<PAGE>
As filed with the Securities and Exchange
Commission on February 27, 1998
File Nos. 33-63797
811-7391
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 5
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 6
_______________________________
ALLIANCE GLOBAL STRATEGIC INCOME TRUST, INC.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:(212) 969-1000
_____________________________
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
X immediately upon filing pursuant to paragraph (b)
<PAGE>
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new
effective date for a previously filed post-effective amendment.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in Prospectus
_____________ (Caption)
___________________________
PART A
Item 1. Cover Page..........................Cover Page
Item 2. Synopsis............................The Funds at a
Glance
Item 3. Condensed Financial Information.....Financial Highlights
Item 4. General Description of Registrant...Description of the
Funds; General
Information
ITEM 5. Management of the Fund..............Management of the
Funds; General
Information
Item 6. Capital Stock and Other Securities..Dividends,
Distributions and
Taxes; General
Information
Item 7. Purchase of Securities Being
Offered.............................Purchase and Sale of
Shares; General
Information
ITEM 8. Redemption or Repurchase............Purchase and Sale of
Shares; General
Information
ITEM 9. Pending Legal Proceedings...........Not Applicable
Location in Statement of
PART B Additional Information (Caption)
_______ ________________________________
ITEM 10. Cover Page..........................Cover Page
ITEM 11. Table of Contents...................Cover Page
Item 12. General Information and History.....Description of the
Fund;General
Information
<PAGE>
Item 13. Investment Objectives and Policies..Description of the
Fund
ITEM 14. Management of the Registrant........Management of the
Fund
Item 15. Control Persons and Principal
Holders of Securities...............General Information
Item 16. Investment Advisory and Other
Services............................Management of the
Fund,
Expenses of the Fund, ..............General Information
Item 17. Brokerage Allocation and
Other Practices.....................Portfolio
Transactions
Item 18. Capital Stock and Other
Securities..........................General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered.........Purchase of Shares;
Redemption and
Repurchase of
Shares; Dividends,
Distributions and
Taxes; Shareholder
Services
ITEM 20. Tax Status..........................Description of the
Fund, Dividends,
Distributions and
Taxes
ITEM 21. Underwriters........................General Information
Item 22. Calculation of Performance
Data................................General Information
Item 23. Financial Statements................Report of
Independent Auditors
and Financial
Statements
<PAGE>
THE ALLIANCE BOND FUNDS
_______________________________________________________________________________
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
FOR LITERATURE: TOLL FREE (800) 227-4618
PROSPECTUS AND APPLICATION
MARCH 2, 1998
U.S. GOVERNMENT FUNDS GLOBAL BOND FUNDS
- -ALLIANCE SHORT-TERM U.S. -ALLIANCE NORTH AMERICAN
GOVERNMENT FUND GOVERNMENT INCOME TRUST
- -U.S. GOVERNMENT -ALLIANCE GLOBAL DOLLAR
PORTFOLIO GOVERNMENT FUND
- -ALLIANCE LIMITED MATURITY -ALLIANCE GLOBAL STRATEGIC
GOVERNMENT FUND INCOME TRUST
MORTGAGE FUND CORPORATE BOND FUNDS
- -ALLIANCE MORTGAGE -CORPORATE BOND PORTFOLIO
SECURITIES INCOME FUND -ALLIANCE HIGH YIELD FUND
MULTI-MARKET FUNDS
- -ALLIANCE WORLD INCOME TRUST
- -ALLIANCE SHORT-TERM
MULTI-MARKET TRUST
- -ALLIANCE MULTI-MARKET
STRATEGY TRUST
TABLE OF CONTENTS PAGE
- ----------------- ----
The Funds at a Glance 2
Expense Information 4
Financial Highlights 7
Glossary 15
Description of the Funds 16
Investment Objectives and Policies 16
Additional Investment Practices 24
Certain Fundamental Investment Policies 35
Risk Considerations 37
Purchase and Sale of Shares 41
Management of the Funds 44
Dividends, Distributions and Taxes 47
General Information. 48
Appendix A: Bond Ratings A-1
Appendix B: General Information About Canada,
Mexico and Argentina B-1
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Fund invests in mortgage-related
securities, while the Multi-Market Funds diversify their investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Funds invest primarily in corporate
debt securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, write Alliance Fund Services, Inc. at the indicated address or
call the "For Literature" telephone number shown above.
Each Fund (except Alliance World Income Trust) offers three classes of shares
through this Prospectus. These shares may be purchased, at the investor's
choice, at a price equal to their net asset value (i) plus an initial sales
charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within three
years of purchase (four years of purchase for Alliance Global Strategic Income
Trust and Alliance High Yield Fund) (the "Class B shares"), or (iii) without
any initial or contingent deferred sales charge, as long as the shares are held
for one year or more (the "Class C shares"). Alliance World Income Trust offers
only one class of shares, which may be purchased at a price equal to its net
asset value without any initial or contingent deferred sales charge. See
"Purchase and Sale of Shares."
AN INVESTMENT IN THESE SECURITIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND TO RETAIN IT FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Alliance Capital (R)
(R) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
1
THE FUNDS AT A GLANCE
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
THE FUNDS' INVESTMENT ADVISER IS . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 100 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $218
billion in assets under management as of December 31, 1997. Alliance provides
investment management services to employee benefit plans for 31 of the
FORTUNE 100 companies.
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND
SEEKS . . . High current income consistent with preservation of capital.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities.
U.S. GOVERNMENT PORTFOLIO
SEEKS . . . As high a level of current income as is consistent with safety of
principal.
INVESTS SOLELY IN . . . A diversified portfolio of U.S. Government securities
backed by the full faith and credit of the United States.
LIMITED MATURITY GOVERNMENT FUND
SEEKS . . . The highest level of current income, consistent with low volatility
of net asset value.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government securities.
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND
SEEKS . . . A high level of current income consistent with prudent investment
risk.
INVESTS PRIMARILY IN . . . A diversified portfolio of mortgage-related
securities.
MULTI-MARKET FUNDS
WORLD INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than one year.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
maintains at least 35% of its net assets in U.S. Dollar-denominated securities.
SHORT-TERM MULTI-MARKET TRUST
SEEKS . . . The highest level of current income through investment in a
portfolio of high-quality debt securities having remaining maturities of not
more than three years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. While the Fund
normally will maintain a substantial portion of its assets in debt securities
denominated in foreign currencies, the Fund will invest at least 25% of its net
assets in U.S. Dollar-denominated securities.
MULTI-MARKET STRATEGY TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies, but not more than 25% of the Fund's total assets may be
invested in debt securities denominated in a single currency other than the
U.S. Dollar.
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso. The
Fund expects to maintain at least 25% of its assets in securities denominated
in the U.S. Dollar. In addition, the Fund may invest up to 25% of its total
assets in debt securities issued by governmental entities in Argentina.
2
GLOBAL DOLLAR GOVERNMENT FUND
SEEKS . . . Primarily a high level of current income and, secondarily, capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated securities.
GLOBAL STRATEGIC INCOME TRUST
SEEKS . . . Primarily a high level of current income and secondarily capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of fixed-income
securities of U.S. and non-U.S. issuers.
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
SEEKS . . . Primarily to maximize income over the long term; secondarily, the
Fund will attempt to increase its capital through appreciation of its
investments.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Dollar-denominated
corporate bonds issued by domestic and foreign issuers that give promise of
relatively attractive yields.
HIGH YIELD FUND
SEEKS . . . A high total return by maximizing current income and, to the extent
consistent with that objective, capital appreciation.
INVESTS PRIMARILY IN . . . A diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of price and risk of
principal and income than higher quality fixed-income securities.
DISTRIBUTIONS . . .
The Funds intend to make monthly distributions to shareholders. These
distributions may include ordinary income and capital gain (each of which is
taxable) and a return of capital (which is generally non-taxable). See
"Dividends, Distributions and Taxes."
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate daily as the
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Price fluctuations may be caused by changes in the general level of interest
rates or changes in bond credit quality ratings. Changes in interest rates have
a greater effect on bonds with longer maturities than those with shorter
maturities. Some of the Funds invest in high-yield, high-risk bonds that are
rated below investment grade and are considered to have predominantly
speculative characteristics. The prices of non-U.S. Dollar denominated bonds
also fluctuate with changes in foreign exchange rates. Investment in the Global
Bond Funds, the Multi-Market Funds and any other Fund that may invest a
significant amount of its assets in non-U.S. securities involves risks not
associated with Funds that invest primarily in securities of U.S. issuers.
While the Funds invest principally in fixed-income securities, in order to
achieve their investment objectives, the Funds may at times use certain types
of derivative instruments, such as options, futures, forwards and swaps. These
instruments involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. These risks are fully
discussed in this Prospectus. See "Description of the Funds-Additional
Investment Practices" and "-Risk Considerations."
GETTING STARTED . . .
Shares of the Funds are available through your financial representative and
most banks, insurance companies and brokerage firms nationwide. Shares of each
Fund (except WORLD INCOME) can be purchased for a minimum initial investment of
$250, and subsequent investments can be made for as little as $50. For detailed
information about purchasing and selling shares, see "Purchase and Sale of
Shares." In addition, the Funds offer several time and money saving services to
investors. Be sure to ask your financial representative about:
AUTOMATIC REINVESTMENT
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS
SHAREHOLDER COMMUNICATIONS
DIVIDEND DIRECTION PLANS
AUTO EXCHANGE
SYSTEMATIC WITHDRAWALS
CHECK-WRITING
A CHOICE OF PURCHASE PLANS
TELEPHONE TRANSACTIONS
24-HOUR INFORMATION
Alliance Capital (R)
(R) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
EXPENSE INFORMATION
_______________________________________________________________________________
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in a Fund. The following tables summarize your maximum transaction
costs from investing in a Fund, other than WORLD INCOME, and annual operating
expenses for each class of shares of each Fund. WORLD INCOME, which has only
one class of shares, has no sales charge on purchases or reinvested dividends,
no deferred sales charge, and no redemption fee or exchange fee. For each Fund,
the "Examples" below show the cumulative expenses attributable to a
hypothetical $1,000 investment, assuming a 5% annual return, in each class for
the periods specified.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES(B) CLASS B SHARES(D) CLASS C SHARES
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.25%(a) None None None
Sales charge imposed on dividend reinvestments None None None None
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None 3.0% during 4.0% during 1.0% during
the first year, the first year, the first year,
decreasing 1.0% decreasing 1.0% 0% thereafter
annually to 0% annually to 0%
after the third after the fourth
year (c) year (e)
Exchange fee None None None None
</TABLE>
(A) REDUCED FOR LARGER PURCHASES. PURCHASES OF $1,000,000 OR MORE ARE NOT
SUBJECT TO AN INITIAL SALES CHARGE BUT MAY BE SUBJECT TO A 1% DEFERRED SALES
CHARGE ON REDEMPTIONS WITHIN ONE YEAR OF PURCHASE. SEE "PURCHASE AND SALE OF
SHARES-HOW TO BUY SHARES" -PAGE 41.
(B) FOR ALL FUNDS EXCEPT GLOBAL STRATEGIC INCOME AND HIGH YIELD.
(C) CLASS B SHARES OF EACH FUND, OTHER THAN GLOBAL STRATEGIC INCOME AND HIGH
YIELD, AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER SIX YEARS. SEE "PURCHASE
AND SALE OF SHARES-HOW TO BUY SHARES" -PAGE 42.
(D) FOR GLOBAL STRATEGIC INCOME AND HIGH YIELD ONLY.
(E) SHARES OF GLOBAL STRATEGIC INCOME AND HIGH YIELD AUTOMATICALLY CONVERT TO
CLASS A SHARES AFTER EIGHT YEARS. SEE "PURCHASE AND SALE OF SHARES-HOW TO BUY
SHARES"-PAGE 42.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ----------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
SHORT-TERM U.S. GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(a) (after waiver) None None None After 1 year $ 56 $ 51 $ 21 $ 31 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 66 $ 66
Other expenses After 5 years $116 $113 $113 $113 $113
Interest expense .01% .01% .01% After 10 years $204 $210 $210 $244 $244
Other operating expenses (a)(b)
(after reimbursement) 1.10% 1.10% 1.10%
Total other expenses 1.11% 1.11% 1.10%
Total fund operating expenses(b)(c)
(after waiver/reimbursement) 1.41% 2.11% 2.11%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
U.S. GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .53% .53% .53% After 1 year $ 52 $ 48 $ 18 $ 27 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 64 $ 54 $ 54 $ 54
Other expenses(b) .19% .20% .19% After 5 years $ 96 $ 94 $ 94 $ 93 $ 93
Total fund operating expenses 1.02% 1.73% 1.72% After 10 years $162 $168 $168 $203 $203
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
LIMITED MATURITY GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .65% .65% .65% After 1 year $ 66 $ 62 $ 32 $ 42 $ 32
12b-1 fees .30% 1.00% 1.00% After 3 years $114 $107 $ 97 $ 97 $ 97
Other expenses After 5 years $166 $164 $164 $164 $164
Interest expense .76% .75% .76% After 10 years $305 $313 $313 $344 $344
Other operating expenses(b) .70% .74% .72%
Total other expenses 1.46% 1.49% 1.48%
Total fund operating expenses(d) 2.41% 3.14% 3.13%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
4
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ----------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
MORTGAGE SECURITIES INCOME ------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .52% .52% .52% After 1 year $ 56 $ 52 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 77 $ 67 $ 66 $ 66
Other expenses After 5 years $116 $115 $115 $114 $114
Interest expense .34% .36% .35% After 10 years $204 $212 $212 $245 $245
Other operating expenses(b) .25% .26% .25%
Total other expenses .59% .62% .60%
Total fund operating expenses(e) 1.41% 2.14% 2.12%
WORLD INCOME
Management fees(f)(after waiver) .49% After 1 year $ 23
12b-1 fees(f)(after waiver) .68% After 3 years $ 70
Other expenses(b) 1.08% After 5 years $120
Total fund operating After 10 years $258
expenses(b)(f)(after waiver) 2.25%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
SHORT-TERM MULTI-MARKET ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .55% .55% .55% After 1 year $ 55 $ 50 $ 20 $ 30 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 81 $ 72 $ 62 $ 62 $ 62
Other expenses(b) .43% .44% .44% After 5 years $110 $107 $107 $107 $107
Total fund operating expenses 1.28% 1.99% 1.99% After 10 years $190 $197 $197 $232 $232
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
MULTI-MARKET STRATEGY ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .60% .60% .60% After 1 year $ 58 $ 53 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 90 $ 82 $ 72 $ 71 $ 71
Other expenses After 5 years $125 $123 $123 $122 $122
Other operating expenses(d) .68% .69% .68% After 10 years $222 $228 $228 $262 $262
Total other expenses
Total fund operating expenses 1.58% 2.29% 2.28%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
NORTH AMERICAN GOVERNMENT INCOME ------- ------- ------- ------- -------- --------- -------- ---------
Management fees(g) .73% .73% .73% After 1 year $ 63 $ 59 $ 29 $ 39 $ 29
12b-1 fees .30% 1.00% 1.00% After 3 years $107 $ 99 $ 89 $ 88 $ 88
Other expenses After 5 years $153 $151 $151 $150 $150
Interest expense .77% .77% .77% After 10 years $280 $286 $286 $318 $318
Other operating expenses(b) .35% .36% .35%
Total other expenses 1.12% 1.13% 1.12%
Total fund operating expenses(h) 2.15% 2.86% 2.85%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
GLOBAL DOLLAR GOVERNMENT ------- ------- ------- ------- -------- --------- -------- ---------
Management fees .75% .75% .75% After 1 year $ 58 $ 53 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 89 $ 81 $ 71 $ 70 $ 70
Other expenses(b) .50% .51% .50% After 5 years $123 $121 $121 $120 $120
Total fund operatingexpenses 1.55% 2.26% 2.25% After 10 years $219 $225 $225 $258 $258
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
GLOBAL STRATEGIC INCOME ------- ------- ------- ------- -------- --------- -------- ---------
Management fees(i)(after waiver) None None None After 1 year $ 61 $ 66 $ 26 $ 36 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $100 $101 $ 81 $ 81 $ 81
Other expenses(b)(i) After 5 years $141 $138 $138 $138 $138
(after reimbursement) 1.60% 1.60% 1.60% After 10 years $255 $261 $261 $293 $293
Total fund operating expenses(i)
(after waiver/reimbursement) 1.90% 2.60% 2.60%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
5
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ----------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
CORPORATE BOND ------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .57% .57% .57% After 1 year $ 53 $ 48 $ 18 $ 29 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 77 $ 67 $ 57 $ 57 $ 57
Other expenses(b) .25% .25% .25% After 5 years $102 $ 99 $ 99 $ 99 $ 99
Total fund operating expenses 1.12% 1.82% 1.82% After 10 years $173 $179 $179 $214 $214
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
HIGH YIELD ------- ------- ------- ------- -------- --------- -------- ---------
Management fees(j)(after waiver) None None None After 1 year $ 59 $ 64 $ 24 $ 34 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 94 $ 95 $ 75 $ 75 $ 75
Other expenses(b)(j) After 5 years $131 $128 $128 $128 $128
(after reimbursement) 1.40% 1.40% 1.40% After 10 years $235 $256 $256 $274 $274
Total fund operating expenses(j)
(after waiver/reimbursement) 1.70% 2.40% 2.40%
</TABLE>
+ ASSUMES REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD TEN
YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS (EIGHT
YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
++ ASSUMES NO REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD
TEN YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS
(EIGHT YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
(A) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .55%, OTHER
EXPENSES WOULD HAVE BEEN 1.57% FOR CLASS A, 1.55% FOR CLASS B AND 1.54% FOR
CLASS C AND TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 2.42% FOR CLASS A,
3.10% FOR CLASS B AND 3.09% FOR CLASS C.
(B) THESE EXPENSES INCLUDE A TRANSFER AGENCY FEE PAYABLE TO ALLIANCE FUND
SERVICES, INC., AN AFFILIATE OF ALLIANCE. THE EXPENSES SHOWN DO NOT REFLECT
THE APPLICATION OF CREDITS THAT REDUCE FUND EXPENSES.
(C) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.40%, FOR CLASS B, 2.10%, AND FOR CLASS C, 2.10%.
(D) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.65%, FOR CLASS B, 2.39%, AND FOR CLASS C,
2.37%.
(E) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.07%, FOR CLASS B, 1.78%, AND FOR CLASS C,
1.77%.
(F) NET OF VOLUNTARY FEE WAIVERS. ABSENT SUCH WAIVERS, ANNUALIZED
MANAGEMENT FEES WOULD HAVE BEEN .65%, ANNUALIZED RULE 12B-1 FEES WOULD HAVE
BEEN .90% AND ANNUALIZED TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
2.63%.
(G) REPRESENTS .65 OF 1% OF THE FUND'S AVERAGE DAILY ADJUSTED TOTAL
NET ASSETS.
(H) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE
BEEN FOR CLASS A, 1.38%, FOR CLASS B, 2.09%, AND FOR CLASS C,
2.08%.
(I) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENT. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .75%, OTHER
EXPENSES WOULD HAVE BEEN 3.01% FOR CLASS A, 3.01% FOR CLASS B,
AND 3.02% FOR CLASS C, AND TOTAL OPERATING EXPENSES WOULD HAVE BEEN
4.06% FOR CLASS A, 4.76% FOR CLASS B, AND 4.77% FOR
CLASS C.
(J) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .75%, OTHER
EXPENSES WOULD HAVE BEEN 2.06% (ANNUALIZED) FOR CLASS A, 2.10% (ANNUALIZED) FOR
CLASS B, AND 2.09% (ANNUALIZED) FOR CLASS C; AND TOTAL OPERATING EXPENSES WOULD
HAVE BEEN 2.06% (ANNUALIZED) FOR CLASS A, 3.85% (ANNUALIZED) FOR CLASS B, AND
3.84% (ANNUALIZED) FOR CLASS C.
The purpose of the tables on pages 4, 5 and 6 is to assist the investor in
understanding the various costs and expenses that shareholders of a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. See "Management of the Funds-Distribution Services
Agreements." The Rule 12b-1 fee for each class comprises a service fee not
exceeding .25% of the aggregate average daily net assets of the Fund
attributable to the class and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. With respect to each of SHORT-TERM
U.S. GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
MORTGAGE SECURITIES INCOME and LIMITED MATURITY GOVERNMENT, "interest expense"
represents interest paid by the Fund on borrowings for the purpose of making
additional portfolio investments. Such borrowings are intended to enable each
of those Funds to produce higher net yields to shareholders than the Funds
could pay without such borrowings. See "Description of Funds-Risk
Considerations-Effects of Borrowing." Excluding interest expense, total fund
operating expenses of each of SHORT-TERM U.S. GOVERNMENT, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, MORTGAGE SECURITIES INCOME and
LIMITED MATURITY GOVERNMENT would be lower (see notes (b), (d), (f), (g), (h)
and (j) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. The Examples set forth above assume
reinvestment of all dividends and distributions and utilize a 5% annual rate of
return as mandated by Commission regulations. "Other Expenses" are based on
estimated amounts for HIGH YIELD'S current fiscal year. THE EXAMPLES SHOULD NOT
BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. ACTUAL RETURNS WILL VARY.
6
FINANCIAL HIGHLIGHTS
_______________________________________________________________________________
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables relating to SHORT-TERM U.S. GOVERNMENT has been
audited by Price Waterhouse LLP, the independent accountants for the Fund, and
the information in the tables relating to U.S. GOVERNMENT, LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH YIELD has been
audited by Ernst & Young LLP, the independent auditors for these Funds. A
report of Price Waterhouse LLP or Ernst & Young LLP, as the case may be, on the
information with respect to each Fund appears in the Fund's Statement of
Additional Information. The following information for each Fund should be read
in conjunction with the financial statements and related notes which are
included in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the "For Literature"
telephone number shown on the cover of this Prospectus.
