667           86.24%

CLASS B SHARES
- --------------

AIG Life Insurance Company
Attn: Ed Bacon
2727A Allen PKWY # 4D1
Houston, TX 77019-2107                         140,273            7.68%

Anchor National Life Insurance Company
Attn: Variable Annuity Accounting
21650 Oxnard St.
Woodlands Hills, CA 91367-4901               1,329,982           72.83%

American Enterprise Life
Insurance Company
1438-AXP
Minneapolis, MN 55474-0001                     342,305           18.74%

Code Of Ethics And Proxy Voting Policies And Procedures
- -------------------------------------------------------

          The Fund, the Adviser and ABI have each adopted codes of ethics
pursuant to Rule 17j-1 of the 1940 Act. These codes of ethics permit personnel
subject to the codes to invest in securities, including securities that may be
purchased or held by the Fund.

          The Fund has adopted the Adviser's proxy voting policies and
procedures. The Adviser's proxy voting policies and procedures are attached as
Appendix C.

          Information regarding how the Portfolio voted proxies related to
portfolio securities during the most recent 12-month period ended June 30, is
available (1) without charge, upon request, by calling (800) 227-4618; or on or
through the Fund's website at www.AllianceBernstein.com; or both; and (2) on the
Commission's website at www.sec.gov.

Custodian
- ---------

          The Bank of New York, 1 Wall Street, New York, New York 10286, acts as
custodian for the securities and cash of the Fund but plays no part in deciding
the purchase or sale of portfolio securities. Subject to the supervision of the
Fund's Directors, The Bank of New York may enter into sub-custodial agreements
for the holding of the Fund's foreign securities.

Principal Underwriter
- ---------------------

          AllianceBernstein Investments, Inc., 1345 Avenue of the Americas, New
York, New York 10105, serves as the Fund's principal underwriter.

Counsel
- -------

          Legal matters in connection with the issuance of the shares of the
Fund offered hereby are passed upon by Seward & Kissel LLP, New York, New York.

Independent Registered Public Accounting Firm
- ---------------------------------------------

          Ernst & Young LLP, 5 Times Square, New York, New York, 10036, has been
appointed as the independent registered public accounting firm for the Fund.

Additional Information
- ----------------------

          Any shareholder inquiries may be directed to the shareholder's
financial intermediary or to ABIS at the address or telephone numbers shown on
the front cover of this SAI. This SAI does not contain all the information set
forth in the Registration Statement filed by the Fund with the Commission under
the Securities Act. 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.



- --------------------------------------------------------------------------------

        FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC
                                ACCOUNTING FIRM

- --------------------------------------------------------------------------------

          The financial statements of AllianceBernstein Variable Products Series
Fund, Inc. - Intermediate Bond Portfolio (formerly U.S. Government/High Grade
Securities Portfolio) for the fiscal year ended December 31, 2007 and the report
of Ernst & Young LLP, the independent registered public accounting firm, are
incorporated herein by reference to the Fund's annual report. The annual report
was filed on Form N-CSR with the Commission on February 25, 2008. It is
available without charge upon request by calling ABIS at (800) 227-4618.



- --------------------------------------------------------------------------------

                                   APPENDIX A:
                            STATEMENT OF POLICIES AND
                          PROCEDURES FOR VOTING PROXIES

- --------------------------------------------------------------------------------

1.   Introduction

     As a registered investment adviser, AllianceBernstein L.P.
     ("AllianceBernstein", "we" or "us") has a fiduciary duty to act solely in
     the best interests of our clients. We recognize that this duty requires us
     to vote client securities in a timely manner and make voting decisions that
     are in the best interests of our clients. Consistent with these
     obligations, we will disclose our clients' voting records only to them and
     as required by mutual fund vote disclosure regulations. In addition, the
     proxy committees may, after careful consideration, choose to respond to
     surveys regarding past votes.

     This statement is intended to comply with Rule 206(4)-6 of the Investment
     Advisers Act of 1940. It sets forth our policies and procedures for voting
     proxies for our discretionary investment advisory clients, including
     investment companies registered under the Investment Company Act of 1940.
     This statement applies to AllianceBernstein's growth, value and blend
     investment groups investing on behalf of clients in both US and non-US
     securities.