7
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------ -------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT#
CLASS A
Year Ended 8/31/97 $9.66 $.47(h) $ .03 $.50 $(.46) $0.00
Year Ended 8/31/96 9.70 .47 (.02) .45 (.49) 0.00
Year Ended 8/31/95 9.67 .42 .05 .47 (.41) 0.00
Period Ended 8/31/94** 9.77 .14 (.09) .05 (.12) 0.00
Year Ended 4/30/94 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93 10.00 .46 .34 .80 (.46) (.12)
CLASS B
Year Ended 8/31/97 $9.77 $.41(h) $ .02 $.43 $(.39) $0.00
Year Ended 8/31/96 9.81 .41 (.03) .38 (.42) 0.00
Year Ended 8/31/95 9.78 .36 .04 .40 (.34) 0.00
Period Ended 8/31/94** 9.88 .10 (.07) .03 (.11) 0.00
Year Ended 4/30/94 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93 10.00 .38 .33 .71 (.38) (.02)
CLASS C
Year Ended 8/31/97 $9.76 $.41(h) $ .02 $.43 $(.39) $0.00
Year Ended 8/31/96 9.80 .40 (.02) .38 (.42) 0.00
Year Ended 8/31/95 9.77 .34 .06 .40 (.34) 0.00
Period Ended 8/31/94** 9.87 .10 (.07) .03 (.11) 0.00
8/2/93++ to 4/30/94 10.34 .26 (.42) (.16) (.25) 0.00
U.S. GOVERNMENT
CLASS A
Year Ended 6/30/97 $7.52 $.57(h) $(.10) $.47 $(.57) $0.00
Year Ended 6/30/96 7.96 .58 (.44) .14 (.58) 0.00
Year Ended 6/30/95 7.84 .64 .13 .77 (.65) 0.00
Year Ended 6/30/94 8.64 .65 (.80) (.15) (.65) 0.00
Year Ended 6/30/93 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89 8.51 .89 (.03) .86 (.88) 0.00
Year Ended 6/30/88 8.90 .93 (.39) .54 (.93) 0.00
CLASS B
Year Ended 6/30/97 $7.52 $.52(h) $(.10) $.42 $(.52) $0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.84 .58 .13 .71 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.80) (.21) (.59) 0.00
Year Ended 6/30/93 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92 8.25 .49 .09 .58 (.49) 0.00
CLASS C
Year Ended 6/30/97 $7.52 $.52(h) $(.10) $.42 $(.52) $0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.83 .58 .14 .72 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.81) (.22) (.59) 0.00
5/3/93++ to 6/30/93 8.56 .10 .08 .18 (.10) 0.00
LIMITED MATURITY GOVERNMENT
CLASS A
Year Ended 11/30/97 $9.45 $.51(h) $ .02 $.53 $(.52) $0.00
Year Ended 11/30/96 9.52 .51(h) (.04) .47 (.51) 0.00
Year Ended 11/30/95 9.51 .52(h) .02 .54 (.50) 0.00
Year Ended 11/30/94 9.94 .42 (.32) .10 (.48) (.01)
Year Ended 11/30/93 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92 10.00 .35 (.17) .18 (.34) 0.00
CLASS B
Year Ended 11/30/97 $9.45 $.45(h) $ .01 $.46 $(.45) $0.00
Year Ended 11/30/96 9.52 .44(h) (.04) .40 (.44) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .39 (.35) .04 (.42) (.01)
Year Ended 11/30/93 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92 10.00 .31 (.17) .14 (.30) 0.00
CLASS C
Year Ended 11/30/97 $9.45 $.45(h) $ .01 $.46 $(.45) $0.00
Year Ended 11/30/96 9.52 .45(h) (.05) .40 (.45) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .37 (.33) .04 (.42) (.01)
5/3/93++ to 11/30/93 9.98 .27 (.03) .24 (.28) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
8
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ------------ -------------- ----------- --------------- ----------- --------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $ (.07) $(.53) $9.63 5.29% $ 3,901 1.41%(d)(e) 4.90% 65%
0.00 0.00 (.49) 9.66 4.71 3,455 1.53(d)(e) 4.85 110
(.03) 0.00 (.44) 9.70 5.14 2,997 1.40(d) 4.56 15
(.03)(a) 0.00 (.15)(c) 9.67 .53 2,272 1.40(d) 3.98 144
(.09)(a) 0.00 (.51)(c) 9.77 .52 2,003 1.27(d) 4.41 55
0.00 0.00 (.58)(c) 10.22 8.20 6,081 1.00*(d) 4.38* 294
$0.00 $ (.07) $(.46) $9.74 4.45% $ 6,458 2.11%(d)(e) 4.13% 65%
0.00 0.00 (.42) 9.77 3.89 6,781 2.23(d)(e) 4.11 110
(.03) 0.00 (.37) 9.81 4.32 6,380 2.10(d) 3.82 15
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10(d) 3.22 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
0.00 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d) 3.36* 294
$0.00 $ (.07) $(.46) $9.73 4.45% $ 5,012 2.11%(d)(e) 4.15% 65%
0.00 0.00 (.42) 9.76 3.90 4,850 2.22(d)(e) 4.11 110
(.03) 0.00 (.37) 9.80 4.33 5,180 2.10(d) 3.80 15
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10(d) 3.26 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55
$0.00 $ (.01) $(.58) $7.41 6.49% $354,782 1.02% 7.66% 330%
0.00 0.00 (.58) 7.52 1.74 397,894 1.01 7.38 334
0.00 0.00 (.65) 7.96 10.37 463,660 1.01 8.27 190
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
0.00 0.00 (.68) 8.64 12.23 527,968 1.10 8.04 386
0.00 0.00 (.72) 8.34 13.52 492,448 1.12 8.43 418
0.00 0.00 (.83) 8.01 8.97 491,910 1.07 10.02 402
0.00 0.00 (.83) 8.14 5.99 510,675 1.09 10.35 455
0.00 0.00 (.88) 8.49 10.87 532,525 1.11 10.70 148
0.00 0.00 (.93) 8.51 6.41 529,909 1.14 10.70 149
$0.00 $ (.01) $(.53) $7.41 5.69% $471,889 1.73% 6.95% 330%
0.00 0.00 (.52) 7.52 1.01 628,628 1.72 6.67 334
0.00 0.00 (.59) 7.96 9.52 774,097 1.72 7.57 190
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
0.00 0.00 (.62) 8.64 11.45 552,471 1.81 7.25 386
0.00 0.00 (.49) 8.34 6.95 32,227 1.80* 7.40* 418
$0.00 $ (.01) $(.53) $7.41 5.69% $115,607 1.72% 6.96% 330%
0.00 0.00 (.52) 7.52 1.01 166,075 1.71 6.68 334
0.00 0.00 (.59) 7.96 9.67 181,948 1.71 7.59 190
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
0.00 0.00 (.10) 8.64 2.12 67,757 1.80* 6.00* 386
$0.00 $(.02) $(.54) $9.44 5.79% $ 16,197 2.41%(e) 5.52% 249%
0.00 (.03) (.54) 9.45 5.11 16,248 2.22(e) 5.44 159
0.00 (.03) (.53) 9.52 5.91 27,887 2.14(e) 5.53 293
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
0.00 0.00 (.58) 9.94 7.02 59,215 1.54(e) 5.66 499
0.00 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e) 6.58*(d) 101
$0.00 $(.02) $(.47) $9.44 5.04% $ 33,613 3.14%(e) 4.80% 249%
0.00 (.03) (.47) 9.45 4.36 50,386 2.94(e) 4.73 159
0.00 (.03) (.47) 9.52 5.05 84,362 2.85(e) 4.83 293
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
0.00 0.00 (.51) 9.94 6.27 168,157 2.26(e) 4.98 499
0.00 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e) 6.01*(d) 101
$0.00 $(.02) $(.47) $9.44 5.05% $ 28,738 3.13%(e) 4.82% 249%
0.00 (.02) (.47) 9.45 4.38 43,457 2.92(e) 4.75 159
0.00 (.03) (.47) 9.52 5.06 68,459 2.85(e) 4.84 293
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
0.00 0.00 (.28) 9.94 2.40 228,703 1.74*(e) 3.70* 499
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
9
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------ -------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE SECURITIES INCOME
CLASS A
Year Ended 12/31/97 $8.51 $.54(h) $ .15 $ .69 $(.54) $0.00
Year Ended 12/31/96 8.75 .54(h) (.19) .35 (.51) 0.00
Year Ended 12/31/95 8.13 .57(h) .64 1.21 (.57) 0.00
Year Ended 12/31/94 9.29 .57 (1.13) (.56) (.58) 0.00
Year Ended 12/31/93 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88 9.03 .99 (.23) .76 (.98) 0.00
Year Ended 12/31/87 9.74 1.00 (.68) .32 (1.00) (.03)
CLASS B
Year Ended 12/31/97 $8.51 $.48(h) $ .15 $ .63 $(.48) $0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
Year Ended 12/31/93 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92 9.16 .68 (.08) .60 (.68) 0.00
CLASS C
Year Ended 12/31/97 $8.51 $.48(h) $ .15 $ .63 $(.48) $0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
5/3/93++ to 12/31/93 9.30 .40 0.00 .40 (.40) 0.00
WORLD INCOME
Year Ended 10/31/97 $1.67 $.07(h) $(.01) $ .06 $(.06) $0.00
Year Ended 10/31/96 1.66 .09(h) .02 .11 (.10) 0.00
Year Ended 10/31/95 1.88 .11(h) (.23) (.12) 0.00 0.00
Year Ended 10/31/94 1.90 .18 (.12) .06 (.05) 0.00
Year Ended 10/31/93 1.91 .22 (.16) .06 (.07) 0.00
Year Ended 10/31/92 1.98 .19 (.17) .02 (.09) 0.00
12/3/90+ to 10/31/91 2.00 .14 (.03) .11 (.13) 0.00
SHORT-TERM MULTI-MARKET
CLASS A
Year Ended 10/31/97 $7.73 $.51(h) $(.04) $ .47 $(.56) $0.00
Year Ended 10/31/96 7.47 .60(h) .35 .95 (.69) 0.00
Year Ended 10/31/95 8.71 .46(h) (.98) (.52) 0.00 0.00
Year Ended 10/31/94 9.25 .93 (.86) .07 0.00 0.00
Year Ended 10/31/93 9.25 .92 (.32) .60 (.60) 0.00
Year Ended 10/31/92 9.94 .91 (.86) .05 (.72) (.02)
Year Ended 10/31/91 9.89 .97 .06 1.03 (.97) (.01)
Year Ended 10/31/90 9.69 1.09 .19 1.28 (1.08) 0.00
5/5/89+ to 10/31/89 9.70 .53 (.01) .52 (.53) 0.00
CLASS B
Year Ended 10/31/97 $7.73 $.45(h) $(.04) $ .41 $(.45) $0.00
Year Ended 10/31/96 7.47 .54(h) .35 .89 (.63) 0.00
Year Ended 10/31/95 8.71 .41(h) (.99) (.58) 0.00 0.00
Year Ended 10/31/94 9.25 .94 (.93) .01 0.00 0.00
Year Ended 10/31/93 9.25 .87 (.34) .53 (.53) 0.00
Year Ended 10/31/92 9.94 .84 (.86) (.02) (.65) (.02)
Year Ended 10/31/91 9.89 .89 .07 .96 (.90) (.01)
2/5/90++ to 10/31/90 9.77 .74 .12 .86 (.74) 0.00
CLASS C
Year Ended 10/31/97 $7.73 $.45(h) $(.04) $ .41 $(.45) $0.00
Year Ended 10/31/96 7.47 .51(h) .38 .89 (.63) 0.00
Year Ended 10/31/95 8.71 .39(h) (.97) (.58) 0.00 0.00
Year Ended 10/31/94 9.25 .58 (.57) .01 0.00 0.00
5/3/93++ to 10/31/93 9.18 .28 .05 .33 (.26) 0.00
MULTI-MARKET STRATEGY
CLASS A
Year Ended 10/31/97 $7.23 $.47(h) $ .08 $ .55 $(.47) $0.00
Year Ended 10/31/96 6.83 .59(h) .48 1.07 (.67) 0.00
Year Ended 10/31/95 8.04 .77(h) (1.31) (.54) 0.00 0.00
Year Ended 10/31/94 8.94 .85 (1.08) (.23) (.09) 0.00
Year Ended 10/31/93 8.85 1.02 (.26) .76 (.67) 0.00
Year Ended 10/31/92 9.91 1.00 (1.23) (.23) (.81) (.02)
5/29/91+ to 10/28/91 10.00 .42 (.09) .33 (.42) 0.00
CLASS B
Year Ended 10/31/97 $7.23 $.42(h) $ .06 $ .48 $(.42) $0.00
Year Ended 10/31/96 6.83 .53(h) .47 1.00 (.60) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.05) (.61) 0.00 0.00
Year Ended 10/31/94 8.94 .88 (1.18) (.30) (.08) 0.00
Year Ended 10/31/93 8.85 .92 (.22) .70 (.61) 0.00
Year Ended 10/31/92 9.91 1.04 (1.34) (.30) (.74) (.02)
5/29/91+ to 10/28/91 10.00 .39 (.09) .30 (.39) 0.00
CLASS C
Year Ended 10/31/97 $7.23 $.42(h) $ .07 $ .49 $(.42) $0.00
Year Ended 10/31/96 6.83 .54(h) .47 1.01 (.61) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.04) (.60) 0.00 0.00
Year Ended 10/31/94 8.94 .46 (.75) (.29) (.09) 0.00
5/3/93++ to 10/31/93 8.76 .32 .16 .48 (.30) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
10
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ------------ -------------- ----------- --------------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(.03) $0.00 $(.57) $8.63 8.04% $372,494 1.41%(e) 6.30% 184%
0.00 (.08) (.59) 8.51 4.23 412,899 1.68(e) 6.38 208
0.00 (.02) (.59) 8.75 15.34 502,390 1.66(e) 6.77 285
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29(e) 6.77 438
(.02) 0.00 (.69) 9.29 10.14 848,069 1.00 7.20 622
0.00 0.00 (.81) 9.08 7.73 789,898 1.18 8.56 555
0.00 0.00 (.87) 9.21 15.44 544,171 1.16 9.92 439
0.00 0.00 (.87) 8.79 11.01 495,353 1.12 10.09 393
0.00 0.00 (.97) 8.76 10.98 556,077 1.13 11.03 328
0.00 0.00 (.98) 8.81 8.64 619,572 1.11 10.80 239
0.00 0.00 (1.03) 9.03 3.49 682,650 1.15 10.79 211
$(.03) $0.00 $(.51) $8.63 7.60% $323,916 2.14%(e) 5.60% 184%
0.00 (.07) (.53) 8.51 3.46 477,196 2.37(e) 5.66 208
0.00 (.02) (.53) 8.75 14.48 737,593 2.37(e) 6.06 285
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00(e) 6.05 438
(.02) 0.00 (.62) 9.29 9.38 1,454,303 1.70 6.47 622
0.00 0.00 (.68) 9.08 7.81 1,153,957 1.67* 5.92* 555
$(.03) $0.00 $(.51) $8.63 7.60% $27,859 2.12%(e) 5.61% 184%
0.00 (.07) (.53) 8.51 3.46 35,355 2.38(e) 5.67 208
0.00 (.02) (.53) 8.75 14.46 45,558 2.35(e) 6.07 285
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97(e) 6.06 438
(.01) 0.00 (.41) 9.29 4.34 91,724 1.67* 5.92* 622
$0.00 $(.05) $(.11) $1.62 3.47% $21,529 2.25%(d) 4.35% N/A
0.00 0.00 (.10) 1.67 6.98 44,890 2.10(d) 5.37 N/A
0.00 (.10) (.10) 1.66 (6.35) 55,778 1.97(d) 6.46 N/A
0.00 (.03) (.08) 1.88 3.27 103,310 1.70(d) 3.96 N/A
0.00 0.00 (.07) 1.90 3.51 149,623 1.54 (d) 5.14 N/A
0.00 0.00 (.09) 1.91 1.26 318,716 1.59(d) 7.21 N/A
0.00 0.00 (.13) 1.98 6.08 1,059,222 1.85*(d) 7.29* N/A
$(.05) $0.00 $(.61) $7.59 6.20% $434,273 1.28%(i) 6.54% 172%
0.00 0.00 (.69) 7.73 13.23 386,545 1.29 7.85 208
0.00 (.72) (.72) 7.47 (5.74) 320,333 1.23 7.39 230
0.00 (.61) (.61) 8.71 .84 593,677 1.13 7.28 109
0.00 0.00 (.60) 9.25 6.67 953,571 1.16 8.26 182
0.00 0.00 (.74) 9.25 .49 1,596,903 1.10 9.00 133
0.00 0.00 (.98) 9.94 10.91 2,199,393 1.09 9.64 146
0.00 0.00 (1.08) 9.89 13.86 1,346,035 1.18 10.81 152
0.00 0.00 (.53) 9.69 5.57 210,294 1.14* 10.83* 10
$(.10) $0.00 $(.55) $7.59 5.42% $86,785 1.99%(i) 5.83% 172%
0.00 0.00 (.63) 7.73 12.34 273,109 2.00 7.14 208
0.00 (.66) (.66) 7.47 (6.50) 523,530 1.95 6.69 230
0.00 (.55) (.55) 8.71 .12 1,003,633 1.85 6.58 109
0.00 0.00 (.53) 9.25 5.91 1,742,703 1.87 7.57 182
0.00 0.00 (.67) 9.25 (.24) 2,966,071 1.81 8.28 133
0.00 0.00 (.91) 9.94 10.11 3,754,003 1.81 8.87 146
0.00 0.00 (.74) 9.89 9.07 1,950,330 1.86* 9.90* 152
$(.10) $0.00 $(.55) $7.59 5.42% $6,004 1.99%(i) 5.83% 172%
0.00 0.00 (.63) 7.73 12.35 10,031 1.98 7.15 208
0.00 (.66) (.66) 7.47 (6.49) 3,416 1.92 6.66 230
0.00 (.55) (.55) 8.71 .12 8,136 1.83 6.50 109
0.00 0.00 (.26) 9.25 3.66 5,538 1.82* 7.19* 182
$(.20) $0.00 $(.67) $7.11 7.82% $96,133 1.58%(i) 6.50% 173%
0.00 0.00 (.67) 7.23 16.37 68,776 1.64(f) 8.40 215
0.00 (.67) (.67) 6.83 (6.47) 76,837 1.60(f) 8.56 400
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
0.00 0.00 (.67) 8.94 9.01 82,977 1.94(f) 9.17(g) 200
0.00 0.00 (.83) 8.85 (2.80) 141,526 2.53(f) 10.58(g) 239
0.00 0.00 (.42) 9.91 3.68 143,594 2.81*(f) 10.17*(g) 121
$(.18) $0.00 $(.60) $7.11 6.90% $29,949 2.29%(i) 5.79% 173%
0.00 0.00 (.60) 7.23 15.35 88,427 2.35(f) 7.69 215
0.00 (.60) (.60) 6.83 (7.31) 116,551 2.29(f) 7.53 400
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
0.00 0.00 (.61) 8.94 8.25 431,186 2.64(f) 8.46(g) 200
0.00 0.00 (.76) 8.85 (3.51) 701,465 3.24(f) 9.83(g) 239
0.00 0.00 (.39) 9.91 3.36 662,981 3.53*(f) 9.40*(g) 121
$(.19) $0.00 $(.61) $7.11 6.92% $1,203 2.28%(i) 5.80% 173%
0.00 0.00 (.61) 7.23 15.36 1,076 2.34(f) 7.62 215
0.00 (.61) (.61) 6.83 (7.29) 786 2.29(f) 7.55 400
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10 605
0.00 0.00 (.30) 8.94 5.54 718 2.44*(f) 7.17*(g) 200
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
11
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------ -------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICAN GOVERNMENT INCOME
CLASS A
Year Ended 11/30/97 $ 8.01 $1.03(h) $ (.05) $ .98 $(..97) $0.00
Year Ended 11/30/96 6.75 1.09(h) 1.14 2.23 (.75) 0.00
Year Ended 11/30/95 8.13 1.18(h) (1.59) (.41) 0.00 0.00
Year Ended 11/30/94 10.35 1.02 (2.12) (1.10) (.91) 0.00
Year Ended 11/30/93 9.70 1.09 .66 1.75 (1.09) (.01)
3/27/92+ to 11/30/92 10.00 .69 (.31) .38 (.68) 0.00
CLASS B
Year Ended 11/30/97 $ 8.01 $ .98(h) $ (.07) $ .91 $(.90) $0.00
Year Ended 11/30/96 6.75 1.04(h) 1.12 2.16 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.35 .96 (2.13) (1.17) (.84) 0.00
Year Ended 11/30/93 9.70 1.01 .67 1.68 (1.02) (.01)
3/27/92+ to 11/30/92 10.00 .64 (.31) .33 (.63) 0.00
CLASS C
Year Ended 11/30/97 $ 8.01 $ .98(h) $ (.07) $ .91 $(.90) $0.00
Year Ended 11/30/96 6.75 1.05(h) 1.11 2.76 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.34 .96 (2.12) (1.16) (.84) 0.00
5/3/93++ to 11/30/93 10.04 .58 .30 .88 (.58) 0.00
GLOBAL DOLLAR GOVERNMENT
CLASS A
Year Ended 8/31/97 $10.01 $ .88(h) $ 1.85 $2.73 $(.95) $(1.15)
Year Ended 8/31/96 8.02 .84 2.10 2.94 (.95) 0.00
Year Ended 8/31/95 9.14 .86 (1.10) (.24) (.88) 0.00
2/25/94+ to 8/31/94 10.00 .45 (.86) (.41) (.45) 0.00
CLASS B
Year Ended 8/31/97 $10.01 $ .81(h) $ 1.84 $2.65 $(.87) $(1.15)
Year Ended 8/31/96 8.02 .78 2.08 2.86 (.87) 0.00
Year Ended 8/31/95 9.14 .80 (1.11) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CLASS C
Year Ended 8/31/97 $10.01 $ .82(h) $ 1.84 $2.66 $(.88) $(1.15)
Year Ended 8/31/96 8.02 .77 2.10 2.87 (.88) 0.00
Year Ended 8/31/95 9.14 .79 (1.10) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
GLOBAL STRATEGIC INCOME
CLASS A
Year Ended 10/31/97 $10.83 $ .74(h) $ 1.02 $1.76 $(.75) $(.10)
1/9/96+ to 10/31/96 10.00 .69(h) .95 1.64 (.81) 0.00
CLASS B
Year Ended 10/31/97 $10.83 $ .66(h) $ 1.03 $1.69 $(.67) $(.10)
3/25/96++ to 10/31/96 9.97 .41(h) 1.01 1.42 (.56) 0.00
CLASS C
Year Ended 10/31/97 $10.83 $ .66(h) $ 1.03 $1.69 $(.67) $(.10)
3/25/96++ to 10/31/96 9.97 .39(h) 1.03 1.42 (.56) 0.00
CORPORATE BOND
CLASS A
Year Ended 6/30/97 $13.29 $1.15(h) $ .97 $2.12 $(1.22) $0.00
Year Ended 6/30/96 12.92 1.26 .27 1.53 (1.16) 0.00
Year Ended 6/30/95 12.51 1.19 .36 1.55 (1.14) 0.00
Year Ended 6/30/94 14.15 1.11 (1.36) (.25) (1.11) (.25)
Year Ended 6/30/93 12.01 1.25 2.13 3.38 (1.24) 0.00
Year Ended 6/30/92 11.21 1.06 .82 1.88 (1.08) 0.00
Year Ended 6/30/91 11.39 1.11 (.06) 1.05 (1.23) 0.00
Year Ended 6/30/90 12.15 1.24 (.86) .38 (1.14) 0.00
Year Ended 6/30/89 11.82 1.12 .32 1.44 (1.11) 0.00
Year Ended 6/30/88 12.24 1.10 (.38) .72 (1.14) 0.00
Nine Months Ended 6/30/87 12.25 .86 (.06) .80 (.81) 0.00
Year Ended 9/30/86 11.52 1.20 .73 1.93 (1.20) 0.00
CLASS B
Year Ended 6/30/97 $13.29 $1.05(h) $ .98 $2.03 $(1.13) $0.00
Year Ended 6/30/96 12.92 1.15 .29 1.44 (1.07) 0.00
Year Ended 6/30/95 12.50 1.11 .36 1.47 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.04) (.25)
1/8/93++ to 6/30/93 12.47 .49 1.69 2.18 (.50) 0.00
CLASS C
Year Ended 6/30/97 $13.29 $1.04(h) $ .99 $2.03 $(1.13) $0.00
Year Ended 6/30/96 12.93 1.14 .29 1.43 (1.07) 0.00
Year Ended 6/30/95 12.50 1.10 .38 1.48 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.05) (.25)
5/3/93++ to 6/30/93 13.63 .16 .53 .69 (.17) 0.00
HIGH YIELD
CLASS A
4/22/97+ to 8/31/97 $10.00 $ .37(h) $ 1.15 $1.52 $(.35) $0.00
CLASS B
4/22/97+ to 8/31/97 $10.00 $ .31(h) $ 1.19 $1.50 $(.33) $0.00
CLASS C
4/22/97+ to 8/31/97 $10.00 $ .32(h) $ 1.18 $1.50 $(.33) $0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
12
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ------------ -------------- ----------- --------------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $0.00 $ (.97) $ 8.02 12.85% $ 511,749 2.15%(f) 12.78% 118%
0.00 (.22) (.97) 8.01 35.22 385,784 2.34(f) 14.82 166
0.00 (.97) (.97) 6.75 (3.59) 252,608 2.62(f) 18.09 180
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
0.00 0.00 (1.10) 10.35 18.99 268,233 1.61(f) 10.77 254
0.00 0.00 (.68) 9.70 3.49 61,702 2.45*(d)(f) 10.93* 86
$0.00 $0.00 $ (.90) $ 8.02 11.88% $1,378,407 2.86%(f) 12.15% 118%
0.00 (.21) (.90) 8.01 33.96 1,329,719 3.05(f) 14.20 166
0.00 (.90) (.90) 6.75 (4.63) 1,123,074 3.33(f) 17.31 180
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
0.00 0.00 (1.03) 10.35 18.15 1,313,591 2.31(f) 10.01 254
0.00 0.00 (.63) 9.70 3.30 216,317 3.13*(d)(f) 10.16* 86
$0.00 $0.00 $ (.90) $ 8.02 11.88% $ 283,483 2.85%(f) 12.14% 118%
0.00 (.21) (.90) 8.01 33.96 250,676 3.04(f) 14.22 166
0.00 (.90) (.90) 6.75 (4.63) 219,009 3.33(f) 17.32 180
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
0.00 0.00 (.58) 10.34 9.00 310,230 2.21*(f) 9.74* 254
$0.00 $0.00 $(2.10) $10.64 30.04% $ 37,416 1.55% 8.49% 314%
0.00 0.00 (.95) 10.01 38.47 23,253 1.65 9.23 315
0.00 0.00 (.88) 8.02 (1.48) 12,020 1.93 11.25 301
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$0.00 $0.00 $(2.02) $10.64 29.14% $ 93,377 2.26% 7.81% 314%
0.00 0.00 (.87) 10.01 37.36 84,295 2.37 8.57 315
0.00 0.00 (.81) 8.02 (2.40) 62,406 2.64 10.52 301
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$0.00 $0.00 $(2.03) $10.64 29.17% $ 25,130 2.25% 7.82% 314%
0.00 0.00 (.88) 10.01 37.40 14,511 2.35 8.52 315
0.00 0.00 (.81) 8.02 (2.36) 9,330 2.63 10.46 301
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100
$(.28) $0.00 $(1.13) $11.46 16.83% $ 12,954 1.90%(d) 6.56% 417%
0.00 0.00 (.81) 10.83 17.31 2,295 1.90*(d) 8.36* 282
$(.29) $0.00 $(1.06) $11.46 16.12% $ 18,855 2.60%(d) 5.86% 417%
0.00 0.00 (.56) 10.83 14.47 800 2.60*(d) 7.26* 282
$(.29) $0.00 $(1.06) $11.46 16.12% $ 4,388 2.60%(d) 5.86% 417%
0.00 0.00 (.56) 10.83 14.47 750 2.60*(d) 7.03* 282
$0.00 $0.00 $(1.22) $14.19 16.59% $ 370,845 1.12% 8.34% 307%
0.00 0.00 (1.16) 13.29 12.14 277,369 1.20 9.46 389
0.00 0.00 (1.14) 12.92 13.26 230,750 1.24 9.70 387
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
0.00 0.00 (1.24) 14.15 29.62 216,171 1.39 9.29 579
0.00 0.00 (1.08) 12.01 17.43 60,356 1.48 8.98 610
0.00 0.00 (1.23) 11.21 9.71 62,268 1.44 9.84 357
0.00 0.00 (1.14) 11.39 3.27 68,049 1.51 10.70 480
0.00 0.00 (1.11) 12.15 12.99 52,381 1.84 9.53 104
0.00 0.00 (1.14) 11.82 6.24 37,587 1.81 9.24 98
0.00 0.00 (.81) 12.24 7.32 41,072 1.27 9.17 95
0.00 0.00 (1.20) 12.25 17.19 45,178 1.08 9.80 240
$0.00 $0.00 $(1.13) $14.19 15.80% $ 480,326 1.82% 7.62% 307%
0.00 0.00 (1.07) 13.29 11.38 338,152 1.90 8.75 389
0.00 0.00 (1.05) 12.92 12.54 241,393 1.99 9.07 387
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
0.00 0.00 (.50) 14.15 17.75 55,508 2.10* 7.18* 579
$0.00 $0.00 $(1.13) $14.19 15.80% $ 174,762 1.82% 7.61% 307%
0.00 0.00 (1.07) 13.29 11.30 83,095 1.90 8.74 389
0.00 0.00 (1.05) 12.93 12.62 51,028 1.84 8.95 387
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
0.00 0.00 (.17) 14.15 5.08 5,115 2.05* 5.51* 579
$0.00 $0.00 $ (.35) $11.17 15.33% $ 5,889 1.70%*(d) 8.04%* 73%
$0.00 $0.00 $ (.33) $11.17 15.07% $ 43,297 2.40*(d) 7.19* 73%
$0.00 $0.00 $ (.33) $11.17 15.07% $ 7,575 2.40*(d) 7.24* 73%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
13
# PRIOR TO JULY 22, 1993, EQUITABLE CAPITAL MANAGEMENT CORPORATION
("EQUITABLE") SERVED AS THE INVESTMENT ADVISER TO THE ALLIANCE PORTFOLIOS (THE
"TRUST"), OF WHICH SHORT-TERM U.S. GOVERNMENT IS A SERIES. ON JULY 22, 1993,
ALLIANCE ACQUIRED THE BUSINESS AND SUBSTANTIALLY ALL OF THE ASSETS OF EQUITABLE
AND BECAME INVESTMENT ADVISER TO THE TRUST.
+ COMMENCEMENT OF OPERATIONS.
++ COMMENCEMENT OF DISTRIBUTION.
* ANNUALIZED.
** REFLECTS NEWLY ADOPTED FISCAL YEAR END.
(A) INCLUDES WITH RESPECT TO SHORT-TERM U.S. GOVERNMENT A RETURN OF CAPITAL
FOR THE YEAR ENDED APRIL 30, 1994 OF $(0.08) FOR CLASS A, $(0.08) FOR CLASS B
AND $(0.05) FOR CLASS C AND FOR THE PERIOD ENDED AUGUST 31, 1994 OF $(0.03) FOR
CLASS A AND $(0.02) FOR CLASS B AND CLASS C.
(B) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING AN INITIAL INVESTMENT MADE
AT THE NET ASSET VALUE AT THE BEGINNING OF THE PERIOD, REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS AT THE NET ASSET VALUE DURING THE PERIOD, AND A
REDEMPTION ON THE LAST DAY OF THE PERIOD. INITIAL SALES CHARGE OR CONTINGENT
DEFERRED SALES CHARGE IS NOT REFLECTED IN THE CALCULATION OF TOTAL INVESTMENT
RETURN. TOTAL INVESTMENT RETURNS CALCULATED FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED.
(C) "TOTAL DIVIDENDS AND DISTRIBUTIONS" INCLUDES DIVIDENDS IN EXCESS OF NET
INVESTMENT INCOME AND RETURN OF CAPITAL. SHORT-TERM U.S. GOVERNMENT HAD
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME, FOR THE YEAR ENDED APRIL 30,
1994, WITH RESPECT TO CLASS A SHARES OF $(.01); WITH RESPECT TO CLASS B SHARES,
$(.01); AND WITH RESPECT TO CLASS C SHARES, $(.01).
(D) NET OF EXPENSES ASSUMED AND/OR WAIVED/REIMBURSED. IF SHORT-TERM U.S.
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 2.20% (ANNUALIZED) FOR 1993, 2.17% FOR THE YEAR
ENDED APRIL 30, 1994, 2.95% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994,
3.71% FOR THE YEAR ENDED AUGUST 31, 1995, 3.04% FOR THE YEAR ENDED AUGUST 31,
1996 AND 2.42% FOR THE YEAR ENDED AUGUST 31, 1997; WITH RESPECT TO CLASS B
SHARES, 4.81% (ANNUALIZED) FOR 1993, 3.21% FOR THE YEAR ENDED APRIL 30, 1994,
3.60% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994, 4.33% FOR THE YEAR
ENDED AUGUST 31, 1995, 3.74% FOR THE YEAR ENDED AUGUST 31, 1996 AND 3.10% FOR
THE YEAR ENDED AUGUST 31, 1997; WITH RESPECT TO CLASS C SHARES, 3.10%
(ANNUALIZED) FOR THE YEAR ENDED APRIL 30, 1994, 3.64% (ANNUALIZED) FOR THE
PERIOD ENDED AUGUST 31, 1994 (ANNUALIZED), 4.23% FOR THE YEAR ENDED AUGUST 31,
1995, 3.72% FOR THE YEAR ENDED AUGUST 31, 1996 AND 3.10% FOR THE YEAR ENDED
AUGUST 31, 1997. IF LIMITED MATURITY GOVERNMENT HAD BORNE ALL EXPENSES, THE
EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.55%
(ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B SHARES, 2.28% (ANNUALIZED)
FOR 1992. THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS FOR LIMITED
MATURITY GOVERNMENT WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 6.47%
(ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B SHARES, 5.86% (ANNUALIZED)
FOR 1992. IF WORLD INCOME HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE
BEEN 1.87% FOR 1992, 1.92% FOR 1993, 2.08% FOR 1994, 2.35% FOR 1995, 2.48% FOR
1996 AND 2.63% FOR 1997. IF NORTH AMERICAN GOVERNMENT INCOME HAD BORNE ALL
EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES,
2.49% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B SHARES, 3.16%
(ANNUALIZED) FOR 1992. IF GLOBAL DOLLAR GOVERNMENT HAD BORNE ALL EXPENSES FOR
THE PERIOD FEBRUARY 25, 1994 TO AUGUST 31, 1994, THE EXPENSE RATIOS WOULD HAVE
BEEN WITH RESPECT TO CLASS A SHARES, 1.91% (ANNUALIZED); WITH RESPECT TO CLASS
B SHARES, 2.63% (ANNUALIZED); AND WITH RESPECT TO CLASS C SHARES, 2.59%
(ANNUALIZED). IF GLOBAL STRATEGIC INCOME HAD BORNE ALL EXPENSES FOR THE
RESPECTIVE PERIODS JANUARY 9, 1996 TO OCTOBER 31, 1996 AND ITS FISCAL YEAR
ENDED IN 1997, THE EXPENSE RATIO WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 19.20% (ANNUALIZED) AND 4.06% RESPECTIVELY; WITH RESPECT TO CLASS B
SHARES, 19.57% (ANNUALIZED) AND 4.76% RESPECTIVELY; AND WITH RESPECT TO
CLASS C SHARES, 19.49% (ANNUALIZED), AND 4.77% RESPECTIVELY. IF HIGH YIELD HAD
BORNE ALL EXPENSES FOR THE PERIOD APRIL 22, 1997 TO AUGUST 31, 1997, THE
EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 3.11%
(ANNUALIZED); WITH RESPECT TO CLASS B SHARES, 3.85% (ANNUALIZED); AND WITH
RESPECT TO CLASS C SHARES, 3.84% (ANNUALIZED).
(E) IF SHORT-TERM U.S. GOVERNMENT HAD NOT BORNE INTEREST EXPENSES, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 1.40% FOR 1996 AND 1997; WITH RESPECT TO CLASS B SHARES, 2.10% FOR 1996
AND 1997; AND WITH RESPECT TO CLASS C SHARES, 2.10% FOR 1996 AND 1997. IF
LIMITED MATURITY GOVERNMENT HAD NOT BORNE INTEREST EXPENSES, THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES,
1.42% (ANNUALIZED) FOR 1992, 1.33% FOR 1993, 1.20% FOR 1994, 1.41% FOR 1995,
1.58% FOR 1996, AND 1.65% FOR 1997; WITH RESPECT TO CLASS B SHARES, 2.10%
(ANNUALIZED) FOR 1992, 2.07% FOR 1993, 1.91% FOR 1994, 2.11% FOR 1995, 2.30%
FOR 1996 AND 2.39% FOR 1997; WITH RESPECT TO CLASS C SHARES, 1.58%
(ANNUALIZED), FOR 1993, 1.89% FOR 1994, 2.10% FOR 1995, 2.29% FOR 1996 AND
2.37% FOR 1997. IF MORTGAGE SECURITIES INCOME FUND HAD NOT BORNE INTEREST
EXPENSE THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES .97% FOR 1994, 1.03% FOR 1995, 1.03% FOR 1996 AND
1.07% FOR 1997; WITH RESPECT TO CLASS B SHARES, 1.68% FOR 1994, 1.74% FOR 1995,
1.74% FOR 1996 AND 1.78% FOR 1997; WITH RESPECT TO CLASS C SHARES 1.69% FOR
1994, 1.73% FOR 1995, 1.73% FOR 1996, AND 1.77% FOR 1997.
(F) INCLUDES INTEREST EXPENSES. IF MULTI-MARKET STRATEGY HAD NOT BORNE
INTEREST EXPENSES OR LOAN FEES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS
WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.33% (ANNUALIZED) FOR 1991,
1.33% FOR 1992, 1.40% FOR 1993, 1.30% FOR 1994, 1.55% FOR 1995, AND 1.60% FOR
1996; WITH RESPECT TO CLASS B SHARES, 2.05% (ANNUALIZED) FOR 1991, 2.05% FOR
1992, 2.11% FOR 1993, 2.01% FOR 1994, 2.22% FOR 1995, AND 2.31% FOR 1996; WITH
RESPECT TO CLASS C SHARES, 2.11% (ANNUALIZED) FOR 1993, 1.99% FOR 1994, 2.24%
FOR 1995, AND 2.30% FOR 1996. IF NORTH AMERICAN GOVERNMENT INCOME HAD NOT BORNE
INTEREST EXPENSES, THE RATIO OF EXPENSES (NET OF INTEREST EXPENSES) TO AVERAGE
NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.66% (ANNUALIZED)
FOR 1992, 1.33% FOR 1993, 1.37% FOR 1994, 1.51% FOR 1995, 1.41% FOR 1996 AND
1.38% FOR 1997; WITH RESPECT TO CLASS B SHARES, 2.35% (ANNUALIZED) FOR 1992,
2.04% FOR 1993, 2.07% FOR 1994, 2.22% FOR 1995, 2.12% FOR 1996 AND 2.09% FOR
1997; AND WITH RESPECT TO CLASS C SHARES, 2.04% (ANNUALIZED) FOR 1993, 2.06%
FOR 1994, 2.21% FOR 1995, 2.12% FOR 1996, AND 2.08% FOR 1997.
(G) INCLUDES LOAN FEES. IF MULTI-MARKET STRATEGY HAD NOT INCURRED LOAN FEES,
THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 11.65% (ANNUALIZED) FOR 1991, 11.78% FOR 1992 AND
9.73% FOR 1993; WITH RESPECT TO CLASS B SHARES, 10.88% (ANNUALIZED) FOR 1991,
11.02% FOR 1992 AND 8.99% FOR 1993; AND WITH RESPECT TO CLASS C SHARES, 7.50%
(ANNUALIZED) FOR 1993.
(H) BASED ON AVERAGE SHARES OUTSTANDING.
(I) AMOUNTS DO NOT REFLECT THE IMPACT OF EXPENSE OFFSET ARRANGEMENT WITH THE
TRANSFER AGENT. TAKING INTO ACCOUNT SUCH EXPENSE OFFSET ARRANGEMENTS, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS, ABSENT THE ASSUMPTION AND/OR
WAIVER/REIMBURSEMENT OF EXPENSES FOR SHORT-TERM MULTI-MARKET THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.27% FOR 1997, WITH RESPECT TO CLASS B SHARES 1.98% FOR 1997 AND WITH RESPECT
TO CLASS C SHARES 1.98% FOR 1997. FOR MULTI-MARKET STRATEGY THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.57% FOR 1997, WITH RESPECT TO CLASS B 2.28% FOR 1997 AND WITH RESPECT TO
CLASS C 2.27% FOR 1997.
14
GLOSSARY
_______________________________________________________________________________
The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under "Description of the Funds-Additional
Investment Practices" and in Appendix A.
BONDS are fixed, floating and variable rate debt obligations.
DEBT SECURITIES are bonds, debentures, notes, bills and repurchase agreements.
FIXED-INCOME SECURITIES are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the Funds'
investment policies may be determined by Alliance to be of equivalent quality
to those rated) TRIPLE-A (Aaa or AAA), HIGH QUALITY (Aa or AA or above), HIGH
GRADE (A or above) or INVESTMENT GRADE (Baa or BBB or above) by, as the case
may be, Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities,
as defined below. In the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.
LOWER-RATED SECURITIES are fixed-income securities rated Ba or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred
to as "junk bonds."
EQUITY SECURITIES are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. TREASURY SECURITIES (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
MORTGAGE-RELATED SECURITIES are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities;
SMRS, which are stripped mortgage-related securities;
CMOS, which are collateralized mortgage obligations;
GNMA CERTIFICATES, which are securities issued by the Government National
Mortgage Association;
FNMA CERTIFICATES, which are securities issued by the Federal National
Mortgage Association; and
FHLMC CERTIFICATES, which are securities issued by the Federal Home Loan
Mortgage Corporation.
INTEREST-ONLY or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
PRINCIPAL-ONLY or PO class, which class receives only the principal payments on
the underlying debt obligation. POs are similar to, and are sometimes referred
to as, ZERO COUPON SECURITIES, which are debt securities issued without
interest coupons.
FOREIGN GOVERNMENT SECURITIES are securities issued or guaranteed, as to
payment of principal and interest, by a foreign government or any of its
political subdivisions, authorities, agencies or instrumentalities.
SOVEREIGN DEBT OBLIGATIONS are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
WORLD BANK is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
NRSRO is a nationally recognized securities rating organization.
MOODY'S is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
DUFF & PHELPS is Duff & Phelps Credit Rating Co.
FITCH is Fitch IBCA, Inc.
PRIME COMMERCIAL PAPER is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps. HIGHER
QUALITY COMMERCIAL PAPER is commercial paper rated at least Prime-2 by Moody's,
A-2 by S&P, Fitch-2 by Fitch or Duff 2 by Duff & Phelps.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
RULE 144A SECURITIES are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
1940 ACT is the Investment Company Act of 1940, as amended.
CODE is the Internal Revenue Code of 1986, as amended.
COMMISSION is the Securities and Exchange Commission.
EXCHANGE is the New York Stock Exchange.
15
DESCRIPTION OF THE FUNDS
_______________________________________________________________________________
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund ("Short-Term U.S. Government") seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. In periods of rising interest rates the
Fund may, to the extent it invests in mortgage-related securities, be subject
to the risk that its average dollar-weighted portfolio maturity may be extended
as a result of lower than anticipated prepayment rates. See "Additional
Investment Practices-Mortgage-Related Securities." The Fund's investment
objective is not fundamental.
In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although these
investments will be of high quality at the time of purchase, they generally
involve higher levels of credit risk than do U.S. Government securities, as
well as the risk (present with all fixed-income securities) of fluctuations in
value as interest rates change. The Fund will not be obligated to dispose of
any security whose credit quality falls below high quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales "against the
box," (iv) enter into various hedging transactions, such as interest rate
swaps, caps and floors, (v) enter into reverse repurchase agreements, (vi)
purchase and sell futures contracts for hedging purposes, (vii) purchase and
sell call and put options on futures contracts or on securities, for hedging
purposes or to earn additional income, (viii) make secured loans of portfolio
securities, (ix) enter into repurchase agreements, and (x) purchase securities
for future delivery. The Fund may not invest more than 5% of its total assets
in securities the disposition of which is restricted under Federal securities
laws (excluding, to the extent permitted by applicable law, Rule 144A
securities). For additional information on the use, risks and costs of these
practices, see "Additional Investment Practices."
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio ("U.S. Government") seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's
portfolio of U.S. Government securities is expected to vary between one year or
less and 30 years. For additional information on the use, risks and cost of
these practices, see "Additional Investment Practices." The Fund's investment
objective is not fundamental.
Counsel to the Fund has advised the Fund that, in their view, shares of the
Fund are a legal investment for, among other investors, (i) savings and loan
associations and commercial banks chartered under the laws of the United
States, (ii) savings and loan associations chartered under the laws of
Arkansas, California, Colorado, Connecticut*, Delaware, Florida, Hawaii*,
Illinois, Indiana, Kansas, Louisiana, Maine, Mississippi, Nebraska, Nevada, New
Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma,
Pennsylvania, South Carolina, South Dakota*, Texas, Utah and Virginia, (iii)
credit unions chartered under the laws of California, Florida*, Georgia,
Illinois, Kentucky, Maine, Maryland*, Nevada*, New Hampshire, Ohio*, Oregon*,
Pennsylvania*, South Carolina, Utah, Washington and West Virginia, and (iv)
commercial banks chartered under the laws of Alabama, Alaska, Arizona,
California, Colorado, Connecticut*, Delaware, Florida, Georgia, Hawaii*, Idaho,
Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts,
Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Jersey,
New Mexico, New York, North Carolina*, North Dakota, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas,
Utah, Vermont, Virginia, Washington, West Virginia and Wyoming. Institutions in
the asterisked(*) states should obtain prior state regulatory approval before
investing in shares of the Fund. In addition, the Fund believes that it is
currently a legal investment for savings and loan associations, credit unions
and commercial banks chartered under the laws of certain other states.
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
Alliance Limited Maturity Government Fund, Inc. ("Limited Maturity Government")
seeks the highest level of current income, consistent with low volatility of
net asset value. As a matter of fundamental policy, the Fund normally has at
least 65% of the value of its total assets invested in U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government
16
securities. For a description of these securities, see "Additional Investment
Practices."
In pursuing its investment objective and policies, the Fund takes advantage of
a wide range of maturities of debt securities and adjusts the dollar-weighted
average maturity of its portfolio from time to time, depending on its
assessment of relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market value of the
Fund's portfolio. At all times, however, each security held by the Fund has
either a remaining maturity of not more than ten years or a duration not
exceeding that of a ten-year Treasury note. Duration is a measure that relates
the price volatility of a security to changes in interest rates. The duration
of a debt security is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including coupon payments
and principal repayments. Thus, by definition, duration is always less than or
equal to full maturity.
The Fund believes that because of the nature of its assets, it is not exposed
to any material risk of loss as a result of default on its portfolio
securities. The Fund is, however, exposed to the risk that the prices of such
securities will fluctuate, in some cases significantly, as interest rates
change.
The Fund may invest up to 35% of its total assets in (i) high quality
asset-backed securities, including mortgage-related securities that are not
U.S. Government securities, (ii) Treasury securities issued by private
corporate issuers, (iii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of domestic and foreign banks having total
assets of more than $1 billion, (iv) higher quality commercial paper or, if not
rated, issued by companies that have high quality debt issues outstanding and
(v) high quality debt securities of corporate issuers.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these investment practices, see "Additional Investment Practices."
The Fund may invest up to 15% of the value of its total assets in debt
securities denominated in U.S. Dollars or in foreign currencies and issued or
guaranteed by foreign governments or issued by foreign non-governmental
issuers, provided that such foreign debt securities are of high quality. The
percentage of the Fund's assets invested in foreign debt securities will vary
and its portfolio of foreign debt securities may include those of a number of
foreign countries or, depending upon market conditions, those of a single
country. See "Risk Considerations-Foreign Investment."
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ("Mortgage Securities Income")
is a diversified investment company that seeks a high level of current income
to the extent consistent with prudent investment risk. The Fund invests
primarily in a diversified portfolio of mortgage-related securities, including
CMOs, and, as a matter of fundamental policy, maintains at least 65% of its
total assets in mortgage-related securities.
The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors,
the Fund will consider making investments in such new types of securities. The
Fund may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See "Risk Considerations-Securities Ratings" and "-Investment in
Lower-Rated Fixed-Income Securities." The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types
of securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For
additional information on the use, risk and costs of these practices, see
"Additional Investment Practices."
MULTI-MARKET FUNDS
The Multi-Market Funds are non-diversified investment companies that have been
designed to offer investors a higher yield than a money market fund and less
fluctuation in net asset value than a longer-term bond fund.
17
ALLIANCE WORLD INCOME TRUST
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance World Income Trust, Inc. ("World Income"), Alliance Short-Term
Multi-Market Trust, Inc. ("Short-Term Multi-Market") and Alliance Multi-Market
Strategy Trust, Inc. ("Multi-Market Strategy") each seek the highest level of
current income, consistent with what Alliance considers to be prudent
investment risk, that is available from a portfolio of high quality debt
securities having remaining maturities of not more than, with respect to WORLD
INCOME, one year, with respect to SHORT-TERM MULTI-MARKET, three years, and
with respect to MULTI-MARKET STRATEGY, five years. Each Fund seeks high current
yields by investing in a portfolio of debt securities denominated in the U.S.
Dollar and selected foreign currencies. The Multi-Market Funds seek investment
opportunities in foreign, as well as domestic, securities markets. WORLD
INCOME, which is not a money market fund, will maintain at least 35% of its net
assets in U.S. Dollar-denominated securities. SHORT-TERM MULTI-MARKET will
normally maintain a substantial portion of its assets in debt securities
denominated in foreign currencies, but will invest at least 25% of its net
assets in U.S. Dollar-denominated securities. MULTI-MARKET STRATEGY normally
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies.
In pursuing their investment objectives, the Multi-Market Funds seek to
minimize credit risk and fluctuations in net asset value by investing only in
short-term debt securities. Normally, a high proportion of these Funds'
portfolios consists of money market instruments. Alliance actively manages the
Multi-Market Funds' portfolios in accordance with a multi-market investment
strategy, allocating a Fund's investments among securities denominated in the
U.S. Dollar and the currencies of a number of foreign countries and, within
each such country, among different types of debt securities. Alliance adjusts
each Multi-Market Fund's exposure to each currency such that the percentage of
assets invested in securities of a particular country or denominated in a
particular currency varies in accordance with Alliance's assessment of the
relative yield and appreciation potential of such securities and the relative
strength of a country's currency. Fundamental economic strength, credit quality
and interest rate trends are the principal factors considered by Alliance in
determining whether to increase or decrease the emphasis placed upon a
particular type of security or industry sector within a Fund's investment
portfolio. None of the Multi-Market Funds invests more than 25% of its net
assets in debt securities denominated in a single currency other than the U.S.
Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
"cross-hedges" (see "Additional Investment Practices-Forward Foreign Currency
Exchange Contracts"), can help protect against declines in the U.S. Dollar
value of income available for distribution to shareholders and declines in the
net asset value of a Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a
forward exchange contract to sell a different foreign currency, where such
contract is available on terms more advantageous to a Fund than a contract to
sell the currency in which the position being hedged is denominated. It is
Alliance's belief that cross-hedges can therefore provide significant
protection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against
exchange rate risks perfectly, and if Alliance is incorrect in its judgment of
future exchange rate relationships, a Fund could be in a less advantageous
position than if such a hedge had not been established.
Each Multi-Market Fund invests in debt securities denominated in the currencies
of countries whose governments are considered stable by Alliance. In addition
to the U.S. Dollar, such currencies include, among others, the Australian
Dollar, Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish
Krone, Dutch Guilder, European Currency Unit ("ECU"), French Franc, Irish
Pound, Italian Lira, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian
Krone, Spanish Peseta, Swedish Krona, Swiss Franc and German Mark.
An issuer of debt securities purchased by a Multi-Market Fund may be domiciled
in a country other than the country in whose currency the instrument is
denominated. In addition, the Funds may purchase debt securities (sometimes
referred to as "linked" securities) that are denominated in one currency while
the principal amounts of, and value of interest payments on, such securities
are determined with reference to another currency. In this regard, as of the
date of this Prospectus each Fund has invested in U.S. Dollar denominated
securities issued by Mexican issuers and/or Peso-linked securities. The value
of these investments may fluctuate inversely in correlation with changes in the
Peso-U.S. Dollar exchange rate and with the general level of interest rates in
Mexico. For a general description of Mexico, see Appendix B and each
Multi-Market Fund's Statement of Additional Information.
Each Multi-Market Fund may invest in debt securities denominated in the ECU,
which is a "basket" consisting of specified amounts of the currencies of
certain of the member states of the European Union, a fifteen-nation
organization engaged in cooperative economic activities. The specific amounts
of currencies comprising the ECU may be adjusted by the Council of Ministers of
the European Union to reflect changes in relative values of the underlying
currencies.
Each Multi-Market Fund may invest in debt securities issued by supranational
organizations including the World Bank, which was chartered to finance
development projects in developing member countries; the European Union; the
European Coal and Steel Community, which is an economic union of various
European nations' steel and coal industries; and the Asian
18
Development Bank, which is an international development bank established to
lend funds, promote investment and provide technical assistance to member
nations in the Asian and Pacific regions.
Each Multi-Market Fund seeks to minimize investment risk by limiting its
portfolio investments to debt securities of high quality, and WORLD INCOME will
invest 65% (and normally substantially all) of its total assets in high quality
income-producing debt securities. Accordingly, the Multi-Market Funds'
portfolio securities will consist of (i) U.S. Government securities, (ii) high
quality foreign government securities, (iii) obligations issued by
supranational entities and corporate debt securities having a triple-A rating,
with respect to WORLD INCOME, or a high quality rating, with respect to
SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, (iv) certificates of deposit
and bankers' acceptances issued or guaranteed by, or time deposits maintained
at, banks (including foreign branches of foreign banks) having total assets of
more than $1 billion, with respect to WORLD INCOME, or $500 million, with
respect to SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, and determined by
Alliance to be of high quality, and (v) prime commercial paper or unrated
commercial paper determined by Alliance to be of equivalent quality and issued
by U.S. or foreign companies having outstanding: in the case of WORLD INCOME,
triple-A debt securities; in the case of MULTI-MARKET STRATEGY, high quality
debt securities; and in the case of SHORT-TERM MULTI-MARKET, high grade debt
securities.
As a matter of fundamental policy, each Multi-Market Fund concentrates at least
25% of its total assets in debt instruments issued by domestic and foreign
companies engaged in the banking industry, including bank holding companies.
Such investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks (as distinct from non-banks) in
accordance with the policies set forth with respect to the Funds in "Additional
Investment Practices-Repurchase Agreements." See "Risk
Considerations-Investment in the Banking Industry."
Each Multi-Market Fund may also (i) invest in indexed commercial paper, (ii)
enter into futures contracts and purchase and write options on futures
contracts, (iii) purchase and write put and call options on foreign currencies,
(iv) purchase or sell forward foreign currency exchange contracts, (v) with
respect to SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, enter into
interest rate swaps, caps and floors, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) make secured loans of its portfolio
securities, and (viii) enter into repurchase agreements. A Multi-Market Fund
will not invest in illiquid securities if, as a result, more than 10% of its
assets would be so invested. For additional information on the use, risks and
costs of these practices, see "Additional Investment Practices." MULTI-MARKET
STRATEGY maintains borrowings of approximately 25% of its total assets less
liabilities (other than the amount borrowed). See "Risk Considerations-Effects
of Borrowing."
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
Alliance North American Government Income Trust, Inc. ("North American
Government Income") seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ("Government securities"). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. In addition, the Fund may invest up to 25% of
its total assets in debt securities issued by governmental entities of
Argentina ("Argentine Government securities"). The Fund expects that it will
not retain a debt security which is down graded below BBB or Baa, or, if
unrated, determined by Alliance to have undergone similar credit quality
deterioration, subsequent to purchase by the Fund. There may be circumstances,
however, such as the downgrading to below investment grade of all of the
securities of a governmental issuer in one of the countries in which the Fund
has substantial investments, under which the Fund, after considering all the
circumstances, would conclude that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer. The average
weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between one year or less and 30 years.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations
and the growing coordination of their fiscal and monetary policies, will over
the long term benefit the economic performance of all three countries and
promote greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso. See, however, Appendix B and the Fund's Statement
of Additional Information with respect to the current state of the Mexican
economy.
Alliance will actively manage the Fund's assets in relation to market
conditions and general economic conditions and adjust the Fund's investments in
an effort to best enable the Fund to achieve its investment objective. Thus,
the percentage of the Fund's assets invested in a particular country or
denominated in a particular currency will vary in accordance with Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relationship of the country's currency to the U.S. Dollar. The Fund
invests at least, and normally substantially more than, 65% of its total assets
in Government securities. To the extent that its assets are not invested in
Government securities, however, the Fund may invest the
19
balance of its total assets in investment grade debt securities issued by the
governments of countries located in Central and South America or any of their
political subdivisions, agencies, instrumentalities or authorities, provided
that such securities are denominated in their local currencies. The Fund will
not invest more than 10% of its total assets in debt securities issued by the
governmental entities of any one such country, except that the Fund may invest
up to 25% of its total assets in Argentine Government securities. The Fund will
normally invest at least 65% of its total assets in income-producing
securities. For a general description of Canada, Mexico and Argentina, see
Appendix B and the Fund's Statement of Additional Information.
Canadian Government securities include the sovereign debt of Canada or any of
its provinces and Government of Canada bonds and Government of Canada Treasury
bills. Government of Canada Treasury bills are debt obligations with
maturities of less than one year. A new issue of Government of Canada bonds
frequently consists of several different bonds with maturities ranging from
one to 25 years.
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and Crown corporations raise funds through the
bond market in order to finance capital expenditures. Unlike U.S. municipal
securities, which have special tax status, Canadian municipal securities have
the same tax status as other Canadian Government securities and trade similarly
to such securities. The Canadian municipal market may be less liquid than the
provincial bond market.
Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that
of GNMA in the United States).
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bonds, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos,
which are adjustable-rate bonds with a minimum three-year term issued directly
by the Mexican Government with the face amount adjusted each quarter by the
quarterly inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bonos del Tesoro ("BOTE"), which are
obligations of the Argentine Treasury, and (ii) Bonos de Consolidacion
Economica ("BOCON"), which are economic consolidation bonds issued directly by
the Argentine Government with maturities of up to ten years. Although not all
Argentine Government securities are rated investment grade quality by S&P,
Moody's, Duff & Phelps or Fitch, Alliance believes that there are unrated
Argentine Government securities that are of investment grade quality.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale
of securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if, as a result, 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." The Fund also maintains borrowings of
approximately one-third of its total assets less liabilities (other
than the amount borrowed). See "Risk Considerations-Effects of Borrowing."
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund, Inc. ("Global Dollar Government") seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to
as "Brady Bonds" that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ("collateralized Brady Bonds"). See "Additional
Investment Practices-Brady Bonds" and "Risk Considerations-Sovereign Debt
Obligations." The Fund may also invest up to 35% of its total assets in U.S.
and non-U.S. corporate fixed-income securities. See "Risk Considerations-U.S.
Corporate Fixed-Income Securities." The Fund will limit its investments in
sovereign debt obligations and U.S. and non-U.S. corporate fixed-income
securities to U.S. Dollar-denominated securities. Alliance expects that, based
upon current market conditions, the Fund's portfolio of U.S. fixed-income
securities will have an average maturity range of approximately nine to 15
years and the Fund's portfolio of non-U.S. fixed-income securities will have an
average maturity range of approximately 15 to 25
20
years. Alliance anticipates that the Fund's portfolio of sovereign debt
obligations will have a longer average maturity.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by
S&P, Duff & Phelps and Fitch) and unrated securities of comparable investment
quality. These securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. For a description of bond ratings, see Appendix A. The
Fund may also invest in investment grade securities. Unrated securities will be
considered for investment by the Fund when Alliance believes that the financial
condition of the issuers of such obligations and the protection afforded by the
terms of the obligations themselves limit the risk to the Fund to a degree
comparable to that of rated securities which are consistent with the Fund's
investment objectives and policies. As of August 31, 1997, the percentages of
the Fund's assets invested in securities rated (or considered by Alliance to be
of equivalent quality to securities rated) in particular rating categories were
5% in A and above, 67% in Ba or BB, 9% in B, 2% in CCC and 5% in non-rated. See
"Risk Considerations-Securities Ratings," "-Investment in Fixed-Income
Securities Rated Baa and BBB," "-Investment in Lower-Rated Fixed-Income
Securities" and Appendix A.
With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's
investment focus is expected to be in securities or obligations of Argentina,
Brazil, Mexico, Morocco, the Philippines, Russia and Venezuela because these
countries are now, or are expected by Alliance at a future date to be, the
principal participants in debt restructuring programs (including, in the case
of Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. Alliance anticipates that
other countries that will provide investment opportunities for the Fund
include, among others, Bolivia, Costa Rica, the Dominican Republic, Ecuador,
Jordan, Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay. See
"Additional Investment Practices-Brady Bonds."
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines, Russia or Venezuela, each
of which is an emerging market country, and the Fund will limit investments in
the sovereign debt obligations of each such country (or of any other single
foreign country) to less than 25% of its total assets. The Fund expects that it
will not invest more than 10% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any other
single foreign country and is not required to invest any minimum amount of its
assets in the securities or obligations of issuers located in any particular
country.
A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ("Discount
Obligations") and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of "original issue discount"
previously accrued thereon, i.e., purchased at a "market discount."
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell
exchange-traded options on any securities index composed of the types of
securities in which it may invest, and (xiv) invest in variable, floating and
inverse floating rate instruments. The Fund may also at any time, with respect
to up to 35% of its total assets, temporarily invest funds awaiting
reinvestment or held for reserves for dividends and other distributions to
shareholders in U.S. Dollar-denominated money market instruments. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." While the Fund does not currently intend to
do so, it reserves the right to borrow an amount not to exceed one-third of the
Fund's assets less liabilities (other than the amount borrowed). See "Risk
Considerations-Effects of Borrowing."
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
Alliance Global Strategic Income Trust, Inc. ("Global Strategic Income") is a
non-diversified investment company that seeks primarily a high level of current
income and secondarily capital appreciation. The Fund pursues its investment
objectives by investing primarily in a portfolio of fixed-income securities of
U.S. and non-U.S. companies and U.S. Government and foreign government
securities and supranational entities, including lower-rated securities. The
Fund may also use derivative instruments to attempt to enhance income. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between five years and 30 years in accordance with Alliance's
changing perceptions of the relative attractiveness of various maturity ranges.