2.   Proxy Policies

     This statement is designed to be responsive to the wide range of proxy
     voting subjects that can have a significant effect on the investment value
     of the securities held in our clients' accounts. These policies are not
     exhaustive due to the variety of proxy voting issues that we may be
     required to consider. AllianceBernstein reserves the right to depart from
     these guidelines in order to avoid voting decisions that we believe may be
     contrary to our clients' best interests. In reviewing proxy issues, we will
     apply the following general policies:

     2.1. Corporate Governance

     AllianceBernstein's proxy voting policies recognize the importance of good
     corporate governance in ensuring that management and the Board fulfill
     their obligations to the shareholders. We favor proposals promoting
     transparency and accountability within a company. We will vote for
     proposals providing for equal access to the proxy materials so that
     shareholders can express their views on various proxy issues. We also
     support the appointment of a majority of independent directors on key
     committees and separating the positions of chairman and chief executive
     officer. Finally, because we believe that good corporate governance
     requires shareholders to have a meaningful voice in the affairs of the
     company, we will support shareholder proposals that request that companies
     amend their by-laws to provide that director nominees be elected by an
     affirmative vote of a majority of the votes cast.

     2.2. Elections of Directors

          Unless there is a proxy fight for seats on the Board or we determine
          that there are other compelling reasons for withholding votes for
          directors, we will vote in favor of the management proposed slate of
          directors. That said, we believe that directors have a duty to respond
          to shareholder actions that have received significant shareholder
          support. We may withhold votes for directors (or vote against in
          non-US markets) that fail to act on key issues such as failure to
          implement proposals to declassify boards, failure to implement a
          majority vote requirement, failure to submit a rights plan to a
          shareholder vote or failure to act on tender offers where a majority
          of shareholders have tendered their shares. In addition, we will
          withhold votes for directors who fail to attend at least seventy-five
          percent of board meetings within a given year without a reasonable
          excuse. Finally, we may abstain or vote against directors of non-U.S.
          issuers where there is insufficient information about the nominees
          disclosed in the proxy statement.

     2.3. Appointment of Auditors

          AllianceBernstein believes that the company remains in the best
          position to choose the auditors and will generally support
          management's recommendation. However, we recognize that there may be
          inherent conflicts when a company's independent auditor performs
          substantial non-audit related services for the company. The
          Sarbanes-Oxley Act of 2002 prohibited certain categories of services
          by auditors to US issuers, making this issue less prevalent in the US.
          Nevertheless, in reviewing a proposed auditor, we will consider the
          fees paid for non-audit services relative to total fees as well as if
          there are other reasons to question the independence of the auditors.

     2.4. Changes in Legal and Capital Structure

          Changes in a company's charter, articles of incorporation or by-laws
          are often technical and administrative in nature. Absent a compelling
          reason to the contrary, AllianceBernstein will cast its votes in
          accordance with the company's management on such proposals. However,
          we will review and analyze on a case-by-case basis any non-routine
          proposals that are likely to affect the structure and operation of the
          company or have a material economic effect on the company. For
          example, we will generally support proposals to increase authorized
          common stock when it is necessary to implement a stock split, aid in a
          restructuring or acquisition or provide a sufficient number of shares
          for an employee savings plan, stock option or executive compensation
          plan. However, a satisfactory explanation of a company's intentions
          must be disclosed in the proxy statement for proposals requesting an
          increase of greater than one hundred percent of the shares
          outstanding. We will oppose increases in authorized common stock where
          there is evidence that the shares will be used to implement a poison
          pill or another form of anti-takeover device. We will support
          shareholder proposals that seek to eliminate dual class voting
          structures.

     2.5. Corporate Restructurings, Mergers and Acquisitions

          AllianceBernstein believes proxy votes dealing with corporate
          reorganizations are an extension of the investment decision.
          Accordingly, we will analyze such proposals on a case-by-case basis,
          weighing heavily the views of our research analysts that cover the
          company and our investment professionals managing the portfolios in
          which the stock is held.