21
Under normal market conditions, at least 65% of the value of the Fund's total
assets will be invested in the fixed-income securities of issuers located in
three countries, one of which may be the United States. No more than 25% of the
value of its total assets, however, will be invested in the securities of any
one foreign government. U.S. Government securities in which the Fund may invest
include mortgage-related securities and zero coupon securities. Fixed-income
securities in which the Fund may invest include preferred stock,
mortgage-related and other asset-backed securities, and zero coupon securities.
The Fund may also invest in rights and warrants (for debt securities or for
equity securities that are acquired in connection with debt instruments), and
loan participations and assignments.
The Fund will maintain at least 65% of the value of its total assets in
investment grade securities and may maintain not more than 35% of the value of
its total assets in lower-rated securities. See "Risk Considerations-Securities
Ratings" and "-Investment in Lower-Rated Fixed-Income Securities." Unrated
securities will be considered for investment by the Fund when Alliance believes
that the financial condition of the issuers of such obligations and the
protection afforded by the terms of the obligations themselves limit the risk
to the Fund to a degree comparable to that of rated securities which are
consistent with the Fund's investment objectives and policies. Lower-rated
securities in which the Fund may invest include Brady Bonds and fixed-income
securities of issuers located in emerging markets. There is no minimum rating
requirement applicable to the Fund's investments in lower-rated fixed-income
securities.
The Fund may also: (i) invest in foreign currencies, (ii) purchase and write
put and call options on securities and foreign currencies, (iii) purchase or
sell forward foreign exchange contracts, (iv) invest in variable, floating and
inverse floating rate instruments, (v) invest in indexed commercial paper, (vi)
invest in structured securities, (vii) lend portfolio securities amounting to
not more than 25% of its total assets, (viii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (ix) use reverse
repurchase agreements and dollar rolls, (x) purchase and sell securities on a
forward commitment basis, (xi) enter into standby commitments, (xii) enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices,
including any index of U.S. Government securities, foreign government
securities or common stock, and purchase and write options on futures
contracts, (xiii) invest in Eurodollar instruments, (xiv) enter into interest
rate swaps, caps and floors, and (xv) make short sales of securities or
maintain a short position. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment Practices" and
"Risk Considerations." The Fund may borrow in order to purchase
securities or make other investments, although it currently intends to limit
its ability to borrow to an amount not to exceed 25% of its total assets. See
"Risk Considerations-Effects of Borrowing."
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
Corporate Bond Portfolio ("Corporate Bond") is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of
capital. The Fund follows a policy of maintaining at least 65% of its net
assets invested in debt securities. Such objectives and policies cannot be
changed without the approval of the shareholders. Although the Fund also
follows a policy of maintaining at least 65% of its total assets invested in
corporate bonds, it is permitted to invest in securities of non-corporate
issuers.
The Fund follows an investment strategy which in certain respects can be
regarded as more aggressive than the strategies of many other funds investing
primarily in corporate bonds. In this regard, the Fund's investment portfolio
normally tends to have a relatively long average maturity and duration, and to
place significant emphasis on both foreign corporate and sovereign debt
obligations and corporate bonds that are expected to benefit from improvement
in their issuers' credit fundamentals. Consequently, in recent years the Fund
frequently has experienced greater net asset value volatility than most other
corporate bond funds. Prospective investors in the Fund should therefore be
prepared to accept the degree of volatility associated with its investment
strategy. See "Risk Considerations."
There is no minimum rating requirement applicable to the Fund's investments in
fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and policies may best be
implemented by investing at least 65% of its total assets in fixed-income
securities considered investment grade or higher. The remainder of the Fund's
assets may be invested in lower-rated fixed-income securities. See "Risk
Considerations-Securities Ratings," "-Investment in Fixed-Income Securities
Rated Baa and BBB," "-Investment in Lower-Rated Fixed-Income Securities" and
Appendix A. During the fiscal year ended June 30, 1997, on a weighted average
basis, the percentages of the Fund's assets invested in securities rated (or
considered by Alliance to be of equivalent quality to securities rated) in
particular rating categories were 29% in A and above, 41% in Baa or BBB, 14% in
Ba or BB, and 12% in B. The Fund did not invest in securities rated below B by
each of Moody's, S&P, Duff & Phelps and Fitch or, if not rated, considered by
Alliance to be of equivalent quality to securities so rated.
The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate
22
fixed-income securities and sovereign debt obligations. Not more than 15% of
the Fund's total assets may be invested in sovereign debt obligations in the
form of foreign government loan participations and assignments, which may be
lower rated and considered to be predominantly speculative as regards the
issuer's capacity to pay interest and repay principal. All of the Fund's
investments, whether foreign or domestic, are U.S. Dollar-denominated.
Within the foregoing limitations, the Fund has complete flexibility as to the
types of securities in which it will invest and the relative proportions
thereof, and the Fund plans to vary the proportions of its holdings of long-
and short-term fixed-income securities and of equity securities in order to
reflect its assessment of prospective cyclical changes even if such action may
adversely affect current income. However, substantially all of the Fund's
investments will be income producing. The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between one
year or less and 30 years.
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these type of loans, (iii) for hedging
purposes, purchase put and call options written by others and write covered put
and call options on the types of securities in which the Fund may invest, (iv)
for hedging purposes, enter into various hedging transactions, such as interest
rate swaps, caps and floors, (v) invest in variable, floating and inverse
floating rate instruments, (vi) invest in zero coupon and pay-in-kind
securities, and (vii) invest in CMOs and multi-class pass-through
mortgage-related securities. As a matter of fundamental policy, the
Fund will not purchase illiquid securities. For additional information on
the use, risks and costs of these practices, see "Additional Investment
Practices."
ALLIANCE HIGH YIELD FUND
Alliance High Yield Fund, Inc. ("High Yield") is a diversified management
investment company that seeks primarily to achieve high total return by
maximizing current income and, to the extent consistent with that objective,
capital appreciation. The Fund pursues this objective by investing primarily in
a diversified mix of high yield, below investment grade fixed-income securities
involving greater volatility of price and risk of principal and income than
higher quality fixed-income securities. The below investment grade debt
securities in which the Fund invests are known as "junk bonds." The
Fund is managed to maximize current income by taking advantage of market
developments, yield disparities and variations in the creditworthiness of
issuers. The Fund uses various strategies in attempting to achieve
its objective.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in high yield fixed-income securities rated below investment grade by
two or more NRSROs (i.e., rated lower than Baa by Moody's or lower than
BBB by S&P) or unrated but deemed by Alliance to be equivalent to such
lower-rated securities. The Fund will not, however, invest more than 10% of
its total assets in (i) fixed-income securities which are rated lower than B3
or B- or their equivalents by two or more NRSROs or if unrated are of
equivalent quality as determined by Alliance, and (ii) money market
instruments of any entity which has an outstanding issue of unsecured debt
that is rated lower than B3 or B- or their equivalents by two or more NRSROs
or if unrated is of equivalent quality as determined by Alliance.
As of August 31, 1997, on a weighted average basis, the percentages of the
Fund's assets invested in securities rated (or considered by Alliance to be of
equivalent quality to securities rated) in particular rating categories were
12% in A and above, 3% in Ba or BB, 53% in B, 2% in CCC and 13% in unrated
securities. The Fund did not invest in securities rated below CCC by each of
Moody's, S&P, Duff & Phelps and Fitch or, if not rated, considered by Alliance
to be of equivalent quality to securities so rated.
Certain of the Fund's investments may be in fixed-income securities which
provide high current yields because of risks other than credit. For example,
the Fund may invest in securities which have prepayment risks, and non-U.S.
dollar denominated foreign securities, which have currency risks.
See Appendix A, "Bond Ratings," for a description of each rating category. In
the event that any securities held by the Fund fall below those ratings, the
Fund will not be obligated to dispose of such securities and may continue to
hold such securities if, in the opinion of Alliance, such investment is
considered appropriate under the circumstances.
A portion of the Fund's assets may be invested in foreign securities, and the
Fund may buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation of purchasing
foreign securities. See "Risk Considerations-Foreign Investment" and "-Currency
Considerations."
In addition, and although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed and
asset-backed securities, (ii) enter into repurchase agreements, (iii) invest in
loan participations and assignments of loans to corporate, governmental, or
other borrowers originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of securities and
purchase and sell securities on a when-issued or delayed delivery basis, (v)
write covered put and call options on fixed-income securities, securities
indices and foreign currencies and purchase put or call options on fixed-income
securities, securities indices and foreign curencies, (vi) purchase and sell
futures contracts and related options on debt securities and on indices of debt
securities, (vii) enter into contracts for the purchase or sale of a specific
currency for hedging purposes only, and (viii) lend portfolio securities. For
additional information on the uses, risks and costs of these practices, see
"Additional Investment Practices."
In addition to the foregoing, the Fund may from time to time make investments
in (i) U.S. Government securities, (ii)
23
certificates of deposit, bankers' acceptances, bank notes, time deposits and
interest bearing savings deposits issued or guaranteed by certain domestic and
foreign banks, (iii) commercial paper (rated at least A-1 by S&P or Prime-1 by
Moody's or, if not rated, issued by domestic or foreign companies having high
quality outstanding debt securities) and participation interests in loans
extended by banks to such companies, (iv) corporate debt obligations with
remaining maturities of less than one year rated at least high quality as well
as corporate debt obligations rated at least high grade provided the
corporation also has outstanding an issue of commercial paper rated at least
A-1 by S&P or Prime-1 Moody's, and (v) floating rate or master demand notes.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
DERIVATIVES. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds 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. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. A Fund may take a significant
position in those derivatives that are within its investment policies if, in
Alliance's judgement, this represents the most effective response to current or
anticipated market conditions. The MULTI-MARKET FUNDS, HIGH YIELD and GLOBAL
STRATEGIC INCOME, in particular, generally make extensive use of carefully
selected forwards and other derivatives to achieve the currency hedging that is
an integral part of their investment strategy. Alliance's use of derivatives is
subject to continuous risk assessment and control from the standpoint of each
Fund's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments-options, futures,
forwards and swaps-from which virtually any type of derivative transaction can
be created.
. OPTIONS-An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the exercise
price) during a period of time or on a specified date. A call option entitles
the holder to purchase, and a put option entitles the holder to sell, the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised the writer of the option
is obligated to sell (in the case of a call option) or to purchase (in the case
of a put option) the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index).
. FUTURES-A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
. FORWARDS-A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts are
customized, privately negotiated agreements designed to satisfy the objectives
of each party. A forward contract usually results in the delivery of the
underlying asset upon maturity of the contract in return for the agreed upon
payment.
. SWAPS-A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). The payment flows are netted against
each other, with the difference being paid by one party to the other. Except
for currency swaps, the notional principal
24
amount is used solely to calculate the payment streams but is not exchanged.
With respect to currency swaps, actual principal amounts of currencies may be
exchanged by the counterparties at the initiation, and again upon the
termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper"
and "Structured Securities" below. The term "derivative" is also sometimes used
to describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These
securities are described below under "Mortgage-Related Securities" and "Other
Asset-Backed Securities."
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 before investing in a Fund.
. 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 Fund'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 a Fund's 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 a Fund 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 clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e.,
margin requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider 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 a Fund.
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, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
DERIVATIVES USED BY THE FUNDS. Following is a description of specific
derivatives currently used by one or more of the Funds.
OPTIONS ON SECURITIES. In purchasing an option on securities, a Fund 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 Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund 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 a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Funds will write uncovered call or put options on securities. A call option
written by a Fund is "covered" if the Fund owns the underlying security, has an
absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or
25
holds a call option on the underlying security with an exercise price equal to
or less than that of the call option it has written. A put option written by a
Fund is covered if the Fund holds a put option on the underlying securities
with an exercise price equal to or greater than that of the put option it has
written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price
of the option, whereas the risk of loss from writing an uncovered call option
is potentially unlimited.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Fund would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved with other
hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE
BOND and HIGH YIELD generally purchase or write privately negotiated options on
securities. A Fund that does so will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance. Alliance has
adopted procedures for monitoring the creditworthiness of such counterparties.
Privately negotiated options purchased or written by a Fund may be illiquid,
and it may not be possible for the Fund to effect a closing transaction at an
advantageous time. See "Illiquid Securities" below. Neither MORTGAGE SECURITIES
INCOME nor CORPORATE BOND will purchase an option on a security if, immediately
thereafter, the aggregate cost of all outstanding options purchased by such
Fund would exceed 2% of the Fund's total assets. Nor will either such Fund
write an option if, immediately thereafter, the aggregate value of the Fund's
portfolio securities subject to outstanding options would exceed 15% of the
Fund's total assets.
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.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated securities held by a Fund and against increases in the
U.S. Dollar cost of securities to be acquired. The purchase of an option on a
foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, a Fund may forfeit the entire
amount of the premium plus related transaction costs.
RIGHTS AND WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in warrants, and
GLOBAL STRATEGIC INCOME may invest in rights and warrants, which are option
securities permitting their holders to subscribe for other securities. GLOBAL
DOLLAR GOVERNMENT may invest in warrants, and GLOBAL STRATEGIC INCOME may
invest in rights and warrants, for debt securities or for equity securities
that are acquired in connection with debt instruments. Rights are similar to
warrants except that they have a substantially shorter duration. Rights and
warrants do not carry with them dividend or voting rights with respect to the
underlying securities, or any rights in the assets of the issuer. As a result,
an investment in rights and warrants may be considered more speculative than
certain other types of investments. In addition, the value of a right or a
warrant does not necessarily change with the value of the underlying
securities, and a right or a warrant ceases to have value if it is not
exercised prior to its expiration date. GLOBAL STRATEGIC INCOME may invest up
to 20% of its total assets in rights and warrants.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Fund will be traded on U.S. or foreign exchanges and, except with respect to
SHORT-TERM U.S. GOVERNMENT and GLOBAL STRATEGIC INCOME, will be used only for
hedging purposes.
LIMITED MATURITY GOVERNMENT, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC
INCOME will not enter into a futures contract or write or purchase an option on
a futures contract if immediately thereafter the market values of the
outstanding futures contracts of the Fund and the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50%
of its total assets. MORTGAGE SECURITIES INCOME will not write or purchase
options on futures contracts. Nor will LIMITED MATURITY GOVERNMENT, MORTGAGE
SECURITIES INCOME, WORLD INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME or GLOBAL STRATEGIC INCOME enter
into a futures contract or, if
26
otherwise permitted, write or purchase an option on a futures contract, if
immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. In addition, MORTGAGE SECURITIES INCOME and GLOBAL
STRATEGIC INCOME will not enter into any futures contract (i) other than one on
fixed-income securities or based on interest rates, or (ii) if immediately
thereafter the sum of the then aggregate futures market prices of financial
instruments required to be delivered under open futures contract sales and the
aggregate futures market prices of instruments required to be delivered under
open futures contract purchases would exceed 30% of the value of the Fund's
total assets.
HIGH YIELD will not purchase or sell futures contracts or options on futures
contracts unless either (i) the futures contracts or options thereon are for
"bona fide hedging" purposes (as that term is defined under the Commodities
Futures Trading Commission regulations) or (ii) if for other purposes, the sum
of amounts of initial margin deposits and premiums required to establish
non-hedging positions would not exceed 5% of the Fund's liquidation value.
EURODOLLAR INSTRUMENTS. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to
LIBOR. Eurodollar futures contracts enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.
LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME intend to use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR (to which many short-term borrowings and floating rate securities in
which each Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund that purchases or sells
forward contracts on foreign currencies ("forward contracts") attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. A Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S. Dollar price
of the security (a "transaction hedge"). When a Fund believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign currency for a fixed
dollar amount (a "position hedge"). Instead of entering into a position hedge,
a Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. Dollar amount where the Fund
believes that the U.S. Dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. Dollar value
of the currency in which portfolio securities of the Fund are denominated (a
"cross-hedge").
FORWARD COMMITMENTS. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such
as approval and consummation of a merger, corporate reorganization or debt
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation, and no interest or dividends accrues to the purchaser
prior to the settlement date. At the time a Fund enters into a forward
commitment, it records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value. Any unrealized appreciation or depreciation reflected in
such valuation would be canceled if the required conditions did not occur and
the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
LIMITED MATURITY GOVERNMENT, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT or GLOBAL STRATEGIC INCOME if, as a result, the Fund's aggregate
forward commitments under such transactions would be more than 25% of the total
assets of GLOBAL STRATEGIC INCOME and 30% of the total assets of each of the
other Funds.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may realize a gain
or incur a loss.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes,
27
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 Fund anticipates purchasing at a later date. The Funds do not
intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund 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 Fund receiving or paying, as the case may be, only the net amount of the
two payments). Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor. A
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME and GLOBAL STRATEGIC INCOME may enter into interest rate swaps involving
payments in the same currency or in different currencies. SHORT-TERM U.S.
GOVERNMENT, LIMITED MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, GLOBAL
DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME and CORPORATE BOND will not enter
into an interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is then
rated in the highest rating category of at least one NRSRO. Each of SHORT-TERM
MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and
GLOBAL STRATEGIC INCOME will enter into interest rate swap, cap or floor
transactions with its respective custodian, and with other counterparties, but
only if: (i) for transactions with maturities under one year, such other
counterparty has outstanding prime commercial paper; or (ii) for transactions
with maturities greater than one year, the counterparty has high quality debt
securities outstanding.
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 a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. No Fund will enter into a standby
commitment with a remaining term in excess of 45 days. The Funds will limit
their investments in standby commitments so that the aggregate purchase price
of the securities subject to the commitments does not exceed 20% or 25% with
respect to GLOBAL STRATEGIC INCOME, of their respective assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. Each Fund that invests in such
commercial paper may do so without limitation. A Fund will receive interest and
principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of
investments denominated in foreign currencies while providing an attractive
money market rate of return. A Fund will purchase such commercial paper for
hedging purposes only, not for speculation.
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
28
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, such as securities issued by FNMA and FHLMC, and governmental
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
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see
"Mortgage-Related Securities" below.
U.S. Government securities also include zero coupon securities and
principal-only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are similar
to SMRS. Such securities include those that are issued with an IO class and a
PO class. See "Mortgage-Related Securities" and "Zero Coupon and Principal-Only
Securities" below. Although these stripped securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet developed and, accordingly, these
securities may be illiquid.
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 a Fund 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.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which a Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are backed by the full faith and
credit of the United States; those issued by FNMA and FHLMC are not so backed.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both
interest and principal, unlike more traditional debt securities, which normally
do not provide for periodic repayments of principal.
Securities representing interests in pools created by 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. A Fund may buy mortgage-related securities without
credit enhancement if the securities meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as
discussed below, frequently causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by
GNMA, are referred to as "modified pass-through" securities. The holders of
these securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
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. Collateralized
mortgage obligations (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
29
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. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. In a common
structure, payments of principal, including any principal prepayments, on the
underlying mortgages are applied to the classes of the series of a CMO in the
order of their respective stated maturities or final distribution dates, so
that no payment of principal will be made on any class of a CMO until all other
classes having an earlier stated maturity or final distribution date have been
paid in full. One or more tranches of a CMO may have coupon rates that reset
periodically, or "float," at a specified increment over an index such as LIBOR.
Floating-rate CMOs may be backed by fixed or adjustable rate mortgages. To
date, fixed-rate mortgages have been more commonly utilized for this purpose.
Floating-rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable-rate mortgages described
below, represent a ceiling beyond which the coupon rate on a floating-rate CMO
may not be increased regardless of increases in the interest rate index to
which the floating-rate CMO is tied. The collateral securing the CMOs may
consist of a pool of mortgages, but may also consist of mortgage-backed bonds
or pass-through securities. CMOs may be issued by a U.S. Government
instrumentality or agency or by a private issuer. 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.
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. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
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 (SMRS) are mortgage-related securities
that are usually structured with two classes of securities collateralized by a
pool of mortgages or a pool of mortgaged-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; while the other class of securities, principal-only
securities (POs), receives 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, while 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. 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. For this reason, none of the
Funds relies on IOs and POs as the principal means of furthering its investment
objective.
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, a Fund
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 occurrence of mortgage prepayments is affected by the level of
general interest rates, general economic conditions and other social and
demographic factors. 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, a Fund may not be able to
realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. 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 a Fund's ability to buy or sell those securities
at any particular time.
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
30
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. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting a Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rates of mortgage
prepayments and early payments of mortgage-related securities generally tend to
decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of
fixed-rate mortgage securities by rising interest rates, ARMS may still decline
in value as a result of rising interest rates. Although, as described above,
the yields on ARMS vary with changes in the applicable interest rate or index,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
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. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations 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.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal portions from the
coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). The staff of the Commission has indicated that, in its view,
these receipts or certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be included in a
Fund's categorization of U.S. Government securities. The Funds disagree with
the staff's position but will not treat such securities as U.S. Government
securities until final resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) 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. As a result, in order to make
the distributions necessary for a Fund not to be subject to federal income or
excise taxes, the Fund might 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 Fund
has actually received as interest during the year. Each Fund 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. For a discussion of the tax treatment of zero
coupon Treasury securities, see "Dividends, Distributions
31
and Taxes-Zero Coupon Treasury Securities" in the Statement of Additional
Information of each Fund that is permitted to invest in such securities.
GLOBAL STRATEGIC INCOME and CORPORATE BOND may also invest in "pay-in-kind"
debentures (i.e., debt obligations the interest on which may be paid in the
form of obligations of the same type rather than cash), which have
characteristics similar to zero coupon securities.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or "cap." The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value, such
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed rate securities.
STRUCTURED SECURITIES. Structured securities in which GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME and CORPORATE BOND may invest represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations, with respect to
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND. This type of restructuring involves
the deposit with or purchase by an entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or Brady Bonds) and the
issuance by that entity of one or more classes of structured securities backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued structured
securities to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured securities is dependent
on the extent of the cash flow on the underlying instruments. Because
structured securities typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments.
Structured securities of a given class may be either subordinated or
unsubordinated to the right of payment of another class. Subordinated
structured securities typically have higher yields and present greater risks
than unsubordinated structured securities. GLOBAL DOLLAR GOVERNMENT may invest
up to 25% of its total assets, and GLOBAL STRATEGIC INCOME and CORPORATE BOND
may invest without limit, in these types of structured securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will
acquire participations only if the lender interpositioned between the Fund and
the borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct rights against
the borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender.
The assignability of certain sovereign debt obligations, with respect to GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND and HIGH YIELD, is restricted by the
governing documentation as to the nature of the assignee such that the only way
in which the Fund may acquire an interest in a loan is through a participation
and not an assignment. A Fund may have difficulty disposing of assignments and
participations because to do so it will have to assign such securities to a
third party. Because there may not be a liquid market for such investments,
they can probably be sold only to a limited number of institutional investors.
The lack of a liquid secondary market may have an adverse effect on the value
of such investments and a Fund's ability to dispose of particular
participations and assignments when necessary to meet its liquidity needs in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
participations and assignments also may make it more difficult for the Fund to
assign a value to these investments for purposes of valuing the Fund's
portfolio and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may invest up to 25%, and
CORPORATE BOND may invest up to 15%, of their total assets, in loan
participations and assignments. The government that is the borrower on the loan
will be considered by a Fund to be the issuer of a loan participation or
assignment for purposes of its fundamental investment policy that it may not
invest 25% or more of its total assets in securities of issuers conducting
their principal business activities in the same industry (i.e., foreign
government).
32
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final maturity, (ii) collateralized
interest payments, (iii) uncollateralized interest payments, and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The price of a convertible security will
normally vary with changes in the price of the underlying stock, although the
higher yield tends to make the convertible security less volatile than the
underlying common stock. As with debt securities, the market value of
convertible securities tends to decrease as interest rates rise and increase as
interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings. For a description of these risks, see "Risk
Considerations-Investment in Lower-Rated Fixed-Income Securities."
SHORT SALES. A short sale is effected by selling a security that a Fund does
not own, or if the Fund owns the security, is not to be delivered upon
consummation of the sale. A short sale is "against the box" if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. SHORT-TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to GLOBAL DOLLAR GOVERNMENT,
and 10% of total assets, with respect to SHORT-TERM U.S. GOVERNMENT, would be
held as collateral for short sales.
GLOBAL STRATEGIC INCOME may make a short sale in anticipation that the market
price of that security will decline. When the Fund makes a short sale of a
security that it does not own, it must borrow from a broker-dealer the security
sold short and deliver the security to the broker-dealer upon conclusion of the
short sale. The Fund may be required to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such
borrowed securities. The Fund's obligation to replace the borrowed security
will be secured by collateral deposited with a broker-dealer qualified as a
custodian. Depending on the arrangements the Fund makes with the broker-dealer
from which it borrowed the security regarding remittance of any payments
received by the Fund on such security, the Fund may not receive any payments
(including interest) on its collateral deposited with the broker-dealer.
In order to defer realization of gain or loss for U.S. federal income tax
purposes, GLOBAL STRATEGIC INCOME may also make short sales "against the box."
The Fund may not make a short sale, if as a result, more than 25% of its total
assets would be held as collateral for short sales.
If the price of the security sold short increases between the time of the 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 short-term
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although a Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
REPURCHASE AGREEMENTS. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a
33
day or a few days later. The resale price is greater than the purchase price,
reflecting an agreed-upon interest rate for the period the buyer's money is
invested in the security. Such agreements permit a Fund to keep all of its
assets at work while retaining "overnight" flexibility in pursuit of
investments of a longer-term nature. A Fund requires continual maintenance of
collateral in an amount equal to, or in excess of, the resale price. If a
vendor defaults on its repurchase obligation, a Fund would suffer a loss to
the extent that the proceeds from the sale of the collateral were less than
the repurchase price. If a vendor goes bankrupt, a Fund might be delayed in,
or prevented from, selling the collateral for its benefit. There is no
percentage restriction on any Fund's ability to enter into repurchase
agreements, except that SHORT-TERM U.S. GOVERNMENT may enter into repurchase
agreements on not more than 25% of its total assets. The Funds may enter into
repurchase agreements with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of New York),
although LIMITED MATURITY GOVERNMENT, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT currently enter into repurchase agreements only with their
custodians and such primary dealers.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund 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 a Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During
the roll period, a Fund forgoes principal and interest paid on the securities.
A Fund 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 a Fund 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, a Fund'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 Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. SHORT-TERM U.S. GOVERNMENT may enter
into reverse repurchase agreements with commercial banks and registered
broker-dealers in order to increase income, in an amount up to 33-1/3% of its
total assets. Under normal circumstances, LIMITED MATURITY GOVERNMENT does not
expect to engage in reverse repurchase agreements and dollar rolls with respect
to greater than 50% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL DOLLAR GOVERNMENT will not
exceed 33% of its total assets less liabilities (other than amounts borrowed).
GLOBAL STRATEGIC INCOME may enter into reverse repurchase agreements with
commercial banks and registered broker-dealers in order to increase income, in
an amount up to 25% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL STRATEGIC INCOME will not
exceed 25% of its total assets. See "Risk Considerations-Effects of Borrowing."
LOANS OF PORTFOLIO SECURITIES. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained
by the borrower with the Fund. The risks in lending portfolio securities, as
with other secured extensions of credit, consist of possible loss of rights in
the collateral should the borrower fail financially. In determining whether to
lend securities to a particular borrower, Alliance will consider all relevant
facts and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed-upon amount of income
from a borrower who has delivered equivalent collateral. Each Fund 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. A Fund
may pay reasonable finders', administrative and custodial fees in connection
with a loan. A Fund will not lend portfolio securities in excess of 50%, with
respect to HIGH YIELD, 25%, with respect to SHORT-TERM U.S. GOVERNMENT and
GLOBAL STRATEGIC INCOME, and 20%, with respect to each of LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT, of its total assets, nor will a Fund lend portfolio securities to
any officer, director, employee or affiliate of the Fund or Alliance.
ILLIQUID SECURITIES. Subject to any more restrictive applicable investment
policies, none of the Funds will maintain more than 15% of its net assets in
illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in
34
the security is suspended or, in the case of unlisted securities, when market
makers do not exist or will not entertain bids or offers), including many
currency swaps and any assets used to cover currency swaps, (ii)
over-the-counter options and assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven days. Rule 144A
securities that have legal or contractual restrictions on resale but have a
readily available market are not deemed illiquid. Alliance will monitor the
liquidity of each Fund's Rule 144A portfolio securities under the supervision
of the Directors of that Fund. A Fund that invests in illiquid securities may
not be able to sell such securities and may not be able to realize their full
value upon sale.
INVESTMENT IN OTHER INVESTMENT COMPANIES. GLOBAL DOLLAR GOVERNMENT may invest
in other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest not
more than 10% of its total assets in securities of other investment companies.
In addition, under the 1940 Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquired shares in investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).
FUTURE DEVELOPMENTS. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently
contemplated for use by the Fund, or are not available but may yet be
developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that are different from
or exceed those involved in the practices described above.
DEFENSIVE POSITION. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities, including notes
and bonds. For Funds that may invest in foreign countries, such securities may
also include short-term, foreign-currency denominated securities of the type
mentioned above issued by foreign governmental entities, companies and
supranational organizations. For a complete description of the types of
securities in which a Fund may invest while in a temporary defensive position,
see the Fund's Statement of Additional Information.
PORTFOLIO TURNOVER. Portfolio turnover rates are set forth under "Financial
Highlights." These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
SHORT-TERM U.S. GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction, or (ii) invest 25%
or more of its total assets in the securities of any one industry.
U.S. GOVERNMENT may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value of
its total assets at the time the borrowing is made, (ii) make loans to other
persons, (iii) effect a short sale of any security, (iv) purchase securities on
margin, but it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities, or (v) write, purchase or sell
puts, calls or combinations thereof.
LIMITED MATURITY GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer or own more than 10% of the outstanding
voting securities of such issuer (other than U.S. Government securities),
except that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% and 10% limitations, (ii) invest 25% or more of its
total assets in securities of companies engaged principally in any one
industry, except that this restriction does not apply to investments in the
mortgage and mortgage-financed industry (in which more than 25% of the value of
the Fund's total assets will, except for temporary defensive positions, be
invested) or U.S. Government securities, (iii) borrow money except from banks
for emergency or temporary purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, except that the Fund may engage in reverse
repurchase agreements and dollar rolls in an amount up to 50% of the Fund's
total assets, and (iv) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
MORTGAGE SECURITIES INCOME may not (i) invest more than 5% of the value of its
total assets in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation, (ii) invest more than 25% of the
value of its total assets in the securities of issuers conducting their
principal business activities in a single industry, except that this limitation
shall not apply to investments in the mortgage and mortgage-financed industry
(in which more than 25% of the value of the Fund's total assets will, except
for temporary defensive positions, be invested) or
35
U.S. Government securities, (iii) borrow money except from banks for temporary
or emergency purposes, including the meeting of redemption requests which might
require the untimely disposition of securities, borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made, outstanding borrowings in excess of 5% of the value of the
Fund's total assets will be repaid before any subsequent investments are made,
(iv) pledge, hypothecate, mortgage or otherwise encumber its assets, except in
an amount of not more than 15% of the value of its total assets to secure
borrowings for temporary or emergency purposes and except as provided in (vi)
below, provided, however, that this limitation does not apply to deposits made
in connection with the entering into and holding of interest rate futures
contracts, (v) invest more than 10% of the value of its total assets in the
aggregate in illiquid securities or other illiquid investments and repurchase
agreements maturing in more than seven days, or (vi) lend its portfolio
securities if immediately after such a loan more than 20% of the value of the
Fund's total assets would be subject to such loans.
WORLD INCOME may not (i) invest 25% or more of its total assets in securities
of companies engaged principally in any one industry other than the banking
industry except that this restriction does not apply to U.S. Government
securities, (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5% of the value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; securities will not be purchased while borrowings in excess of 5% of the
value of the Fund's total assets are outstanding, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
SHORT-TERM MULTI-MARKET may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests which might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made; securities will not be purchased while borrowings in excess
of 5% of the value of the Fund's total assets are outstanding, or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
MULTI-MARKET STRATEGY may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after such
borrowing, there is asset coverage of at least 300% as defined in the 1940 Act,
and (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
NORTH AMERICAN GOVERNMENT INCOME may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government securities, (ii)
borrow money, except that the Fund may, in accordance with provisions of the
1940 Act, (a) borrow from a bank, if after such borrowing, there is asset
coverage of at least 300% as defined in the 1940 Act, and (b) borrow for
temporary or emergency purposes in an amount not exceeding 5% of the value of
the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.
GLOBAL DOLLAR GOVERNMENT may not (i) invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry, except that this restriction does not apply to U.S. Government
securities, (ii) purchase more than 10% of any class of the voting securities
of any one issuer, (iii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, (b) borrow
for temporary or emergency purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, and (c) enter into reverse repurchase
agreements and dollar rolls, (iv) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings, or (v) purchase a
security if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own more than 3% of the
total outstanding voting stock of any investment company or more than 5% of the
value of the Fund's net assets would be invested in securities of any one or
more investment companies.
GLOBAL STRATEGIC INCOME may not (i) borrow money, except the Fund may, in
accordance with provisions of the 1940 Act, (a) borrow from a bank, if after
such borrowing there is asset coverage of at least 300% as defined in the 1940
Act, (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, and (c) enter into reverse
repurchase agreements and dollar rolls, or (ii) pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings.
CORPORATE BOND may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S.
36
Government securities, or (ii) own more than 10% of the outstanding voting
securities of any issuer.
HIGH YIELD may not (i) invest in any one industry if that investment would make
the Fund's holding in that industry exceed 25% of the Fund's total assets and
(ii) will not make an investment unless, when considering all its other
investments, 75% of the value of its assets would consist of cash, cash items,
U.S. Government Securities, securities of other investment companies and other
securities.
RISK CONSIDERATIONS
FIXED-INCOME SECURITIES. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments will change
as the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities will generally rise, although
if falling interest rates are viewed as a precursor to a recession, the values
of a Fund's securities may fall along with interest rates. Conversely, during
periods of rising interest rates, the values of a Fund's securities will
generally decline. Changes in interest rates have a greater effect on
fixed-income securities with longer maturities and durations than those with
shorter maturities and durations.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization
of capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Fund.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate fixed-income
securities in which GLOBAL DOLLAR GOVERNMENT and HIGH YIELD invest may include
securities issued in connection with corporate restructurings such as takeovers
or leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Furthermore, the
market price of such securities may be more volatile to the extent that
expected benefits from the restructuring do not materialize. The Funds may also
invest in U.S. corporate fixed-income securities that are not current in the
payment of interest or principal or are in default, so long as Alliance
believes such investment is consistent with the Fund's investment objectives.
The Funds' rights with respect to defaults on such securities will be subject
to applicable U.S. bankruptcy, moratorium and other similar laws.
FOREIGN INVESTMENT. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. Securities registration,
custody and settlements may in some instances be subject to delays and legal
and administrative uncertainties. Furthermore, foreign investment in the
securities markets of certain foreign countries is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and expenses of a
Fund. In addition, the repatriation of investment income, capital or the
proceeds of sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain advance
government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. A Fund could also be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other restrictions on
investment. Investing in local markets may require a Fund to adopt special
procedures or seek local governmental approvals or other actions, any of which
may involve additional costs to a Fund. The liquidity of a Fund's investments
in any country in which any of these factors exists could be affected, and
Alliance will monitor the effect of any such factor or factors on a Fund's
investments. Furthermore, transaction costs including brokerage commissions for
transactions both on and off the securities exchanges in many foreign countries
are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in that country. In the event of nationalization,
expropriation or other confiscation, a Fund could lose its entire investment in
37
securities in the country involved. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may provide less
protection to security holders such as the Fund than that provided by U.S. laws.
WORLD INCOME may invest a portion of its net assets in securities denominated
in the ECU. There are risks associated with concentration of investments in a
particular region of the world such as Western Europe since the economies and
markets of the countries in the region tend to be interrelated and may be
adversely affected by political, economic and other events in a similar manner.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on NORTH AMERICAN GOVERNMENT INCOME'S
investments in the securities of Canadian issuers or investments denominated in
Canadian Dollars. The factors described above are more likely to have a
material adverse effect on the Fund's investments in the securities of Mexican
and other non-Canadian foreign issuers, including investments in securities
denominated in Mexican Pesos or other non-Canadian foreign currencies. If not
hedged, however, currency fluctuations could affect the unrealized appreciation
and depreciation of Canadian Government securities as expressed in U.S. Dollars.
CURRENCY CONSIDERATIONS. Those Funds that invest some portion of their assets
in securities denominated in, and receive revenues in, foreign currencies will
be adversely affected by reductions in the value of those currencies relative
to the U.S. Dollar. These changes will affect a Fund's net assets,
distributions and income. If the value of the foreign currencies in which a
Fund receives income falls relative to the U.S. Dollar between receipt of the
income and the making of Fund distributions, a Fund may be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. Dollars to meet the distribution requirements that
the Fund must satisfy to qualify as a regulated investment company for federal
income tax purposes. Similarly, if an exchange rate declines between the time a
Fund 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, a Fund may engage in certain currency hedging transactions, which
themselves involve certain special risks. See "Additional Investment Practices"
above.
SOVEREIGN DEBT OBLIGATIONS. No established secondary markets may exist for many
of the sovereign debt obligations in which GLOBAL DOLLAR GOVERNMENT and GLOBAL
STRATEGIC INCOME will invest. Reduced secondary market liquidity may have an
adverse effect on the market price and a Fund's ability to dispose of
particular instruments when necessary to meet its liquidity requirements or in
response to specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
sovereign debt obligations may also make it more difficult for a Fund to obtain
accurate market quotations for the purpose of valuing its portfolio. Market
quotations are generally available on many sovereign debt obligations only from
a limited number of dealers and may not necessarily represent firm bids of
those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Funds will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of a country to
these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.
The Funds are permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent
38
with the Funds' investment objectives. The Funds may have limited legal
recourse in the event of a default with respect to certain sovereign debt
obligations it holds. For example, remedies from defaults on certain sovereign
debt obligations, unlike those on private debt, must, in some cases, be pursued
in the courts of the defaulting party itself. Legal recourse therefore may be
significantly diminished. Bankruptcy, moratorium and other similar laws
applicable to issuers of sovereign debt obligations may be substantially
different from those applicable to issuers of private debt obligations. The
political context, expressed as the willingness of an issuer of sovereign debt
obligations to meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given that the
holders of commercial bank debt will not contest payments to the holders of
securities issued by foreign governments in the event of default under
commercial bank loan agreements.
EFFECTS OF BORROWING. A Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each Fund
that may borrow expects to effect borrowings and repayments at such times and
in such amounts as will maintain investment leverage in an amount approximately
equal to its borrowing target. The loan agreements provide for a selection of
interest rates that are based on the bank's short-term funding costs in the
U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a Fund's shareholders. These include a higher
volatility of the net asset value of a Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as a
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from
time to time as does their relationship to each other, depending upon such
factors as supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could cause the
relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency-denominated obligations in which the Fund may be invested. To
the extent that the interest expense on borrowings approaches the net return on
a Fund's investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced, and if the interest expense on borrowings were to
exceed the net return to shareholders, a Fund's use of leverage would result in
a lower rate of return than if a Fund were not leveraged. Similarly, the effect
of leverage in a declining market could be a greater decrease in net asset
value per share than if the Fund were not leveraged. In an extreme case if a
Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments, thereby reducing the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by MULTI-MARKET
STRATEGY, GLOBAL STRATEGIC INCOME or NORTH AMERICAN GOVERNMENT INCOME could
adversely affect the Funds' shareholders, as noted above, or in anticipation of
such changes, each Fund may increase the percentage of its investment portfolio
invested in U.S. Government securities, which would tend to offset the negative
impact of leverage on Fund shareholders. Each Fund may also reduce the degree
to which it is leveraged by repaying amounts borrowed.
Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is "asset coverage," as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25%
of the Fund's total assets less liabilities (other than such borrowings), the
asset coverage of the Fund's portfolio would be 400%. A Fund will maintain
asset coverage of outstanding borrowings of at least 300% and if necessary
will, to the extent possible, reduce the amounts borrowed by making repayments
from time to time in order to do so. Such repayments could require a Fund to
sell portfolio securities at times considered disadvantageous by Alliance and
such sales could cause the Fund to incur related transaction costs and to
realize gains on securities held for less than three months. Until the start of
a Fund's first tax year beginning after August 5, 1997, not more than 30% of a
Fund's gross income may be derived from the sale or disposition of stocks and
securities held for less than three months to maintain the Fund's tax status as
a regulated investment company. Such gains would limit the ability of a Fund to
sell other securities held for less than three months that a Fund might wish to
sell in the ordinary course of its portfolio management and thus might
adversely affect the Fund's yield. See "Dividends, Distributions and Taxes."
Each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
STRATEGIC INCOME and GLOBAL DOLLAR GOVERNMENT may borrow to repurchase its
shares or to meet redemption requests. In addition, each Fund may borrow for
temporary purposes (including the purposes mentioned in the preceding sentence)
in an amount not exceeding 5% of the value of the assets of the Fund.
Borrowings for temporary purposes are not subject to the 300% asset average
limit described above. See "Certain Fundamental Investment Policies."
SHORT-TERM U.S. GOVERNMENT, LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY,
NORTH AMERICAN
39
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may
also borrow through the use of reverse repurchase agreements, and GLOBAL DOLLAR
GOVERNMENT, LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME also
through the use of dollar rolls to the extent permitted by the 1940 Act. See
"Investment Objectives and Policies-Reverse Repurchase Agreements and Dollar
Rolls."
INVESTMENT IN THE BANKING INDUSTRY. Due to the investment policies of
MULTI-MARKET STRATEGY, WORLD INCOME and SHORT-TERM MULTI-MARKET with respect to
investments in the banking industry, those Funds will have greater exposure to
the risk factors which are characteristic of such investments. In particular,
the value of and investment return on each Fund's shares will be affected by
economic or regulatory developments in or related to the banking industry.
Sustained increases in interest rates can adversely affect the availability and
cost of funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. The banking
industry is also subject to the effects of the concentration of loan portfolios
in particular businesses such as real estate, energy, agriculture or high
technology-related companies; competition within those industries as well as
with other types of financial institutions; and national and local governmental
regulation. In addition, each Fund's investments in commercial banks located in
several foreign countries are subject to additional risks due to the
combination in such banks of commercial banking and diversified securities
activities. As discussed above, however, the Funds will seek to minimize their
exposure to such risks by investing only in debt securities which are
determined to be of high quality.
SECURITIES RATINGS. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps and Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of its
program for managing a Fund's securities than would be the case if a Fund did
not invest in lower-rated securities. In considering investments for the Fund,
Alliance will attempt to identify those high-yielding securities whose
financial condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the issuer.
NON-RATED SECURITIES. Non-rated securities will also be considered for
investment by NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH YIELD when Alliance believes
that the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves, limits the risk
to the Fund to a degree comparable to that of rated securities which are
consistent with the Fund's objective and policies.
NON-DIVERSIFIED STATUS. Each of WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT and GLOBAL STRATEGIC INCOME is a "non-diversified" investment
company, which means the Fund is not limited in the proportion of its assets
that may be invested in the securities of a single issuer. However, each Fund
intends to conduct its operations so as to qualify to be taxed as a "regulated
investment company" for purposes of the Code, which will relieve the Fund of
any liability for federal income tax to the extent its earnings are distributed
to shareholders. See "Dividends, Distributions and Taxes" in
40
each Fund's Statement of Additional Information. To so qualify, among other
requirements, each Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25% of the Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of its total assets, not more than 5% of its total assets will
be invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. A Fund's
investments in U.S. Government securities are not subject to these limitations.
Because each of WORLD INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC
INCOME is a non-diversified investment company, it may invest in a smaller
number of individual issuers than a diversified investment company, and an
investment in such Fund may, under certain circumstances, present greater risk
to an investor than an investment in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate
issuers for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, each of GLOBAL STRATEGIC INCOME and NORTH AMERICAN GOVERNMENT INCOME
will be required to diversify its portfolio of foreign government securities in
a manner which would not be necessary if the Fund had made similar investments
in U.S. Government securities.
YEAR 2000. Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Funds' major service providers fail to process
this type of information properly, that could have a negative impact on the
Funds' operations and the services that are provided to the Funds'
shareholders. Alliance, as well as AFD and AFS (both defined below), have
advised the Funds that they are reviewing all of their computer systems with
the goal of modifying or replacing such systems prior to January 1, 2000, to
the extent necessary to foreclose any such negative impact. In addition,
Alliance has been advised by each Fund's custodian that it is also in the
process of reviewing its systems with the same goal. As of the date of this
prospectus, the Funds and Alliance have no reason to believe that these goals
will not be achieved. Similarly, the values of certain of the portfolio
securities held by the Funds may be adversely affected by the inability of the
securities' issuers or of third parties to process this type of information
properly.
PURCHASE AND SALE OF SHARES
_______________________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of any of the Funds at a price based on the next
calculated net asset value after receipt of a proper purchase order either
through broker-dealers, banks or other financial intermediaries, or directly
through Alliance Fund Distributors, Inc. ("AFD"), each Fund's principal
underwriter. The minimum initial investment in each Fund (except WORLD INCOME)
is $250. The minimum for subsequent investments in each Fund is $50.
Investments of $25 or more are allowed under the automatic investment program
of each Fund. Share certificates are issued only upon request. See the
Subscription Application and Statements of Additional Information for more
information.
Existing shareholders may make subsequent purchases by electronic funds
transfer if they have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by calling 800-221-5672
and may not exceed $500,000.
Each Fund (except WORLD INCOME) offers three classes of shares through this
Prospectus, Class A, Class B and Class C. WORLD INCOME offers only one class of
shares, which may be purchased without any initial sales charge or contingent
deferred sales charge ("CDSC"). The Funds may refuse any order to purchase
shares. In this regard, the Funds reserve the right to restrict purchases of
Fund shares (including through exchanges) when they appear to evidence a
pattern of frequent purchases and sales made in response to short-term
considerations.
CLASS A SHARES-INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at net asset value plus an initial sales
charge, as follows:
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- -------------------------------------------------------------------------------
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to less
than $250,000 3.36 3.25 3.00
$250,000 to less
than $500,000 2.30 2.25 2.00
$500,000 to less
than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a CDSC equal to 1% of the lesser of net asset value at the time of redemption
or original cost if you redeem within one year; Alliance may pay the dealer or
agent a fee of up to 1% of the dollar amount purchased. Certain purchases of
Class A shares may qualify for reduced or eliminated sales charges in
accordance with a Fund's
41
Combined Purchase Privilege, Cumulative Quantity Discount, Statement of
Intention, Privilege for Certain Retirement Plans, Reinstatement Privilege and
Sales at Net Asset Value programs. Consult the Subscription Application and
Statements of Additional Information.
CLASS B SHARES-DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at net asset value without an initial sales
charge. A Fund will thus receive the full amount of your purchase. However,
you may pay a CDSC if you redeem shares within three years (four years in the
case of GLOBAL STRATEGIC INCOME and HIGH YIELD) after purchase. The amount of
the CDSC (expressed as a percentage of the lesser of the current net asset
value or original cost) will vary according to the number of years from the
purchase of Class B shares until the redemption of those shares.
The amount of the CDSC for Class B shares for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's
current Statement of Additional Information.
GLOBAL STRATEGIC INCOME and HIGH YIELD:
Year Since Purchase CDSC
--------------------------------
First 4.00%
Second 3.00%
Third 2.00%
Fourth 1.00%
Fifth and thereafter None
ALL OTHER FUNDS:
Year Since Purchase CDSC
--------------------------------
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
Class B shares are subject to higher distribution fees than Class A shares for
a period of six years, eight years in the case of GLOBAL STRATEGIC INCOME and
HIGH YIELD (after which they convert to Class A shares). The higher fees mean a
higher expense ratio, so Class B shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares.
CLASS C SHARES-ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares at net asset value without any initial sales
charge. A Fund will thus receive the full amount of your purchase, and, if you
hold your shares for one year or more, you will receive the entire net asset
value of your shares upon redemption. Class C shares incur higher distribution
fees than Class A shares and do not convert to any other class of shares of
the Fund. The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than
Class A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of their original cost or net asset value at the time
of redemption.
APPLICATION OF THE CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC. The CDSC is deducted from the amount of the redemption and is paid to
AFD. The CDSC will be waived on redemptions of shares following the death or
disability of a shareholder, to meet the requirements of certain qualified
retirement plans or pursuant to a monthly, bimonthly or quarterly systematic
withdrawal plan. See the Statements of Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the Exchange is open as of the
close of regular trading (currently 4:00 p.m. Eastern time). The securities in
a Fund are valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily available, such other
methods as the Fund's Directors or Trustees believe accurately reflect fair
market value.
EMPLOYEE BENEFIT PLANS
Certain employee benefit plans, including employer-sponsored tax-qualified
401(k) plans and other defined contribution retirement plans ("Employee Benefit
Plans"), may establish requirements as to the purchase, sale or exchange of
shares of the Funds, including maximum and minimum initial investment
requirements, that are different from those described in this Prospectus.
Employee Benefit Plans may also not offer all classes of shares of the Funds.
In order to enable participants investing through Employee Benefit Plans to
purchase shares of the Funds, the maximum and minimum investment amounts may be
different for shares purchased through Employee Benefit Plans from those
described in this Prospectus. In addition, the Class A, Class B and Class C
CDSC may be waived for investments made through Employee Benefit Plans.
GENERAL
The decision as to which class of shares is most beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider
Class A shares. If you are making a smaller investment, you might consider
Class B shares because 100% of your purchase is invested immediately. If you
are unsure of the length of your investment, you might consider Class C shares
because there is no initial sales charge and, as long as the shares are held
for one year or more, no CDSC. Consult your financial agent. Dealers and agents
may receive differing compensation for selling Class A, Class B or Class C
shares. There is no size limit on purchases of Class A shares. The maximum
purchase of Class B shares is $250,000. The maximum purchase of Class C shares
is $1,000,000.
GLOBAL STRATEGIC INCOME and HIGH YIELD FUND offer a fourth class of shares,
Advisor Class shares, by means of separate prospectuses. Advisor Class shares
may be purchased and
42
held solely by (i) accounts established under a fee-based program sponsored
and maintained by a registered broker-dealer or other financial intermediary
and approved by AFD, (ii) a self-directed defined contribution employee
benefit plan (e.g., a 401(k) plan) that has at least 1,000 participants or
$25 million in assets and (iii) certain other categories of investors
described in the prospectuses for the Advisor Class, including investment
advisory clients of, and certain other persons associated with, Alliance and
its affiliates or the Funds. Advisor Class shares are offered without any
initial sales charge or CDSC and without an ongoing distribution fee and are
expected, therefore, to have different performance than Class A, Class B or
Class C shares. You may obtain more information about Advisor Class shares by
contacting AFS at 800-221-5672 or by contacting your financial representative.
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary or other financial
representative with respect to the purchase, sale or exchange of Class A, Class
B or Class C shares made through such financial representative. Such financial
intermediaries may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by a Fund, including requirements as to the minimum initial and subsequent
investment amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants Inc., an affiliate of AFD, in connection
with the sale of shares of the Funds. Such additional amounts may be utilized,
in whole or in part, in some cases together with other revenues of such dealers
or agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares in a Fund to the Fund) on
any day the Exchange is open, either directly or through your financial
intermediary. The price you will receive is the net asset value (less any
applicable CDSC) next calculated after the Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer, a Fund will
not send proceeds until it is reasonably satisfied that the check or electronic
funds transfer has been collected (which may take up to 15 days).
SELLING SHARES THROUGH YOUR BROKER
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for
you to receive that day's net asset value (less any applicable CDSC). Your
broker is responsible for furnishing all necessary documentation to a Fund and
may charge you for this service.
SELLING SHARES DIRECTLY TO A FUND
Send a signed letter of instruction or stock power form to AFS, along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a
national stock exchange or other eligible guarantor institution. Stock power
forms are available from your financial intermediary, AFS and many commercial
banks. Additional documentation is required for the sale of shares by
corporations, intermediaries, fiduciaries and surviving joint owners. For
details contact:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and, except for
certain omnibus accounts, may be made only once per day. A shareholder who has
completed the appropriate section of the Subscription Application, or the
Shareholder Options form obtained from AFS, can elect to have the proceeds of
his or her redemption sent to his or her bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a shareholder's
address of record. Redemption requests by electronic funds transfer may not
exceed $100,000 and redemption requests by check may not exceed $50,000.
Telephone redemption is not available for shares held in nominees or "street
name" accounts or retirement plan accounts or shares held by a shareholder who
has changed his or her address of record within the previous 30 calendar days.
GENERAL
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to
43
do so. Dealers and agents may charge a commission for handling telephonic
requests. The telephone service may be suspended or terminated at any time
without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of WORLD INCOME for Class A shares of other
Alliance Mutual Funds and shares of most Alliance money market funds. You may
exchange your shares of any other Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund business day in order to receive that
day's net asset value.
Shares will continue to age without regard to exchanges for the purpose of
determining the CDSC, if any, upon redemption and, in the case of Class B
shares, for the purpose of conversion to Class A shares. After an exchange,
your Class B shares will automatically convert to Class A shares in accordance
with the conversion schedule applicable to the Class B shares of the Alliance
Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
MANAGEMENT OF THE FUNDS
_______________________________________________________________________________
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained under
an advisory agreement (the "Advisory Agreement") to provide investment advice
and, in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors or Trustees of
the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of December 31, 1997 totaling more than $218 billion
(of which approximately $85 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 58 registered investment companies managed by Alliance
comprising 122 separate investment portfolios currently have over three million
shareholder accounts. As of December 31, 1997, Alliance was retained as an
investment manager for employee benefit plan assets of 31 of the Fortune 100
companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable by AXA-UAP is set forth in each Fund's Statement of Additional
Information under "Management of the Fund."
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Short-Term U.S. Patricia J. Young since 1995 Associated with
Government -Senior Vice President Alliance.
Jeffrey S. Phlegar since 1997 Associated with
-Senior Vice President Alliance.
U.S. Government Wayne D. Lyski since 1983 Associated with
-Executive Vice President Alliance.
Patricia J. Young since 1997 (see above)
-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Limited Maturity Patricia J. Young (see above)
Government since inception-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Mortgage Securities Patricia J. Young since (see above)
Income 1992-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
World Income Douglas J. Peebles Associated with
since inception Alliance.
-Senior Vice President
Short-Term Douglas J. Peebles since (see above)
Multi-Market 1995-(see above)
Multi-Market Strategy Douglas J. Peebles since (see above)
inception-(see above)
North American Wayne D. Lyski since inception (see above)
Government Income -(see above)
Global Dollar Wayne D. Lyski since inception (see above)
Government -(see above)
44
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Global Strategic Wayne D. Lyski since inception (see above)
Income -(see above)
Douglas J. Peebles since (see above)
inception-(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987-(see above)
Paul J. DeNoon since Associated with
January 1992-Vice President Alliance.
High Yield Wayne C. Tappe Associated with
since 1991-Senior Alliance.*
Vice President
Nelson Jantzen Associated with
since 1991-Senior Alliance.*
Vice President
* ASSOCIATED WITH EQUITABLE CAPITAL MANAGEMENT CORPORATION ("EQUITABLE
CAPITAL") PRIOR TO JULY 22, 1993. ON THAT DATE ALLIANCE ACQUIRED THE BUSINESS
AND SUBSTANTIALLY ALL THE ASSETS OF EQUITABLE CAPITAL.
PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of HIGH
YIELD. See "Description of the Funds." Alliance since July 22, 1993, and prior
thereto, Equitable Capital, whose advisory business Alliance acquired on that
date, have served as investment adviser to the Historical Portfolio since its
inception in 1987. Wayne C. Tappe, who together with Nelson Jantzen is
primarily responsible for the day-to-day management of HIGH YIELD, has been the
person principally responsible for the day-to-day management of the Historical
Portfolio since 1995.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of HIGH YIELD and
the Lipper High Current Yield Mutual Funds Average as a comparative benchmark.
As of December 31, 1997, the assets in the Historical Portfolio totalled
approximately $421.8 million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if
reflected, would lower the performance of the Historical Portfolio. In
addition, the performance data do not reflect the Fund's higher expenses,
which, if reflected, would lower the performance of the Historical Portfolio.