     2.6. Proposals Affecting Shareholder Rights

          AllianceBernstein believes that certain fundamental rights of
          shareholders must be protected. We will generally vote in favor of
          proposals that give shareholders a greater voice in the affairs of the
          company and oppose any measure that seeks to limit those rights.
          However, when analyzing such proposals we will weigh the financial
          impact of the proposal against the impairment of shareholder rights.

     2.7. Anti-Takeover Measures

          AllianceBernstein believes that measures that impede corporate
          transactions such as takeovers or entrench management not only
          infringe on the rights of shareholders but may also have a detrimental
          effect on the value of the company. We will generally oppose
          proposals, regardless of whether they are advanced by management or
          shareholders, the purpose or effect of which is to entrench management
          or excessively or inappropriately dilute shareholder ownership.
          Conversely, we support proposals that would restrict or otherwise
          eliminate anti-takeover or anti-shareholder measures that have already
          been adopted by corporate issuers. For example, we will support
          shareholder proposals that seek to require the company to submit a
          shareholder rights plan to a shareholder vote. We will evaluate, on a
          case-by-case basis, proposals to completely redeem or eliminate such
          plans. Furthermore, we will generally oppose proposals put forward by
          management (including the authorization of blank check preferred
          stock, classified boards and supermajority vote requirements) that
          appear to be anti-shareholder or intended as management entrenchment
          mechanisms.

     2.8. Executive Compensation

          AllianceBernstein believes that company management and the
          compensation committee of the Board should, within reason, be given
          latitude to determine the types and mix of compensation and benefit
          awards offered to company employees. Whether proposed by a shareholder
          or management, we will review proposals relating to executive
          compensation plans on a case-by-case basis to ensure that the
          long-term interests of management and shareholders are properly
          aligned. In general, we will analyze the proposed plan to ensure that
          shareholder equity will not be excessively diluted taking into account
          shares available for grant under the proposed plan as well as other
          existing plans. We generally will oppose plans that have below market
          value grant or exercise prices on the date of issuance or permit
          repricing of underwater stock options without shareholder approval.
          Other factors such as the company's performance and industry practice
          will generally be factored into our analysis. We generally will
          support shareholder proposals seeking additional disclosure of
          executive and director compensation. This policy includes proposals
          that seek to specify the measurement of performance based
          compensation. In addition, we will support proposals requiring
          managements to submit severance packages that exceed 2.99 times the
          sum of an executive officer's base salary plus bonus that are
          triggered by a change in control to a shareholder vote. Finally, we
          will support shareholder proposals requiring companies to expense
          stock options because we view them as a large corporate expense that
          should be appropriately accounted for.

     2.9. Social and Corporate Responsibility

          AllianceBernstein will review and analyze on a case-by-case basis
          proposals relating to social, political and environmental issues to
          determine whether they will have a financial impact on shareholder
          value. We will vote against proposals that are unduly burdensome or
          result in unnecessary and excessive costs to the company. We may
          abstain from voting on social proposals that do not have a readily
          determinable financial impact on shareholder value.

3.   Proxy Voting Procedures

     3.1. Proxy Voting Committees

          Our growth and value investment groups have formed separate proxy
          voting committees to establish general proxy policies for
          AllianceBernstein and consider specific proxy voting matters as
          necessary. These committees periodically review these policies and new
          types of corporate governance issues, and decide how we should vote on
          proposals not covered by these policies. When a proxy vote cannot be
          clearly decided by an application of our stated policy, the proxy
          committee will evaluate the proposal. In addition, the committees, in
          conjunction with the analyst that covers the company, may contact
          corporate management and interested shareholder groups and others as
          necessary to discuss proxy issues. Members of the committee include
          senior investment personnel and representatives of the Legal and
          Compliance Department. The committees may also evaluate proxies where
          we face a potential conflict of interest (as discussed below).
          Finally, the committees monitor adherence to these policies.