The performance data have not been adjusted for corporate or individual taxes,
if any, payable with respect to the Historical Portfolio. The rates of return
shown for the Historical Portfolio are not an estimate or guarantee of future
investment performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of the
performance of a large number of mutual funds the investment objective of each
of which is similar to that of the Fund. Nonetheless, the investment policies
pursued by Funds in the survey may differ from those of HIGH YIELD and the
Historical Portfolio. This survey is published by Lipper Analytical
Services, Inc. ("Lipper"), a firm recognized for its reporting of performance
of actively managed funds. According to Lipper, performance data are presented
net of investment management fees, operating expenses and, for funds with
Rule 12b-1 plans, asset-based sales charges.
The performance results presented below are based on percent changes in net
asset values of the Historical Portfolio with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would
have produced the corresponding cumulative return had performance been constant
over the entire period.
ANNUALIZED RATES OF RETURN
PERIODS ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -----------------------------------------------------------------------------
Historical Portfolio 18.48% 20.42% 15.89% 12.80% 12.04%
Lipper High Current Yield
Mutual Funds Average 12.96 14.17 11.36 10.66 9.78
High Yield 24.23%**
CUMULATIVE RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1997
- -----------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -----------------------------------------------------------------------------
Historical Portfolio 18.48% 74.60% 109.05% 233.48% 249.07%
Lipper High Current Yield
Mutual Funds Average 12.96 48.92 71.52 177.35 181.23
* JANUARY 2, 1987
** RATE OF RETURN IS UNANNUALIZED, FOR CLASS A SHARES, ASSUMING THE
IMPOSITION OF THE MAXIMUM 4.25% SALES CHARGE. THE FUND COMMENCED OPERATIONS
ON APRIL 22, 1997.
EXPENSES OF HIGH YIELD
In addition to the payments to Alliance under its Advisory Agreement, HIGH
YIELD pays certain other costs, including (i) custody, transfer and dividend
disbursing expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses, (iv) clerical, accounting and
other office costs, (v) costs of printing the Fund's prospectuses and
shareholder reports, (vi) costs of maintaining the Fund's existence, (vii)
interest charges, taxes, brokerage fees and commissions, (viii) costs of
stationary and supplies, (ix) expenses and fees related to registration and
filing with the Commission and with state regulatory authorities, and (x) upon
the approval of the Board of Directors, costs of personnel of Alliance or its
affiliates rendering clerical, accounting and other office services and (xi)
such promotional, shareholder servicing and other expenses as may be
contemplated by the Distribution Services Agreement, described below.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a
45
Distribution Services Agreement (the "Agreement") with AFD. Pursuant to its
Plan, a Fund pays to AFD a Rule 12b-1 distribution services fee, which may not
exceed for each Fund other than WORLD INCOME an annual rate of .30% (.50% with
respect to SHORT-TERM U.S. GOVERNMENT) of the Fund's aggregate average daily
net assets attributable to the Class A shares, 1.00% of the Fund's aggregate
average daily net assets attributable to the Class B shares and 1.00% of the
Fund's aggregate average daily net assets attributable to the Class C shares,
and for WORLD INCOME may not exceed an annual rate of .90% of the Fund's
aggregate average daily net assets, for distribution expenses. The Trustees of
SHORT-TERM U.S. GOVERNMENT currently limit payments with respect to Class A
shares under the Plan to .30% of the Fund's aggregate average daily net assets
attributable to Class A shares. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Fund attributable to each class of shares
constitutes a service fee used for personal service and/or the maintenance of
shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to,
with respect to each Fund other than WORLD INCOME, .25%, annualized, with
respect to Class A shares and Class B shares, and 1.00%, annualized, with
respect to Class C shares, and, with respect to WORLD INCOME, .90%, annualized,
of the assets maintained in a Fund by their customers. Distribution services
fees received from the Funds, except SHORT-TERM U.S. GOVERNMENT, with respect
to Class A shares will not be used to pay any interest expenses, carrying
charges or other financing costs or allocation of overhead of AFD. Distribution
services fees received from the Funds, with respect to Class B and Class C
shares, may be used for these purposes. The Plans also provide that Alliance
may use its own resources to finance the distribution of each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services
fee in excess of the amounts set forth above. Except as noted below for
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
AFD's compensation with respect to Class B and Class C shares under the Plans
of the other Funds is directly tied to the expenses incurred by AFD. Actual
distribution expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fees payable under the
applicable Plan with respect to the class involved and, in the case of Class B
and Class C shares, payments received from CDSCs. The excess will be carried
forward by AFD and reimbursed from distribution services fees payable under the
Plan with respect to the class involved and, in the case of Class B and Class C
shares, payments subsequently received through CDSCs, so long as the Plan is in
effect. Since AFD's compensation under the Plan of SHORT-TERM U.S. GOVERNMENT
is not directly tied to its expenses incurred, the amount of compensation
received by it during any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds (except
SHORT-TERM U.S. GOVERNMENT), were, as of that time, as follows:
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
--------------------------------------------
Class B Class C
- -------------------------------------------------------------------------------
U.S. Government $ 8,593,091 (1.56%) $3,589,130 (2.63%)
Limited Maturity Government $ 356,382 (.86%) $2,860,904 (8.09%)
Mortgage Securities Income $10,423,667 (2.67%) $2,946,979 (9.52%)
Short-Term Multi-Market $25,420,759 (1.87%) $1,475,235 (18.72%)
Multi-Market Strategy $ 9,474,320 (4.13%) $ 553,610 (43.71%)
North American Government Income $36,319,865 (2.67%) $4,072,381 (1.53%)
Global Dollar Government $ 2,214,590 (2.54%) $ 460,747 (2.29%)
Corporate Bond $ 9,163,392 (2.23%) $2,093,526 (1.77%)
Global Strategic Income $ 994,542 (9.91%) $ 188,869 (7.41%)
High Yield* $ 1,679,237 (8.5%) $ 79,092 (2.36%)
* FOR THE FISCAL PERIOD APRIL 22, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH
AUGUST 31, 1997.
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end, deferred and
asset-based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a
bank or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that
a change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
46
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays
and holidays will be declared on the previous business day. Each Fund pays
dividends on its shares after the close of business on the twentieth day of
each month or, if such day is not a business day, the first business day
thereafter. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as of the payment
date of the dividend or distribution equal to the cash amount thereof.
If you receive an income dividend or capital gains distribution in cash you
may, within 120 days following the date of its payment, reinvest the dividend
or distribution in additional shares of that Fund without charge by returning
to Alliance, with appropriate instructions, the check representing such
dividend or distribution. Thereafter, unless you otherwise specify, you will be
deemed to have elected to reinvest all subsequent dividends and distributions
in shares of that Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.
Dividends paid by a Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher distribution services
fees applicable to Class B and Class C shares, and any incremental transfer
agency costs relating to Class B shares, will be borne exclusively by the class
to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and timing of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits or deductions for foreign
income taxes paid, but there can be no assurance that any Fund will be able to
do so. Furthermore, a shareholder's ability to claim a foreign tax credit or
deduction in respect of foreign taxes paid by a Fund may be subject to certain
limitations imposed by the Code (including a holding-period requirement applied
at both the Fund and shareholder levels imposed by the Taxpayer Relief Act of
1997), as a result of which a shareholder may not be permitted to claim a full
credit or deduction for the amount of such taxes.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. So long as a Fund distributes at least 90% of its income,
qualification as a regulated investment company relieves that Fund of Federal
income taxes on that part of its taxable income, including net capital gains,
which it pays out to its shareholders. Dividends out of net ordinary income and
distributions of net short-term capital gains are taxable to the recipient
shareholders as ordinary income. The investment objectives of the Funds are
such that only a small portion, if any, of a Fund's distributions is expected
to qualify for the dividends-received deduction for corporate shareholders. In
addition, corporate shareholders who receive qualifying distributions must meet
the holding-period requirements in the Code in order to take the dividends-
received deduction.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains-that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on capital assets held
for more than one year but not more than 18 months ("mid-term gains") and a
second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Distributions of mid-term gains and adjusted
net capital gains will be taxable to shareholders as such, regardless of how
long a shareholder has held shares in the Fund.
Under current federal tax law, the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect
a return of capital to that particular shareholder, would be taxable to him or
her as described above. Any loss realized on the sale of shares held six months
47
or less will be a long-term capital loss to the extent of any distributions of
net capital gains received by the shareholder with respect to such shares.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan,
generally will not be taxable to the plan. Distributions from such plans will
be taxable to individual participants under applicable tax rules without regard
to the character of the income earned by the qualified plan.
A Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies a Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's federal income tax return.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant) any further returns of capital will be taxable as capital gain.
See "Dividends, Distributions and Taxes" in the Statements of Additional
Information. Shareholders will be advised annually as to the federal tax status
of dividends and capital gains distributions made by a Fund for the preceding
year. Shareholders are urged to consult their tax advisers regarding their own
tax situation. Distributions by a Fund may be subject to state and local taxes.
GENERAL INFORMATION
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. GOVERNMENT PORTFOLIO and CORPORATE BOND PORTFOLIO (each a
series of Alliance Bond Fund, Inc.) (1973), ALLIANCE LIMITED MATURITY
GOVERNMENT FUND, INC. (1992), ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
(1983), ALLIANCE WORLD INCOME TRUST, INC. (1990), ALLIANCE SHORT-TERM
MULTI-MARKET TRUST, INC. (1989), ALLIANCE MULTI-MARKET STRATEGY TRUST, INC.
(1991), ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST, INC. (1992), ALLIANCE
GLOBAL DOLLAR GOVERNMENT FUND, INC. (1993), ALLIANCE GLOBAL STRATEGIC INCOME
TRUST, INC. (1995) and ALLIANCE HIGH YIELD FUND, INC. (1996). Prior to March 1,
1996, ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC. was known as Alliance
Mortgage Strategy Trust, Inc. Prior to January 4, 1993, CORPORATE BOND
PORTFOLIO was known as Monthly Income Portfolio. ALLIANCE SHORT-TERM U.S.
GOVERNMENT FUND is a series of The Alliance Portfolios, a Massachusetts
business trust that was organized in 1987. Prior to August 2, 1993, The
Alliance Portfolios was known as The Equitable Funds and SHORT-TERM U.S.
GOVERNMENT was known as The Equitable Short-Term U.S. Government Fund.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of Directors or
Trustees.
A shareholder in a Fund will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions arising from the
Fund's assets and, upon redeeming shares, will receive the then current net
asset value of the Fund represented by the redeemed shares less any applicable
CDSC. The Funds are empowered to establish, without shareholder approval,
additional portfolios, which may have different investment objectives, and
additional classes of shares. If an additional portfolio or class were
established in a Fund, each share of the portfolio or class would normally be
entitled to one vote for all purposes. Generally, shares of each portfolio and
class would vote together as a single class on matters, such as the election of
Directors or Trustees, that affect each portfolio and class in substantially
the same manner. Class A, Class B and Class C shares have identical voting,
dividend, liquidation and other rights, except that each class bears its own
distribution and transfer agency expenses. Each class of shares votes
separately with respect to a Fund's Rule 12b-1 distribution plan and other
matters for which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends as determined by the
Directors and Trustees and, in liquidation of a Fund, are entitled to receive
the net assets of the Fund. Since this Prospectus sets forth information about
all the Funds, it is theoretically possible that a Fund might be liable for any
materially inaccurate or incomplete disclosure in this Prospectus concerning
another Fund. Based on the advice of counsel, however, the Funds believe that
the potential liability of each Fund with respect to the disclosure in this
Prospectus extends only to the disclosure relating to that Fund. Certain
additional matters relating to a Fund's organization are discussed in its
Statement of Additional Information.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") styled In re ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the U.S. District Court for the
Southern District of New York ("District Court") against the Fund, Alliance,
ACMC, AFD, The Equitable Companies Incorporated ("ECI"), a parent of the
Adviser, and certain current and former officers and directors of the Fund
and ACMC, alleging violations of the federal
48
securities laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. The Complaint sought
certification of a plaintiff class of all persons who purchased or owned Class
A, B or C shares of the Fund from March 27, 1992 through December 23, 1994.
Plaintiffs alleged that during 1995 the Fund's losses exceeded $750,000,000 and
sought as relief unspecified damages, costs and attorney's fees.
On September 26, 1996, the District Court granted defendants' motion to dismiss
all counts of the Complaint ("First Decision"). On October 11, 1996, plaintiffs
filed a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the
Second Circuit ("Court of Appeals") issued an order granting defendants' motion
to strike and dismissing plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint ("Amended Complaint"). In the Amended Complaint, plaintiffs asserted
claims against the Fund, Alliance, ACMC, AFD, ECI, and certain current and
former officers of the Fund and ACMC alleging violations of the federal
securities laws, fraud and breach of fiduciary duty. The principal allegations
of the Amended Complaint are that (i) the Fund misrepresented its ability to
hedge against the risks of investing in foreign securities, (ii) the Fund did
not properly disclose that it planned to invest in mortgage-backed derivative
securities, and (iii) two advertisements used by the Fund misrepresented the
risks of investing in the Fund. The Amended Complaint made similar request for
class certification and damages as the Complaint. On July 15, 1997, the
District Court denied plaintiffs' motion to file the Amended Complaint and
dismissed the case ("Second Decision"). On October 29, 1997, the Court of
Appeals dismissed plaintiffs' appeal of the Second Decision as premature on
the grounds that the District Court had not entered a judgment with respect to
the Second Decision. On November 10, 1997, the District Court entered a
judgment with respect to the Second Decision, and on November 17, 1997,
plaintiffs filed a notice of appeal from that judgment.
The Fund and Alliance believe that the allegations in the Complaint and the
Amended Complaint are without merit and intend to defend vigorously against
those claims.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer
agent and dividend-disbursing agent for a fee based upon the number of
shareholder accounts maintained for the Fund. The transfer agency fee with
respect to Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "yield" and "total return," which
are computed separately for Class A, Class B and Class C shares. A Fund's yield
for any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission
which provides for compounding on a semi-annual basis. A Fund may also state in
sales literature an "actual distribution rate" for each class which is computed
in the same manner as yield except that actual income dividends declared per
share during the period in question are substituted for net investment income
per share. The actual distribution rate is computed separately for Class A,
Class B and Class C shares. Advertisements of a Fund's total return disclose
its average annual compounded total return for the periods prescribed by the
Commission. A Fund's total return for each such period is computed by finding,
through the use of a formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested when
paid and the maximum sales charges applicable to purchases and redemptions of a
Fund's shares are assumed to have been paid. A Fund's advertisements may quote
performance rankings or ratings of a Fund by financial publications or
independent organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc. or compare a Fund's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at
the offices of the Commission in Washington, D.C.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS IS INTENDED TO CONSTITUTE AN OFFER BY EACH FUND ONLY OF THE
SECURITIES OF WHICH IT IS THE ISSUER AND IS NOT INTENDED TO CONSTITUTE AN OFFER
BY ANY FUND OF THE SECURITIES OF ANY OTHER FUND WHOSE SECURITIES ARE ALSO
OFFERED BY THIS PROSPECTUS. NO FUND INTENDS TO MAKE ANY REPRESENTATION AS TO
THE ACCURACY OR COMPLETENESS OF THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
ANY OTHER FUND. SEE "GENERAL INFORMATION-ORGANIZATION."
49
APPENDIX A: BOND RATINGS
_______________________________________________________________________________
MOODY'S INVESTORS SERVICE, INC.
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating-When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note-Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C-Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some
quality and
A-1
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB-Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B-Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial
or economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC-Debt rated CCC is currently vulnerable to nonpayment and is dependent upon
favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial, or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC-Debt rated CC is currently highly vulnerable to nonpayment.
C-The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D-The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR-Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- -High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A, A- -Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B- -Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctutate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade.
CCC-Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest, or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic/
industry conditions, and/or with unfavorable company developments.
DD-Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP-Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD, D-Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)-Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR-Indicates that Fitch does not rate the specific issue.
A-2
APPENDIX B: GENERAL INFORMATION ABOUT CANADA, MEXICO AND ARGENTINA
_______________________________________________________________________________
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial governments. The Parliament of
Canada has jurisdiction over all areas not assigned exclusively to the
Provincial legislatures, and has jurisdiction over such matters as the federal
public debt and property, the regulation of trade and commerce, currency and
coinage, banks and banking, national defense, the postal services, navigation
and shipping and unemployment insurance.
The Canadian economy is based on the free enterprise system, with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed-country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Between 1991 and 1995, Canada experienced a weakening of its
currency. In January 1995, the Canadian Dollar fell to a nine-year low against
the U.S. Dollar, decreasing in value compared to the U.S. Dollar by
approximately 20% from October 1991. Between January 1996 and October 1997, the
Canadian Dollar remained steady in value against the U.S. Dollar at a level
approximately 3% to 4% above that low. Beginning in October 1997, however, the
Canadian Dollar decreased in value against the U.S. Dollar by approximately 6%,
reaching an all-time low of 1.4649 Canadian Dollars per U.S. Dollar on January
29, 1998. On February 20, 1998, the Canadian Dollar-U.S. Dollar exchange rate
was 1.4206:1. The range of fluctuation that has occurred in the past is not
necessarily indicative of the range of fluctuation that will occur in the
future. Future rates of exchange cannot be accurately predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including eight consecutive years (1987-1994)
of growth in gross domestic product and a substantial reduction in the rate of
inflation and in public sector financial deficit. Much of the past improvement
in the Mexican economy has been attributable to a series of economic policy
initiatives intended to modernize and reform the Mexican economy, control
inflation, reduce the financial deficit, increase public revenues through the
reform of the tax system, establish a competitive and stable currency exchange
rate, liberalize trade restrictions and increase investment and productivity,
while reducing the government's role in the economy. In this regard, the
Mexican government has been proceeding with a program for privatizing certain
state owned enterprises, developing and modernizing the securities markets,
increasing investment in the private sector and permitting increased levels of
foreign investment.
In 1994 Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by
inflows of foreign capital, were factors contributing to the crisis. A
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a large
decline in foreign reserves followed by a sharp and rapid devaluation of the
Mexican Peso. The ensuing economic and financial crisis resulted in higher
inflation and domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and a new
accord among the government and the business and labor sectors of the economy
was entered into in an effort to stabilize the economy and the financial
markets. To help relieve Mexico's liquidity crisis and restore financial
stability to Mexico's economy, the Mexican government also obtained financial
assistance from the United States, other countries and certain international
agencies conditioned upon the implementation and continuation of the economic
reform program.
In October 1995, and again in October 1996, the Mexican government announced
new accords designed to encourage economic growth and reduce inflation. While
it cannot be accurately predicted whether these accords will continue to
achieve their objectives, the Mexican economy has stabilized
B-1
since the economic crisis of 1994, and the high inflation and high interest
rates that continued to be a factor after 1994 have subsided as well. After
declining for five consecutive quarters beginning with the first quarter of
1995, Mexico's gross domestic product began to grow in the second quarter of
1996. That growth was sustained in 1996, resulting in a 5.1% increase from
1995, and, according to preliminary estimates, continued through 1997,
resulting in a 7.3% increase from 1996. In addition, inflation dropped from a
52% annual rate in 1995 to a 27.7% annual rate in 1996 and a 15.7% annual rate
in 1997. Mexico's economy is influenced by international economic conditions,
particularly those in the United States, and by world prices for oil and other
commodities. The recovery of the economy will require continued economic and
fiscal discipline as well as stable political and social conditions. In
addition, there is no assurance that Mexico's economic policy initiatives will
be successful or that succeeding administrations will continue these
initiatives.
In August 1976, the Mexican government established a policy of allowing the
Mexican Peso to float against the U.S. Dollar and other currencies. Under this
policy, the value of the Mexican Peso consistently declined against the U.S.
Dollar. Under economic policy initiatives implemented since December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float against other
currencies, resulting in a precipitous decline against the U.S. Dollar. By
December 31, 1996, the Peso-Dollar exchange rate had decreased approximately
40% from that on December 22, 1994. After dropping approximately 55% from 1994
through 1996, in 1997, the average annual Peso-Dollar exchange rate decreased
approximately 4% from that in 1996.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
1930 and has ruled the country for 22 of the past 68 years. The most recent
military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including a large privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the announcement of a new economic plan in March 1991,
the Argentine economy was characterized by low and erratic growth, declining
investment rates and rapidly worsening inflation. Despite its strengths, which
include a well-balanced natural resource base and a high literacy rate, the
Argentine economy failed to respond to a series of economic plans in the
1980's. The 1991 economic plan represented a pronounced departure from its
predecessors in calling for raising revenues, cutting expenditures and reducing
the public deficit. The extensive privatization program commenced in 1989 was
accelerated, the domestic economy deregulated and opened up to foreign trade
and the frame-work for foreign investment reformed. As a result of the economic
stabilization reforms, gross domestic product increased for four consecutive
years before declining in 1995. During 1996, however, gross domestic product
increased 4.3% from 1995. Preliminary data for 1997 indicate that gross
domestic product increased by more than 8.0% from 1996. The rate of inflation
is generally viewed to be under control.
Significant progress was also made between 1991 and 1994 in rescheduling
Argentina's debt with both external and domestic creditors, which improved
fiscal cash flows in the medium term and allowed a return to voluntary credit
markets. Further reforms are currently being implemented in order to sustain
and continue the progress to date. There is no assurance that Argentina's
economic policy initiatives will be successful or that succeeding
administrations will continue these initiatives.
In 1995 economic policy was directed toward the effects of the Mexican currency
crisis. The Mexican currency crisis led to a run on bank deposits, which was
brought under control by a series of measures designed to strengthen the
financial system. The measures included the "dollarization" of banking
reserves, the establishment of two trust funds and strengthening bank reserve
requirements.
In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by international reserves, in an effort to
make the Argentine Peso fully convertible into the U.S. Dollar at a rate of one
to one.
The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been
instrumental in stabilizing the economy, but has not reduced pressures from
high rates of unemployment. It is not clear that the government will be able to
resist pressure to devalue the currency. However, the historic range is not
necessarily indicative of fluctuations that may occur in the exchange rate over
time and future rates of exchange cannot be accurately predicted. The Argentine
foreign exchange market was highly controlled until December 1989, when a free
exchange rate was established for all foreign currency transactions. Argentina
has eliminated restrictions on foreign direct investment and capital
repatriation. In 1993, legislation was adopted
B-2
abolishing previous requirements of a three-year waiting period for capital
repatriation. Under the legislation, foreign investors are permitted to remit
profits at any time.
B-3
ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
SHORT-TERM U.S. GOVERNMENT FUND
U.S. GOVERNMENT PORTFOLIO
LIMITED MATURITY GOVERNMENT FUND
MORTGAGE SECURITIES INCOME FUND
WORLD INCOME TRUST
SHORT-TERM MULTI-MARKET TRUST
MULTI-MARKET STRATEGY TRUST
NORTH AMERICAN GOVERNMENT INCOME TRUST
GLOBAL DOLLAR GOVERNMENT FUND
GLOBAL STRATEGIC INCOME TRUST
CORPORATE BOND PORTFOLIO
HIGH YIELD FUND
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and mail it to:
ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
SECAUCUS, NEW JERSEY 07096-1520
For certified or overnight deliveries, send to:
ALLIANCE FUND SERVICES, INC.
500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07094
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
* Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social security
card.
* Transfer on Death:
. Ensure that your state participates
* Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
SECTION 2 YOUR ADDRESS (REQUIRED) Complete in full.
* Non-Resident Alien:
. Indicate your permanent country of residence.
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
For each Fund in which you are investing: 1 Write the three digit Fund number
in the column titled 'INDICATE THREE DIGIT FUND NUMBER LOCATED BELOW'.
2 Write the dollar amount of your initial purchase in the column titled
'INDICATE DOLLAR AMOUNT'.
(If you are eligible for a reduced sales charge, you must also complete Section
4F). 3 Check off a distribution option for your dividends. 4 Check off a
distribution option for your capital gains. All distributions (dividends
and capital gains) will be reinvested into your fund account unless you direct
otherwise. If you want distributions sent directly to your bank account, then
you must complete Section 4D and attach a preprinted, voided check for that
account. If you want your distributions sent to a third party you must
complete Section 4E.
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A & 4D.
If more than one dividend direction or monthly exchange is desired, please call
our Literature Center to obtain a Shareholder Account Services Options Form for
completion.
B. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
C. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have elected
cash distribution options and would like the payments sent to your bank
account, please tape a preprinted, voided check of the account you wish to use
to this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option. Medallion Signature Guarantee is required if your account is not
maintained by a broker dealer.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED) All owners must sign. If it
is a custodial, corporate, or trust account, the custodian, an authorized
officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT: (800)
221-5672.
FOR LITERATURE CALL: (800) 227-4618
THE ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
__ Individual Account { __ Male __ Female } - or - __ Joint Account - or -
__ Transfer On Death { __ Male __ Female } - or - __ Gift/Transfer to a Minor
___________________________________________ ____ ____________________________
Owner or Custodian (First Name) (MI) (Last Name)
________________________________________________________________________
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor's Name
____ ______________________________
(MI) (Last Name)
______________-____-_________________
Social Security Number of Owner or Minor (required to open account)
If Uniform Gift/Transfer to Minor Account: ________ Minor's State of Residence
If Joint Tenants Account: * The Account will be registered "Joint Tenants with
right of Survivorship" unless you indicate otherwise below:
__ In Common __ By Entirety __ Community Property
__ Trust - or - __ Corporation - or - Other________________________________
___________________________________________ ____ ____________________________
Name of Trustee if applicable (First Name) (MI) (Last Name)
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity continued
_________________________
Trust Dated (MM,DD,YYYY)
________________________________________
Tax ID Number (required to open account)
__ Employer ID Number - OR - __ Social Security Number
2. YOUR ADDRESS
__________________________ ___________________________________________________
Street Number Street Name
_______________________________________________ ______ ______________________
City State Zip code
____________________________ ________-________-____________
If Non-U.S., Specify Country Daytime Phone Number
__ U.S. Citizen __ Resident Alien __ Non-Resident Alien
70846GEN-TABFApp
1
3. YOUR INITIAL INVESTMENT
The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
I hereby subscribe for shares of the following Alliance Bond Fund(s) and elect
distribution options as indicated.
BROKER/DEALER USE ONLY: WIRE CONFIRM # _________________________
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS:
R REINVEST DISTRIBUTIONS into my fund account.
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in Section 2.
(Complete Section 4D for direct deposit to your bank account. Complete Section
4E for payment to a third party)
D DIRECT MY DISTRIBUTIONS TO ANOTHER ALLIANCE FUND. Complete the appropriate
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund (the $250 minimum investment requirement
applies to Funds into which distributions are directed).
Indicate three digit Fund Indicate Dollar Distributions Options *Check One*
number located below Amount Dividends Capital Gains
- ------------------------- --------------- ---------------- ---------------
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
TOTAL INVESTMENT $______________
MAKE ALL CHECKS PAYABLE TO: ALLIANCE FUNDS
ALLIANCE BOND FUND NAMES AND NUMBERS
_______________________________________________________________________________
For checkwriting privileges, please send the enclosed signature card with
your application. Checkwriting is offered on Class A and Class C shares
only, and is not offered on Corporate Bond Portfolio, High Yield Fund and
World Income Trust.
A Medallion Signature Guarantee is required if your account is not maintained
by a broker/dealer. For Class C shares, checkwriting may result in the
imposition of a contingent deferred sales charge against your account. The
minimum amount for checkwriting is $500.
<TABLE>
<CAPTION>
Initial Sales Contingent Deferred Asset-Based
Charge Sales Charge Sales Charge
A B C
------------- ------------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND 37 51 337
U.S. GOVERNMENT PORTFOLIO 46 76 346
LIMITED MATURITY GOVERNMENT FUND 88 89 388
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND 52 63 352
MULTI-MARKET FUNDS
WORLD INCOME TRUST 54 not offered not offered
SHORT-TERM MULTI-MARKET TRUST 70 68 370
MULTI-MARKET STRATEGY TRUST 22 23 322
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST 55 56 355
GLOBAL DOLLAR GOVERNMENT FUND 166 266 366
GLOBAL STRATEGIC INCOME TRUST 124 224 324
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO 95 295 395
HIGH YIELD FUND 103 203 303
</TABLE>
2
4. YOUR SHAREHOLDER OPTIONS
A. AUTOMATIC INVESTMENT PLANS (AIP)
__ WITHDRAW FROM MY BANK ACCOUNT VIA EFT*
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account
you wish to use).
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
* ELECTRONIC FUNDS TRANSFER. YOUR BANK MUST BE A MEMBER OF THE NATIONAL
AUTOMATED CLEARING HOUSE ASSOCIATION (NACHA)
__ DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
__ EXCHANGE MY SHARES MONTHLY
I authorize Alliance to transact monthly exchanges, within the same class of
shares, between my fund accounts as listed below.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
______ ,___________.00 ________
Amount ($25 minimum) Day of Exchange**
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
** SHARES EXCHANGED WILL BE REDEEMED AT THE NET ASSET VALUE ON THE "DAY OF
EXCHANGE" (IF THE "DAY OF EXCHANGE" IS NOT A FUND BUSINESS DAY, THE EXCHANGE
TRANSACTION WILL BE PROCESSED ON THE NEXT FUND BUSINESS DAY). THE EXCHANGE
PRIVILEGE IS NOT AVAILABLE IF SHOCK CERTIFICATES HAVE BEEN ISSUED.
B. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
INSTRUCTIONS:
* Review the information in the Prospectus about telephone transaction
services.
* If you select the telephone purchase or redemption privilege, you must write
"VOID" across the face of a check from the bank account you wish to use and
attach it to Section 4D of this application.
__ PURCHASES AND REDEMPTIONS VIA EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase and/or
redemption of Fund shares for my account according to my telephone instructions
or telephone instructions from my Broker/Agent, and to withdraw money or credit
money for such shares via EFT from the bank account I have selected. The
maximum redemption amount is $100,000 per day.
For shares recently purchased by check or electronic funds transfer,
redemption proceeds will not be made available until the Fund is reasonably
assured the check or electronic funds transfer has been collected, normally
for 15 calendar days after the purchase date.
3
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
C. SYSTEMATIC WITHDRAWAL PLANS (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
__ I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
PLEASE SEND MY SWP PROCEEDS TO:
__ My Address of Record (via check)
__ My checking account-via EFT (complete section 4D)
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
__ The Payee and address specified in section 4E (via check)
(Medallion Signature Guarantee required)
D. BANK INFORMATION This bank account information will be used for:
__ Distributions (Section 3)
__ Telephone Transactions (Section 4B)
__ Automatic Investments (Section 4A)
__ Withdrawals (Section 4C)
PLEASE TAPE A PRE-PRINTED VOIDED CHECK HERE*
* THE ABOVE SERVICES CANNOT BE ESTABLISHED WITHOUT A PRE-PRINTED VOIDED CHECK.
FOR EFT TRANSACTIONS, THE FUND REQUIRES SIGNATURES OF BANK ACCOUNT OWNERS
EXACTLY AS THEY APPEAR ON BANK RECORDS. IF THE REGISTRATION AT THE BANK
DIFFERS FROM THAT ON THE ALLIANCE MUTUAL FUND, ALL PARTIES MUST SIGN IN SECTION
5.
VOID
ABA Routing Number
Check Number
Bank Account Number
______________________________
Your Bank's ABA Routing Number
______________________________________________
Your Bank Account Number
__ Checking Account __ Savings Account
4
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
E. THIRD PARTY PAYMENT DETAILS Your signature(s) in Section 5 must be
Medallion Signature Guaranteed if your account is not maintained by a
broker/dealer. This third party payee information will be used for:
__ Distributions (section 3) __ Systematic Withdrawals (section 4C)
_________________________________ _____ _____________________________________
Name (First Name) (MI) (Last Name)
___________________________ __________________________________________________
Street Number Street Name
______________________________________________ _____ ________________________
City State Zip code
F. REDUCED CHARGES (CLASS A ONLY) If you, your spouse or minor children
own shares in other Alliance Funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
__ A. RIGHT OF ACCUMULATION
Please link the tax identification numbers or account numbers listed below for
Right of Accumulation privileges, so that this and future purchases will
receive any discount for which they are eligible.
_________________________ _________________________ _________________________
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
__ B. STATEMENT OF INTENT
I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
__ $100,000 __ $250,000 __ $500,000 __ $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
that an additional sales charge must be paid from my account.
DEALER/AGENT AUTHORIZATION - FOR SELECTED DEALERS OR AGENTS ONLY.
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_________________________________________ ____________________________________
Dealer/Agent Firm Authorized Signature
____________________________________ ____ ___________________________________
Representative First Name MI Last Name
_________________________________________ ____________________________________
Dealer/Agent Firm Number Representative Number
_________________________________________ ____________________________________
Branch Number Branch Telephone Number
_______________________________________________________________________________
Branch Office Address
_______________________________________________ _____ _______________________
City State Zip Code
5
5. SHAREHOLDER AUTHORIZATION -- THIS SECTION MUST BE COMPLETED
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between
accounts that have identical registrations.) Telephone redemption checks will
only be mailed to the name and address of record; and the address must not have
changed within the last 30 days. The maximum telephone redemption amount is
$50,000. This service can be enacted once every 30 days.
__ I do not elect the telephone exchange service
__ I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my
behalf, that the Fund reasonably believes to be genuine, and that neither the
Fund nor any such party will be responsible for the authenticity of such
telephone instructions. I understand that any or all of these privileges may
be discontinued by me or the Fund at any time. I understand and agree that the
Fund reserves the right to refuse any telephone instructions and that my
investment dealer or agent reserves the right to refuse to issue any telephone
instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF THIS
FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A NUMBER TO BE
ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS ACCOUNT IS SUBJECT TO
BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP
WITHHOLDING.
______________________________________________________ _______________________
Signature Date
______________________________________________________ _______________________
Signature Date
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
6
SIGNATURE CARD
Dealer/Bank Name: _______________________________________
FUND ACCT. NO.:* ________________________________________
FUND NAME:* _____________________________________________
*Information Necessary to Complete Request
ACCOUNT NAME(S) AS REGISTERED:
_________________________________________________________
_________________________________________________________
SHAREHOLDER ADDRESS:
_________________________________________________________
_________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:*
_________________________________________________________
AUTHORIZED SIGNATURES:
1. _________________________________________________________
2. _________________________________________________________
3. _________________________________________________________
Joint Accounts check one:
__ Either owner is authorized to sign Redemption Checks
__ All owners are required to sign Redemption Checks
(If no box is checked, only one signature will be required.)
Checkbooks are not transferable to other accounts. If you change account
numbers, change funds or change of ownership you must reapply for check-writing.
STATE STREET BANK AND TRUST COMPANY Subject to conditions on reverse side.
SIGNATURE CARD
The payment of funds is authorized by the signature(s) appearing on the reverse
side. Each signatory guarantees the genuineness of the other signatures.
State Street Bank and Trust Company (the "Bank") is hereby appointed agent by
the person(s) signing this card (the "Depositor(s)") and, as agent, is
authorized and directed, upon presentment of checks to the Bank.
(1) IF PERTAINING TO AN ALLIANCE DEPOSIT ACCOUNT (THE "ACCOUNT") - to direct
Alliance, which as the Depositor's agent and nominee maintains such Account on
the Depositors behalf at one or more depository institutions, to withdraw funds
from the Account in the amounts of such checks for deposit in this checking
account. Alliance hereby appointed the Depositor's agent and, where
appropriate, messenger for the purpose of effecting such withdrawals.
(2) IF PERTAINING TO AN ALLIANCE MUTUAL FUND (THE "FUND") - to transmit such
checks to the Fund or its transfer agent as requests to redeem shares
registered in the name of the Depositor(s) in the amounts of such checks for
deposit in this checking account.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current Prospectus or Statement of
Additional Information for each Alliance mutual fund or deposit account as to
which the Depositor has arranged to redeem shares or withdraw funds by
check-writing. The Bank is further authorized to effect withdrawals or
redemptions to defray the Bank's charges relating to this checking arrangement.
The Depositor(s) agrees that he shall be subject to the rules and regulations
of the Bank pertaining to this checking arrangement as amended from time to
time, that the Bank has the right not to honor checks which do not meet the
Banks normal standards for checks presented to it, that the Bank and Alliance
have the right to change, modify or terminate this check-writing service at
any time; and that the Bank shall be liable only for its own negligence.
MEDALLION SIGNATURE GUARANTEE - Signatures must be guaranteed by an institution
that is an "eligible guarantor" as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934. This would include such institutions such as banks and
brokerage firms.
Send this card with any necessary authorizing documentation to:
ALLIANCE FUND SERVICES
ATTN: CHECKWRITING DEPARTMENT
P.O. BOX 1520
SECAUCUS, NJ 07096-1520
MEDALLION SIGNATURE GUARANTEE (see reverse)
<PAGE>
<PAGE>
ALLIANCE
- --------------------------------------------------------------------------------
GLOBAL STRATEGIC
- --------------------------------------------------------------------------------
INCOME TRUST
- --------------------------------------------------------------------------------
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
Advisor Class
March 2, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
The Fund at a Glance .................................................... 2
Expense Information ..................................................... 3
Glossary ................................................................ 3
Description of the Fund ................................................. 5
Investment Objectives ............................................... 5
Investment Policies ................................................. 5
Additional Investment Practices ..................................... 5
Certain Fundamental Investment Policies ............................. 15
Certain Risk Considerations ......................................... 16
Purchase and Sale of Shares ............................................. 19
Management of the Fund ................................................. 21
Dividends, Distributions and Taxes ..................................... 22
Conversion Feature ..................................................... 23
General Information .................................................... 24
Appendix A: Bond Ratings ............................................... A-1
</TABLE>
- --------------------------------------------------------------------------------
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
Alliance Global Strategic Income Trust, Inc. (the "Fund") seeks primarily a high
level of current income and secondarily capital appreciation. The Fund pursues
its investment objectives by investing primarily in a portfolio of fixed-income
securities of U.S. and non-U.S. companies and U.S. Government and foreign
government securities and supra-national entities, including lower-rated
securities.
The Fund is a non-diversified open-end management investment company. This
Prospectus sets forth concisely the information that a prospective investor
should know about the Fund before investing. The "Statement of Additional
Information" for the Fund, which provides further information regarding certain
matters discussed in this Prospectus and other matters which may be of interest
to some investors, has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. For a free copy, call or write Alliance
Fund Services, Inc. at the indicated address or call the "For Literature"
telephone number shown above.
This Prospectus offers the Advisor Class shares of the Fund, which may be
purchased at net asset value without any initial or contingent deferred sales
charges and without ongoing distribution expenses. Advisor Class shares are
offered solely to (i) investors participating in fee-based programs meeting
certain standards established by Alliance Fund Distributors, Inc., the Fund's
principal underwriter, (ii) participants in self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that meet certain minimum standards
and (iii) certain other categories of investors described in the Prospectus,
including investment advisory clients of, and certain other persons associated
with, Alliance Capital Management L.P. and its affiliates or the Fund. See
"Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Alliance Capital [LOGO](R)
(R) These are registered marks used under license from the owner, Alliance
Capital Management L.P.
<PAGE>
The Fund At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
The Fund's Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 100 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $218
billion in assets under management as of December 31, 1997. Alliance provides
investment management services to employee benefit plans for 31 of the FORTUNE
100 companies.
The Fund
Seeks . . . Primarily a high level of current income and secondarily capital
appreciation.
Invests principally in . . . A non-diversified portfolio of fixed-income
securities of U.S. and non-U.S. issuers.
A Word About Risk . . .
The price of shares of the Fund will fluctuate daily as the prices of the
individual bonds in which it invests fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Price fluctuations
may be caused by changes in the general level of interest rates or changes in
bond credit quality ratings. Changes in interest rates have a greater effect on
bonds with longer maturities than those with shorter maturities. The Fund
invests in high-yield, high-risk bonds that are rated below investment grade and
are considered to have predominantly speculative characteristics. The prices of
non-U.S. Dollar denominated bonds also fluctuate with changes in foreign
exchange rates. Because the Fund invests a significant amount of its assets in
non-U.S. securities an investment in the Fund involves risks not associated with
Funds that invest primarily in securities of U.S. issuers. While the Fund
invests principally in fixed-income securities, in order to achieve its
investment objectives, the Fund may at times use certain types of derivative
instruments, such as options, futures, forwards and swaps. These instruments
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. These risks are fully discussed in
this Prospectus. See "Description of the Fund--Additional Investment Practices"
and "--Certain Risk Considerations."
Getting Started. . .
Shares of the Fund are available through your financial representative. The Fund
offers multiple classes of shares, of which only the Advisor Class is offered by
this Prospectus. Advisor Class shares may be purchased at net asset value
without any initial or contingent deferred sales charges and are not subject to
ongoing distribution expenses. Advisor Class shares may be purchased and held
solely (i) through accounts established under a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial intermediary and
approved by Alliance Fund Distributors, Inc. ("AFD"), the Fund's principal
underwriter, (ii) through a self-directed defined contribution employee benefit
plan (e.g., a 401(k) plan) that has at least 1,000 participants or $25 million
in assets, (iii) by investment advisory clients of, and certain other persons
associated with, Alliance and its affiliates or the Fund and (iv) through
registered investment advisers or other financial intermediaries who charge a
management, consulting or other fee for their service and who purchase shares
through a broker or agent approved by AFD and clients of such registered
investment advisers or financial intermediaries whose accounts are linked to the
master account of such investment adviser or financial intermediary on the books
of such approved broker or agent. A shareholder's Advisor Class shares will
automatically convert to Class A shares of the Fund under certain circumstances.
See "Conversion Feature--Conversion to Class A Shares." Generally, a fee-based
program must charge an asset-based or other similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be approved by AFD for
investment in Advisor Class shares. For more detailed information about who may
purchase and hold Advisor Class shares see the Statement of Additional
Information. Fee-based and other programs through which Advisor Class shares may
be purchased may impose different requirements with respect to investment in
Advisor Class shares than described above. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares."
Alliance Capital [LOGO](R)
(R) These are registered marks used under license from the owner, Alliance
Capital Management L.P.
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<PAGE>
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EXPENSE INFORMATION
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Shareholder Transaction Expenses are one of several factors to consider when you
invest in the Fund. The following table summarizes your maximum transaction
costs from investing in the Advisor Class shares of the Fund and estimated
annual expenses for Advisor Class shares of the Fund. The "Example" following
the table below shows the cumulative expenses attributable to a hypothetical
$1,000 investment in Advisor Class shares for the periods specified.
<TABLE>
<CAPTION>
Advisor
Class Shares
------------
<S> <C>
Maximum sales charge imposed on
purchases (as a percentage of offering price) ........... None
Sales charge imposed on dividend reinvestments ............. None
Deferred sales charge ...................................... None
Exchange fee ............................................... None
</TABLE>
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<TABLE>
<CAPTION>
Operating Expenses Advisor Class
-------------
<S> <C>
Management fees (after waiver) (a) ......................... None
12b-1 fees ................................................. None
Other expenses (after reimbursement) (b)(c) ................ 1.60%
----
Total fund operating expenses (after
waiver/reimbursement) (c)(d) ........................... 1.60%
====
<CAPTION>
Example Advisor Class
-------------
<S> <C>
After 1 year ............................................... $ 16
After 3 years .............................................. $ 50
</TABLE>
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(a) Net of voluntary fee waiver. Absent such waiver, management fees would be
.75%.
(b) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Fund for each shareholder's account.
(c) Net of voluntary fee waiver and expense reimbursement. Absent such waiver
and reimbursement, other expenses would be 2.71% and total fund operating
expenses would be 3.76%.
(d) The expense information does not reflect any charges or expenses imposed by
your financial representative or your employee benefit plan.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Commission regulations. The Example should not be considered representative
of past or future expenses; actual expenses may be greater or less than those
shown.
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GLOSSARY
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The following terms are used in this Prospectus. Many of these terms are
explained in greater detail under "Description of the Fund--Additional
Investment Practices."
Bonds are fixed, floating and variable rate debt obligations.
Debt Securities are bonds, debentures, notes, bills and repurchase agreements.
Fixed-Income Securities are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the Fund's
investment policies may be determined by Alliance to be of equivalent quality to
those rated) Triple-A (Aaa or AAA), High Quality (Aa or AA or above), High Grade
(A or above) or Investment Grade (Baa or BBB or above) by, as the case may be,
Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities, as
defined below. In the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), the Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.
Lower-Rated Securities are fixed-income securities rated Ba or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred to
as "junk bonds."
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Equity Securities are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
Convertible Securities are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. Government Securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. Treasury Securities (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
Mortgage-Related Securities are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities;
SMRS, which are stripped mortgage-related securities;
CMOS, which are collateralized mortgage obligations;
GNMA CERTIFICATES, which are securities issued by the Government
National Mortgage Association;
FNMA CERTIFICATES, which are securities issued by the Federal National
Mortgage Association; and
FHLMC CERTIFICATES, which are securities issued by the Federal Home
Loan Mortgage Corporation.
Interest-only or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
principal-only or PO class, which class receives only the principal payments on
the underlying debt obligation. POs are similar to, and are sometimes referred
to as, zero coupon securities, which are debt securities issued without interest
coupons.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by a foreign government or any of its political
subdivisions, authorities, agencies or instrumentalities.
Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
World Bank is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch IBCA, Inc.
Rule 144A Securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Exchange is the New York Stock Exchange.
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DESCRIPTION OF THE FUND
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The Fund is a non-diversified investment company. The Fund's investment
objective is "fundamental" and cannot be changed without a shareholder vote.
Except as otherwise noted, the Fund's investment policies are not fundamental
and thus can be changed without a shareholder vote. The Fund will not change
these policies without notifying its shareholders. There is no guarantee that
the Fund will achieve its investment objectives.
INVESTMENT OBJECTIVES
The Fund seeks primarily a high level of current income and secondarily capital
appreciation.
INVESTMENT POLICIES
The Fund pursues its investment objectives by investing primarily in a portfolio
of fixed-income securities of U.S. and non-U.S. companies and U.S. Government
and foreign government securities and supranational entities, including
lower-rated securities. The Fund may also use derivative instruments to attempt
to enhance income. The average weighted maturity of the Fund's portfolio of
fixed-income securities is expected to vary between five years and 30 years in
accordance with Alliance's changing perceptions of the relative attractiveness
of various maturity ranges.
Under normal market conditions, at least 65% of the value of the Fund's total
assets will be invested in the fixed-income securities of issuers located in
three countries one of which may be the United States. No more than 25% of the
value of its total assets, however, will be invested in the securities of any
one foreign government. U.S. Government securities in which the Fund may invest
include mortgage-related securities and zero coupon securities. Fixed-income
securities in which the Fund may invest include preferred stock,
mortgage-related and other asset-backed securities, and zero coupon securities.
The Fund may also invest in rights and warrants (for debt securities or for
equity securities that are acquired in connection with debt instruments), and
loan participations and assignments.
The Fund will maintain at least 65% of the value of its total assets in
investment grade securities and may maintain not more than 35% of the value of
its total assets in lower-rated securities. See "Certain Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." Unrated securities will be considered for investment
by the Fund when Alliance believes that the financial condition of the issuers
of such obligations and the protection afforded by the terms of the obligations
themselves limit the risk to the Fund to a degree comparable to that of rated
securities which are consistent with the Fund's investment objectives and
policies. Lower-rated securities in which the Fund may invest include Brady
Bonds and fixed-income securities of issuers located in emerging markets. There
is no minimum rating requirement applicable to the Fund's investments in
lower-rated fixed-income securities.
The Fund may also: (i) invest in foreign currencies, (ii) purchase and write put
and call options on securities and foreign currencies, (iii) purchase or sell
forward foreign exchange contracts, (iv) invest in variable, floating and
inverse floating rate instruments, (v) invest in indexed commercial paper, (vi)
invest in structured securities, (vii) lend portfolio securities amounting to
not more than 25% of its total assets, (viii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (ix) use reverse
repurchase agreements and dollar rolls, (x) purchase and sell securities on a
forward commitment basis, (xi) enter into standby commitments, (xii) enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices,
including any index of U.S. Government securities, foreign government securities
or common stock, and purchase and write options on futures contracts, (xiii)
invest in Eurodollar instruments, (xiv) enter into interest rate swaps, caps and
floors, and (xv) make short sales of securities or maintain a short position.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices" and "Certain Risk
Considerations." The Fund may borrow in order to purchase securities or make
other investments, although it currently intends to limit its ability to borrow
to an amount not to exceed 25% of its total assets. See "Certain Risk
Considerations--Effects of Borrowing."
ADDITIONAL INVESTMENT PRACTICES
Derivatives. The Fund may use derivatives in furtherance of its investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Fund 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. Each of these uses entails greater risk than if
derivatives were used solely for hedging purposes. Derivatives are a valuable
tool which, when used properly, can provide significant benefit to Fund
shareholders. The Fund may take a significant position in those derivatives that
are within its investment policies if, in Alliance's judgment, this represents
the most effective response to current or anticipated market conditions. The
Fund makes extensive use of carefully selected forwards and other derivatives to
achieve the currency hedging that is an integral part of its investment
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<PAGE>
strategy. Alliance's use of derivatives is subject to continuous risk assessment
and control from the standpoint of the Fund's investment objectives and
policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.
Options. An option, which may be standardized and exchange-traded, or customized
and privately negotiated, is an agreement that, for a premium payment or fee,
gives the option holder (the buyer) the right but not the obligation to buy or
sell the underlying asset (or settle for cash an amount based on an underlying
asset, rate or index) at a specified price (the exercise price) during a period
of time or on a specified date. A call option entitles the holder to purchase,
and a put option entitles the holder to sell, the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index). Likewise, when
an option is exercised the writer of the option is obligated to sell (in the
case of a call option) or to purchase (in the case of a put option) the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index).
Futures. A futures contract is an agreement that obligates the buyer to buy and
the seller to sell a specified quantity of an underlying asset (or settle for
cash the value of a contract based on an underlying asset, rate or index) at a
specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal but
opposite positions, which is the primary method in which futures contracts are
liquidated. A cash-settled futures contract does not require physical delivery
of the underlying asset but instead is settled for cash equal to the difference
between the values of the contract on the date it is entered into and its
maturity date.
Forwards. A forward contract is an obligation by one party to buy, and the other
party to sell, a specific quantity of an underlying commodity or other tangible
asset for an agreed upon price at a future date. Forward contracts are
customized, privately negotiated agreements designed to satisfy the objectives
of each party. A forward contract usually results in the delivery of the
underlying asset upon maturity of the contract in return for the agreed upon
payment.
Swaps. A swap is a customized, privately negotiated agreement that obligates two
parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). The payment flows are netted against
each other, with the difference being paid by one party to the other. Except for
currency swaps, the notional principal amount is used solely to calculate the
payment streams but is not exchanged. With respect to currency swaps, actual
principal amounts of currencies may be exchanged by the counterparties at the
initiation, and again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper" and
"Structured Securities" below. The term "derivative" is also sometimes used to
describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These securities
are described below under "Additional Investment Practices--Mortgage-Related
Securities."
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 before investing in the Fund.
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 Fund'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 Fund's 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 Fund 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 clearing house, which is the issuer or
counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e., margin
requirements) operated by
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the clearing house in order to reduce overall credit risk. For privately
negotiated derivatives, there is no similar clearing agency guarantee.
Therefore, the Fund 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.
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 Fund. 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 Fund's
use of derivatives may not always be an effective means of, and sometimes could
be counterproductive to, furthering the Fund's investment objective.
Derivatives That May Be Used by the Fund
Following is a description of specific derivatives which the Fund may use.
Options On Securities. In purchasing an option on securities, the Fund 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 Fund
would experience a loss not greater than the premium paid for the option. Thus,
the Fund 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 Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
The Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with respect
to uncovered call options written for cross-hedging purposes, the Fund will not
write uncovered call or put options in securities. A call option written by the
Fund is "covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by the Fund is covered if the Fund holds a put option on the
underlying securities with an exercise price equal to or greater than that of
the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, the
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and the Fund could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price of
the option, whereas the risk of loss from writing an uncovered call option is
potentially unlimited.
The Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the right
to acquire, a technique referred to as "cross-hedging." The Fund would write a
call option for cross-hedging purposes, instead of writing a covered call
option, when the premium to be received from the cross-hedge transaction exceeds
that to be received from writing a covered call option, while at the same time
achieving the desired hedge. The correlation risk involved in cross-hedging may
be greater than the correlation risk involved with other hedging strategies.
The Fund generally purchases or writes privately negotiated options on
securities. If the Fund does so, it will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks or
savings and loan institutions) deemed creditworthy by Alliance. Alliance has
adopted procedures for monitoring the creditworthiness of such counterparties.
Privately negotiated options purchased or written by the Fund may be illiquid,
and it may not be possible for the Fund to effect a closing transaction at an
advantageous time. See "Illiquid Securities" below.
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.
Options On Foreign Currencies. The Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated securities held by the Fund and against increases
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in the U.S. Dollar cost of such securities to be acquired. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates, although if rates move adversely, the Fund may
forfeit the entire amount of the premium plus related transaction costs.
Rights And Warrants. The Fund may invest in rights and warrants, which are
option securities permitting their holders to subscribe for other securities.
The Fund may invest in rights and warrants for debt securities or for equity
securities that are acquired in connection with debt instruments. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants do not carry with them dividend or voting rights with
respect to the underlying securities, or any rights in the assets of the issuer.
As a result, an investment in rights and warrants may be considered more
speculative than certain other types of investments. In addition, the value of a
right or a warrant does not necessarily change with the value of the underlying
securities, and a right or a warrant ceases to have value if it is not exercised
prior to its expiration date. The Fund may invest up to 20% of its total assets
in rights and warrants.
Futures Contracts And Options On Futures Contracts. Futures contracts that the
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities. Options on futures contracts
are options that call for the delivery of futures contracts upon exercise.
Options on futures contracts written or purchased by the Fund will be traded on
U.S. or foreign exchanges.
The Fund will not enter into a futures contract or write or purchase an option
on a futures contract if immediately thereafter the market values of the
outstanding futures contracts of the Fund and the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
its total assets. Nor will the Fund enter into a futures contract or, if
otherwise permitted, write or purchase an option on a futures contract, if
immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. In addition, the Fund will not enter into any futures
contract (i) other than one on fixed-income securities or based on interest
rates, or (ii) if immediately thereafter the sum of the then aggregate futures
market prices of financial instruments required to be delivered under open
futures contract sales and the aggregate futures market prices of instruments
required to be delivered under open futures contract purchases would exceed 30%
of the value of the Fund's total assets.
Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to
LIBOR. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
intends to use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR (to which many short-term borrowings and floating rate
securities in which the Fund invests are linked).
Forward Foreign Currency Exchange Contracts. In purchasing or selling forward
contracts on foreign currencies ("forward contracts"), the Fund attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. The Fund may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S. Dollar
price of the security (a "transaction hedge"). When the Fund believes that a
foreign currency may suffer a substantial decline against the U.S. Dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when the Fund believes that
the U.S. Dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount (a "position hedge"). Instead of entering into a position
hedge, the Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. Dollar amount where the Fund
believes that the U.S. Dollar value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline in the U.S. Dollar value
of the currency in which portfolio securities of the Fund are denominated (a
"cross-hedge").
Forward Commitments. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a "when-issued" basis or purchases
or sales on a "delayed delivery" basis. When forward commitments with respect to
fixed-income securities are negotiated, the price, which is generally expressed
in yield terms, is fixed at the time the commitment is made, but payment for and
delivery of the securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but settlements beyond two
months may be negotiated. Securities purchased or sold under a forward
commitment are subject to market fluctuation, and no interest or dividends
accrues to the purchaser prior to the settlement date. At the time the Fund
enters into a forward commitment, it records the transaction and thereafter
reflects the value of the security purchased or, if a sale, the proceeds to be
received, in determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation would be canceled if the required
conditions did not occur and the trade were canceled.
The use of forward commitments helps the Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, the Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
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prices. In periods of falling interest rates and rising bond prices, the Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
the Fund if, as a result, the Fund's aggregate forward commitments under such
transactions would be more than 25% of the total assets of the Fund.
The Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Fund enters into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If the Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may realize a gain
or incur a loss.