     3.2. Conflicts of Interest

          AllianceBernstein recognizes that there may be a potential conflict of
          interest when we vote a proxy solicited by an issuer whose retirement
          plan we manage, or we administer, who distributes AllianceBernstein
          sponsored mutual funds, or with whom we or an employee has another
          business or personal relationship that may affect how we vote on the
          issuer's proxy. Similarly, AllianceBernstein may have a potential
          material conflict of interest when deciding how to vote on a proposal
          sponsored or supported by a shareholder group that is a client. We
          believe that centralized management of proxy voting, oversight by the
          proxy voting committees and adherence to these policies ensures that
          proxies are voted with only our clients' best interests in mind.
          Additionally, we have implemented procedures to ensure that our votes
          are not the product of a material conflict of interests, including:
          (i) on an annual basis, the proxy committees will take reasonable
          steps to evaluate the nature of AllianceBernstein's and our employees'
          material business and personal relationships (and those of our
          affiliates) with any company whose equity securities are held in
          client accounts and any client that has sponsored or has material
          interest in a proposal upon which we will be eligible to vote; (ii)
          requiring anyone involved in the decision making process to disclose
          to the chairman of the appropriate proxy committee any potential
          conflict that they are aware of (including personal relationships) and
          any contact that they have had with any interested party regarding a
          proxy vote; (iii) prohibiting employees involved in the decision
          making process or vote administration from revealing how we intend to
          vote on a proposal in order to reduce any attempted influence from
          interested parties; and (iv) where a material conflict of interests
          exists, reviewing our proposed vote by applying a series of objective
          tests and, where necessary, considering the views of third party
          research services to ensure that our voting decision is consistent
          with our clients' best interests.

          Because under certain circumstances AllianceBernstein considers the
          recommendation of third party research services, the proxy committees
          will take reasonable steps to verify that any third party research
          service is in fact independent based on all of the relevant facts and
          circumstances. This includes reviewing the third party research
          service's conflict management procedures and ascertaining, among other
          things, whether the third party research service (i) has the capacity
          and competency to adequately analyze proxy issues; and (ii) can make
          such recommendations in an impartial manner and in the best interests
          of our clients.

     3.3. Proxies of Certain Non-US Issuers

          Proxy voting in certain countries requires "share blocking."
          Shareholders wishing to vote their proxies must deposit their shares
          shortly before the date of the meeting with a designated depositary.
          During this blocking period, shares that will be voted at the meeting
          cannot be sold until the meeting has taken place and the shares are
          returned to the clients' custodian banks. Absent compelling reasons to
          the contrary, AllianceBernstein believes that the benefit to the
          client of exercising the vote does not outweigh the cost of voting
          (i.e. not being able to sell the shares during this period).
          Accordingly, if share blocking is required we generally abstain from
          voting those shares.

          In addition, voting proxies of issuers in non-US markets may give rise
          to a number of administrative issues that may prevent
          AllianceBernstein from voting such proxies. For example,
          AllianceBernstein may receive meeting notices without enough time to
          fully consider the proxy or after the cut-off date for voting. Other
          markets require AllianceBernstein to provide local agents with power
          of attorney prior to implementing AllianceBernstein's voting
          instructions. Although it is AllianceBernstein's policy to seek to
          vote all proxies for securities held in client accounts for which we
          have proxy voting authority, in the case of non-US issuers, we vote
          proxies on a best efforts basis.

     3.4. Loaned Securities

          Many clients of AllianceBernstein have entered into securities lending
          arrangements with agent lenders to generate additional revenue.
          AllianceBernstein will not be able to vote securities that are on loan
          under these types of arrangements. However, under rare circumstances,
          for voting issues that may have a significant impact on the
          investment, we may request that clients recall securities that are on
          loan if we determine that the benefit of voting outweighs the costs
          and lost revenue to the client or fund and the administrative burden
          of retrieving the securities.

     3.5. Proxy Voting Records

          You may obtain information regarding how the Fund voted proxies
          relating to portfolio securities during the most recent 12-month
          period ended June 30, without charge. Simply visit AllianceBernstein's
          web site at www.alliancebernstein.com, go to the Securities and
          Exchange Commission's web site at www.sec.gov or call
          AllianceBernstein at (800) 227-4618.

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