Interest Rate Transactions (Swaps, Caps And Floors). The Fund expects to enter
into interest rate swap, cap or floor transactions primarily for hedging
purposes, which may include preserving a return or spread on a particular
investment or portion of its portfolio or protecting against an increase in the
price of securities the Fund anticipates purchasing at a later date. The Fund
does not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by the Fund 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 Fund receiving or
paying, as the case may be, only the net amount of the two payments). Interest
rate caps and floors are similar to options in that the purchase of an interest
rate cap or floor entitles the purchaser, to the extent that a specified index
exceeds (in the case of a cap) or falls below (in the case of a floor) a
predetermined interest rate, to receive payments of interest on a notional
amount from the party selling the interest rate cap or floor. The Fund may enter
into interest rate swaps, caps and floors on either an asset-based or
liability-based basis, depending upon whether it is hedging its assets or
liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by the Fund. The Fund may enter into interest rate swaps involving
payments to the same currency or in different currencies. The Fund will not
enter into an interest rate swap, cap or floor transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is then
rated in the highest rating category of at least one nationally recognized
rating organization. The Fund will enter into interest rate swap, cap or floor
transactions with its respective custodian, and with other counterparties, but
only if: (i) for transactions with maturities under one year, such other
counterparty has outstanding prime commercial paper; or (ii) for transactions
with maturities greater than one year, the counterparty has outstanding high
quality debt securities.
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 Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
Standby Commitment Agreements. Standby commitment agreements are similar to put
options that commit the Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The Fund
will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. The Fund will not enter into a
standby commitment with a remaining term in excess of 45 days. The Fund will
limit its investments in standby commitments so that the aggregate purchase
price of the securities subject to the commitments does not exceed 25% of its
assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, the Fund will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
Indexed Commercial Paper. Indexed commercial paper may have its principal linked
to changes in foreign currency exchange rates whereby its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the referenced exchange rate. The Fund may invest in such commercial
paper without limitation. The Fund will receive interest and principal payments
on such commercial paper in the currency in which such commercial paper is
denominated, but the amount of principal payable by the issuer at maturity will
change in proportion to the change (if any) in the exchange rate between the two
specified currencies between the date the instrument is issued and the date the
instrument matures. While such commercial paper entails the risk of loss of
principal, the potential for realizing gains as a result of changes in foreign
currency exchange rates enables the Fund to hedge (or cross-hedge) against a
decline in the U.S. Dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. The Fund
will purchase such commercial paper for hedging purposes only, not for
speculation.
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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, such as securities issued by FNMA and FHLMC, and
governmental 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
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see
"Mortgage-Related Securities" below.
U.S. Government securities also include zero coupon securities and
principal-only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are similar
to SMRS. Such securities include those that are issued with an IO class and a PO
class. See "Mortgage-Related Securities" and "Zero Coupon and Principal-Only
Securities" below. Although these stripped securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet developed and, accordingly, these
securities may be illiquid.
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 Fund.
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.
Mortgage-Related Securities. The mortgage-related securities in which the Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as the Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are backed by the full faith and
credit of the United States; those issued by FNMA and FHLMC are not so backed.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both interest
and principal, unlike more traditional debt securities, which normally do not
provide for periodic repayments of principal.
Securities representing interests in pools created by 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 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. A Fund may buy mortgage-related securities without credit
enhancement if the securities meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as discussed
below, frequently causes these securities to experience significantly greater
price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by GNMA,
are referred to as "modified pass-through" securities. The holders of these
securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
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. Collateralized
mortgage obligations (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
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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 principal. The
principal and interest on the underlying mortgages may be allocated among
several classes of a series of a CMO in many ways. In a common structure,
payments of principal, including any principal prepayments, on the underlying
mortgages are applied to the classes of the series of a CMO in the order of
their respective stated maturities or final distribution dates, so that no
payment of principal will be made on any class of a CMO until all other classes
having an earlier stated maturity or final distribution date have been paid in
full. One or more tranches of a CMO may have coupon rates that reset
periodically, or "float," at a specified increment over an index such as LIBOR.
Floating-rate CMOs may be backed by fixed or adjustable rate mortgages. To date,
fixed-rate mortgages have been more commonly utilized for this purpose.
Floating-rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable-rate mortgages described
below, represent a ceiling beyond which the coupon rate on a floating-rate CMO
may not be increased regardless of increases in the interest rate index to which
the floating-rate CMO is tied. The collateral securing the CMOs may consist of a
pool of mortgages, but may also consist of mortgage-backed bonds or pass-through
securities. CMOs may be issued by a U.S. Government instrumentality or agency or
by a private issuer. 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.
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. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
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.
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 Fund
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 experienced by traditional fixed-income securities. The
occurrence of mortgage prepayments is affected by the level of general interest
rates, general economic conditions and other social and demographic factors.
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 Fund may not be able to realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. 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 Fund's ability to buy or sell those securities
at any particular time.
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. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting the Fund to reinvest the prepayment proceeds in investments yielding
the higher current interest rate), as described above the rates of mortgage
prepayments and early payments of mortgage-related securities tend to decline
during periods of rising interest rates.
Although the values of ARMS may not be affected by rising interest rates as much
as such rates affect the value of fixed-rate mortgage securities, ARMS may still
decline in value as a result of rising interest rates. Although, as described
above,
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the yields on ARMS vary with changes in the applicable interest rate or indices,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
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. These
asset-backed securities are subject to risks associated with changes in interest
rates and prepayment of underlying obligations 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.
Zero Coupon and Principal-Only Securities. Zero coupon securities and principal
only (PO) securities are debt securities that have been issued without interest
coupons or stripped of their unmatured interest coupons, and include receipts or
certificates representing interests in such stripped debt obligations and
coupons. Such a security pays no interest to its holder during its life. Its
value to an investor consists of the difference between its face value at the
time of maturity and the price for which it was acquired, which is generally an
amount significantly less than its face value. Such securities usually trade at
a deep discount from their face or par value and are subject to greater
fluctuations in market value in response to changing interest rates than debt
obligations of comparable maturities and credit quality that make current
distributions of interest. On the other hand, because there are no periodic
interest payments to be reinvested prior to maturity, these securities eliminate
reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations. Currently
the only U.S. Treasury security issued without coupons is the Treasury bill.
Although the U.S. Treasury does not itself issue Treasury notes and bonds
without coupons, under the U.S. Treasury STRIPS program interest and principal
payments on certain long-term Treasury securities may be maintained separately
in the Federal Reserve book entry system and may be separately traded and owned.
In addition, in the last few years a number of banks and brokerage firms have
separated ("stripped") the principal portions from the coupon portions of U.S.
Treasury bonds and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these instruments (which
instruments are generally held by a bank in a custodial or trust account). The
staff of the Commission has indicated that, in its view, these receipts or
certificates should be considered as securities issued by the bank or brokerage
firm involved and, therefore, should not be included in the Fund's
categorization of U.S. Government securities. The Fund disagrees with the
staff's position but will not treat such securities as U.S. Government
securities until final resolution of the issue.
Current federal tax law requires that a holder (such as the Fund) 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. As a result, in order to make
the distributions necessary for the Fund not to be subject to federal income or
excise taxes, the Fund might 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 Fund has
actually received as interest during the year. The Fund 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. For a discussion of the tax treatment of zero
coupon Treasury securities, see "Dividends, Distributions and Taxes--Zero
Coupon Treasury Securities" in the Statement of Additional Information of the
Fund.
The Fund may also invest in "pay-in-kind" debentures (i.e., debt obligations the
interest on which may be paid in the form of obligations of the same type rather
than cash), which have characteristics similar to zero coupon securities.
Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
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The Fund may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of time
if short-term interest rates rise above a predetermined level or "cap." The
amount of such an additional interest payment typically is calculated under a
formula based on a short-term interest rate index multiplied by a designated
factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value, such that,
during periods of rising interest rates, the market values of inverse floaters
will tend to decrease more rapidly than those of fixed rate securities.
Structured Securities. Structured securities in which the Fund may invest
represent interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of sovereign debt obligations. This
type of restructuring involves the deposit with or purchase by an entity, such
as a corporation or trust, of specified instruments (such as commercial bank
loans or Brady Bonds) and the issuance by that entity of one or more classes of
structured securities backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured securities to create securities with different
investment characteristics such as varying maturities, payment priorities and
interest rate provisions, and the extent of the payments made with respect to
structured securities is dependent on the extent of the cash flow on the
underlying instruments. Because structured securities typically involve no
credit enhancement, their credit risk generally will be equivalent to that of
the underlying instruments. Structured securities of a given class may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities. The Fund may invest
without limit in these types of structured securities.
Loan Participations and Assignments. The Fund's investments in loans are
expected in most instances to be in the form of participations in loans and
assignments of all or a portion of loans from third parties. The Fund's
investment in loan participations typically will result in the Fund having a
contractual relationship only with the lender and not with the borrower. The
Fund will acquire participations only if the lender interpositioned between the
Fund and the borrower is a lender having total assets of more than $25 billion
and whose senior unsecured debt is rated investment grade or higher. When the
Fund purchases a loan assignment from a lender it will acquire direct rights
against the borrower on the loan. Because loan assignments are arranged through
private negotiations between potential assignees and potential assignors,
however, the rights and obligations acquired by the Fund as the purchaser of an
assignment may differ from, and be more limited than, those held by the
assigning lender.
The assignability of certain sovereign debt obligations is restricted by the
governing documentation as to the nature of the assignee such that the only way
in which the Fund may acquire an interest in a loan is through a participation
and not an assignment. A Fund may have difficulty disposing of assignments and
participations because to do so it will have to assign such investments to a
third party. Because there may not be a liquid market for such investments, they
can probably be sold only to a limited number of institutional investors. The
lack of a liquid secondary market may have an adverse effect on the value of
such investments and the Fund's ability to dispose of particular participations
and assignments when necessary to meet its liquidity needs in response to a
specific economic event such as a deterioration in the creditworthiness of the
borrower. The lack of a liquid secondary market for participations and
assignments also may make it more difficult for the Fund to assign a value to
these securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.
The Fund may invest up to 25% of its total assets in loan participations and
assignments. The government that is the borrower on the loan will be considered
by the Fund to be the issuer of a loan participation or assignment for purposes
of its fundamental investment policy that it may not invest 25% or more of its
total assets in securities of issuers conducting their principal business
activities in the same industry (i.e., foreign government).
Brady Bonds. Brady Bonds are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady ("The Brady Plan"). Brady Bonds have been issued only
recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate par
bonds or floating rate discount bonds, are generally collateralized in full as
to principal due at maturity by U.S. Treasury zero coupon obligations that have
the same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized by cash or securities in an amount that, in the
case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady Bonds
are often viewed as having
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up to four valuation components: (i) collateralized repayment of principal at
final maturity, (ii) collateralized interest payments, (iii) uncollateralized
interest payments, and (iv) any uncollateralized repayment of principal at
maturity (these uncollateralized amounts constitute the "residual risk").
In the event of a default with respect to collateralized Brady Bonds as a result
of which the payment obligations of the issuer are accelerated, the U.S.
Treasury zero coupon obligations held as collateral for the payment of principal
will not be distributed to investors, nor will such obligations be sold and the
proceeds distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments that would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of Brady Bonds and,
among other factors, the history of defaults with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.
Convertible Securities. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as nonconvertible debt securities, which provide a stable stream
of income with generally higher yields than those of equity securities of the
same or similar issuers. The price of a convertible security will normally vary
with changes in the price of the underlying stock, although the higher yield
tends to make the convertible security less volatile than the underlying common
stock. As with debt securities, the market value of convertible securities tends
to decline as interest rates increase and increase as interest rates decline.
While convertible securities generally offer lower interest or dividend yields
than non-convertible debt securities of similar quality, they enable investors
to benefit form increases in the market price of the underlying common stock.
Convertible debt securities that are rated Baa or lower by Moody's or BB or
lower by S&P, Duff & Phelps or Fitch and comparable unrated securities may share
some or all of the risks of debt securities with those ratings. For a
description of these risks, see "Certain Risk Considerations--Investment in
Lower-Rated Fixed-Income Securities."
Short Sales. A short sale is effected by selling a security that the Fund does
not own, or if the Fund owns the security, it is not to be delivered upon
consummation of the sale. A short sale is "against the box" if the Fund owns or
has the right to obtain without payment securities identical to those sold
short.
The Fund may make a short sale in anticipation that the market price of that
security will decline. When the Fund makes a short sale of a security that it
does not own, it must borrow from a broker-dealer the security sold short and
deliver the security to the broker-dealer upon conclusion of the short sale. The
Fund may be required to pay a fee to borrow particular securities and is often
obligated to pay over any payments received on such borrowed securities. The
Fund's obligation to replace the borrowed security will be secured by collateral
deposited with a broker-dealer qualified as a custodian. Depending on the
arrangements the Fund makes with the broker-dealer from which it borrowed the
security regarding remittance of any payments received by the Fund on such
security, the Fund may not receive any payments (including interest) on its
collateral deposited with the broker-dealer.
In order to defer realization of gain or loss for U.S. federal income tax
purposes, the Fund may also make short sales "against the box." The Fund may not
make a short sale, if as a result, more than 25% of its total assets would be
held as collateral for short sales.
If the price of the security sold short increases between the time of the short
sale and the time the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although the Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit the Fund
to keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. The Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, the Fund would suffer
a loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, the Fund might be delayed
in, or prevented from, selling the collateral for its benefit.
Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive principal
and interest payments on these securities. Generally, the effect of such a
transaction is that the Fund 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 Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by the Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During the
roll period, the
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Fund forgoes principal and interest paid on the securities. The Fund 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 Fund 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 Fund'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 Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Fund. The Fund may enter into reverse
repurchase agreements with commercial banks and registered broker-dealers in
order to increase income, in an amount up to 25% of its total assets. Reverse
repurchase agreements and dollar rolls together with any borrowings by the Fund
will not exceed 25% of its total assets. See "Certain Risk Considerations--
Effects of Borrowing."
Loans of Portfolio Securities. The Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that liquid
assets equal to at least 100% of the market value of the securities loaned is
deposited and maintained by the borrower with the Fund. The risks in lending
portfolio securities, as with other secured extensions of credit, consist of
possible loss of rights in the collateral should the borrower fail financially.
In determining whether to lend securities to a particular borrower, Alliance
will consider all relevant facts and circumstances, including the
creditworthiness of the borrower. While securities are on loan, the borrower
will pay the Fund any income earned thereon and the Fund may invest any cash
collateral in portfolio securities, thereby earning additional income, or
receive an agreed upon amount of income from a borrower that has delivered
equivalent collateral. The Fund 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 Fund may pay reasonable finders', administrative
and custodial fees in connection with a loan. The Fund may lend securities with
a value of up to 25% of its total assets to broker-dealers approved by the
Fund's Board of Directors. The Fund will not lend portfolio securities to any
officer, director, employee or affiliate of the Fund or Alliance.
Illiquid Securities. The Fund will not maintain more than 15% of its net assets
in illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps, (ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days. Rule
144A securities that have legal or contractual restrictions on resale but have a
readily available market are not deemed illiquid. Alliance will monitor the
liquidity of the Fund's Rule 144A portfolio securities under the supervision of
the Directors of the Fund. The Fund may not be able to sell such securities and
may not be able to realize their full value upon sale.
Future Developments. The Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund, or are not available but may yet be developed, to the
extent such investment practices are consistent with the Fund's investment
objective and legally permissible for the Fund. Such investment practices, if
they arise, may involve risks that are different from or exceed those involved
in the practices described above.
Defensive Position. For temporary defensive purposes, the Fund may invest in
certain types of short-term, liquid, high grade debt securities. These
securities may include U.S. Government securities, qualifying bank deposits,
money market instruments, prime commercial paper, and other types of short-term
debt securities, including notes and bonds. Such securities may also include
short-term, foreign-currency denominated securities of the type mentioned above
issued by foreign governmental entities, companies and supranational
organizations. For a complete description of the types of securities in which
the Fund may invest while in a temporary defensive position, see the Fund's
Statement of Additional Information.
Portfolio Turnover. The portfolio turnover rate for the existing classes of
shares of the Fund is set forth in the table on page 25. The portfolio turnover
rate is greater than that of most other investment companies. A high rate of
portfolio turnover involves correspondingly greater expenses than a lower rate,
which must be borne by the Fund and its shareholders. High portfolio turnover
also may result in the realization of substantial net short-term capital gains.
See "Dividends, Distributions and Taxes" in the Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
The Fund may not (i) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing
there is asset coverage of at least 300% as defined in the 1940 Act, (b) borrow
for temporary or emergency purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, and (c) enter into reverse repurchase
agreements and dollar rolls, or (ii) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings. These policies are
fundamental and may not be changed without the approval of the Fund's
shareholders. Additional investment restrictions with respect to the Fund are
set forth in the Statement of Additional Information.
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CERTAIN RISK CONSIDERATIONS
Fixed-Income Securities. The value of the Fund's shares will fluctuate with the
value of its investments. The value of the Fund's investments will change as the
general level of interest rates fluctuates. During periods of falling interest
rates, the values of the Fund's securities will generally rise, although if
falling interest rates are viewed as precursor to a recession, the values of the
Fund's securities may fall along with interest rates. Conversely, during periods
of rising interest rates, the values of the Fund's securities will generally
decline. Changes in interest rates have a greater effect on fixed-income
securities with longer maturities and durations than those with shorter
maturities and durations.
In seeking to achieve the Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization of
capital losses on securities in the Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income received
from that security but will be reflected in the net asset value of the Fund.
U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which the Fund invests may include securities issued in connection
with corporate restructurings such as takeovers or leveraged buyouts, which may
pose particular risks. Securities issued to finance corporate restructurings may
have special credit risks due to the highly leveraged conditions of the issuer.
In addition, such issuers may lose experienced management as a result of the
restructuring. Furthermore, the market price of such securities may be more
volatile to the extent that expected benefits from the restructuring do not
materialize. The Fund may also invest in U.S. corporate fixed-income securities
that are not current in the payment of interest or principal or are in default,
so long as Alliance believes such investment is consistent with the Fund's
investment objectives. The Fund's rights with respect to defaults on such
securities will be subject to applicable U.S. bankruptcy, moratorium and other
similar laws.
Foreign Investment. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, if the Funds investment portfolio includes such
securities, the Fund may experience greater price volatility and significantly
lower liquidity than a portfolio invested solely in securities of U.S.
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Securities
registration, custody and settlements may in some instances be subject to delays
and legal and administrative uncertainties. Furthermore, foreign investment in
the securities markets of certain foreign countries is restricted or controlled
to varying degrees. These restrictions or controls may at times limit or
preclude investment in certain securities and may increase the cost and expenses
of the Fund. In addition, the repatriation of investment income, capital or the
proceeds of sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain advance
government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. The Fund could also be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other restrictions on
investment. Investing in local markets may require the Fund to adopt special
procedures or seek local governmental approvals or other actions, any of which
may involve additional costs to the Fund. The liquidity of the Fund's
investments in any country in which any of these factors exists could be
affected, and Alliance will monitor the effect of any such factor or factors on
the Fund's investments. Furthermore, transaction costs including brokerage
commissions for transactions both on and off the securities exchanges in many
foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting and
auditing standards of foreign countries may differ, in some cases significantly,
from U.S. standards in important respects, and less information may be available
to investors in foreign securities than to investors in U.S. securities.
Substantially less information is publicly available about certain non-U.S.
issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in that country. In the event of nationalization,
expropriation or other confiscation, the Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection to
security holders such as the Fund than that provided by U.S. laws.
Currency Considerations. Because the Fund may invest some portion of its assets
in securities denominated in, and which receive revenues in, foreign currencies,
the Fund will be adversely affected by reductions in the value of those
currencies relative to the U.S. Dollar. These changes will affect the Fund's net
assets, distributions and income. If the value of
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the foreign currencies in which the Fund receives income falls relative to the
U.S. Dollar between receipt of the income and the making of Fund distributions,
the Fund may be required to liquidate securities in order to make distributions
if the Fund has insufficient cash in U.S. Dollars to meet the distribution
requirements that the Fund must satisfy to qualify as a regulated investment
company for federal income tax purposes. Similarly, if an exchange rate declines
between the time the Fund 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 Fund may engage in certain currency
hedging transactions, which themselves involve certain special risks. See
"Additional Investment Practices" above.
Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which the Fund will invest. Reduced
secondary market liquidity may have an adverse effect on the market price and
the Fund's ability to dispose of particular instruments when necessary to meet
its liquidity requirements or in response to specific economic events such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain sovereign debt obligations may also make it more difficult
for the Fund to obtain accurate market quotations for the purpose of valuing its
portfolio. Market quotations are generally available on many sovereign debt
obligations only from a limited number of dealers and may not necessarily
represent firm bids of those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Fund will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Certain governments have not been able to make payments of interest on or
principal of sovereign debt obligations as those payments have come due.
Obligations arising from past restructuring agreements may affect the economic
performance and political and social stability of those issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign governments
and on inflows of foreign investment. The access of a country to these forms of
external funding may not be certain, and a withdrawal of external funding could
adversely affect the capacity of a government to make payments on its
obligations. In addition, the cost of servicing debt obligations can be affected
by a change in international interest rates since the majority of these
obligations carry interest rates that are adjusted periodically based upon
international rates.
The Fund is permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Fund's investment objectives. The
Fund may have limited legal recourse in the event of a default with respect to
certain sovereign debt obligations it holds. For example, remedies from defaults
on certain sovereign debt obligations, unlike those on private debt, must, in
some cases, be pursued in the courts of the defaulting party itself. Legal
recourse therefore may be significantly diminished. Bankruptcy, moratorium and
other similar laws applicable to issuers of sovereign debt obligations may be
substantially different from those applicable to issuers of private debt
obligations. The political context, expressed as the willingness of an issuer of
sovereign debt obligations to meet the terms of the debt obligation, for
example, is of considerable importance. In addition, no assurance can be given
that the holders of commercial bank debt will not contest payments to the
holders of securities issued by foreign governments in the event of default
under commercial bank loan agreements.
Effects of Borrowing. The Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and the Fund
expects to effect borrowings and repayments at such times and in such amounts as
will maintain investment leverage in an amount approximately equal to its
borrowing target. The loan agreements provide for a selection of interest rates
that are based on the bank's short-term funding costs in the U.S. and London
markets.
Borrowings by the Fund result in leveraging of the Fund's shares of common
stock. Utilization of leverage, which is usually considered speculative,
however, involves certain risks to the Fund's shareholders. These include a
higher volatility of the net asset value of the Fund's shares of common stock
and the relatively greater effect on the net asset value of the
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shares. So long as the Fund is able to realize a net return on its investment
portfolio that is higher than the interest expense paid on borrowings, the
effect of leverage will be to cause the Fund's shareholders to realize a higher
current net investment income than if the Fund were not leveraged. On the other
hand, interest rates on U.S. Dollar-denominated and foreign currency-denominated
obligations change from time to time as does their relationship to each other,
depending upon such factors as supply and demand forces, monetary and tax
policies within each country and investor expectations. Changes in such factors
could cause the relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency denominated obligations in which the Fund may be invested. To
the extent that the interest expense on borrowings approaches the net return on
the Fund's investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced, and if the interest expense on borrowings were to
exceed the net return to shareholders, the Fund's use of leverage would result
in a lower rate of return than if the Fund were not leveraged. Similarly, the
effect of leverage in a declining market could be a greater decrease in net
asset value per share than if the Fund were not leveraged. In an extreme case,
if the Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments, thereby reducing the net asset value of the Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by the Fund could
adversely affect its shareholders, as noted above, or in anticipation of such
changes, the Fund may increase the percentage of its investment portfolio
invested in U.S. Government securities, which would tend to offset the negative
impact of leverage on Fund shareholders. The Fund may also reduce the degree to
which it is leveraged by repaying amounts borrowed.
Under the 1940 Act, the Fund is not permitted to borrow unless immediately after
such borrowing there is "asset coverage," as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, the Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of the Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25% of
the Fund's total assets less liabilities (other than such borrowings), the asset
coverage of the Fund's portfolio would be 400%. The Fund will maintain asset
coverage of outstanding borrowings of at least 300% and if necessary will, to
the extent possible, reduce the amounts borrowed by making repayments from time
to time in order to do so. Such repayments could require the Fund to sell
portfolio securities at times considered disadvantageous by Alliance. In the
event that the Fund is required to sell portfolio securities in order to make
repayments, such sales of portfolio securities could cause the Fund to incur
related transaction costs and might cause the Fund to realize gains on
securities held for less than three months. Because not more than 30% of the
Fund's gross income may be derived from the sale or disposition of stocks and
securities held for less than three months to maintain the Fund's tax status as
a regulated investment company, the gains would limit the agility of the Fund to
sell other securities held for less than three months that the Fund might wish
to sell in the ordinary course of its portfolio management and thus might
adversely affect the Fund's yield. See "Dividends, Distributions and Taxes."
The Fund may borrow to repurchase its shares or to meet redemption requests. In
addition, the Fund may borrow for temporary purposes (including the purposes
mentioned in the preceding sentence) in an amount not exceeding 5% of the value
of the assets of the Fund. Borrowings for temporary purposes are not subject to
the 300% asset average limit described above. See "Certain Fundamental
Investment Policies." The Fund may also borrow through the use of reverse
repurchase agreements and the use of dollar rolls to the extent permitted by the
1940 Act. See "Investment Objectives and Policies--Reverse Repurchase Agreements
and Dollar Rolls."
Securities Ratings. The ratings of fixed-income securities by S&P, Moody's, Duff
& Phelps and Fitch are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
Investment in Fixed-Income Securities Rated BAA and BBB. Securities rated Baa or
BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged
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to have highly speculative elements or to be predominantly speculative. Such
securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, the Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political conditions.
However, there can be no assurance that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research and credit
analysis are a correspondingly more important aspect of its program for managing
the Fund's securities than would be the case if the Fund did not invest in
lower-rated securities. In considering investments for the Fund, Alliance will
attempt to identify those high-yielding securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to improve in
the future. Alliance's analysis focuses on relative values based on such factors
as interest or dividend coverage, asset coverage, earnings and cash flow
prospects, and the experience and managerial strength of the issuer.
Non-Rated Securities. Non-rated securities will also be considered for
investment by the Fund when Alliance believes that the financial condition of
the issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Fund to a degree comparable to
that of rated securities which are consistent with the Fund's objective and
policies.
Non-diversified Status. The Fund is a "non-diversified" investment company,
which means the Fund is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. However, the Fund intends to
conduct its operations so as to qualify to be taxed as a "regulated investment
company" for purposes of the Code, which will relieve the Fund of any liability
for federal income tax to the extent its earnings are distributed to
shareholders. See "Dividends, Distributions and Taxes" in the Statement of
Additional Information. To so qualify, among other requirements, the Fund will
limit its investments so that at the close of each quarter of the taxable year,
(i) not more than 25% of the Fund's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of its total assets,
not more than 5% of its total assets will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. The Fund's investments in U.S. Government
securities are not subject to these limitations. Because the Fund is a
non-diversified investment company, it may invest in a smaller number of
individual issuers than a diversified investment company, and an investment in
the Fund may, under certain circumstances, present greater risk to an investor
than an investment in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate issuers
for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, the Fund will be required to diversify its portfolio of foreign
government securities in a manner which would not be necessary if the Fund had
made similar investments in U.S. Government securities.
Year 2000. Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Fund's major service providers fail to process
this type of information properly, that could have a negative impact on the
Fund's operations and the services that are provided to the Fund's shareholders.
Alliance, as well as AFD and AFS (as defined herein), have advised the Fund that
they are reviewing all of their computer systems with the goal of modifying or
replacing such systems prior to January 1, 2000, to the extent necessary to
foreclose any such negative impact. In addition, Alliance has been advised by
the Fund's custodian that it is also in the process of reviewing its systems
with the same goal. As of the date of this prospectus, the Fund and Alliance
have no reason to believe that these goals will not be achieved. Similarly, the
values of certain of the portfolio securities held by the Fund may be adversely
affected by the inability of the securities' issuers or of third parties to
process this type of information properly.
- --------------------------------------------------------------------------------
PURCHASE AND
- --------------------------------------------------------------------------------
SALE OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
The Fund offers multiple classes of shares, of which only the Advisor Class is
offered by this Prospectus. Advisor Class shares of the Fund may be purchased
through your financial representative at net asset value without any initial or
contingent deferred sales charges and are not subject to ongoing distribution
expenses. Advisor Class shares may be purchased and held solely (i) through
accounts established under a fee-based program, sponsored and maintained by a
registered broker-dealer or other financial intermediary and approved by
19
<PAGE>
AFD, (ii) through a self-directed defined contribution employee benefit plan
(e.g., a 401(k) plan) that has at least 1,000 participants or $25 million in
assets, (iii) by investment advisory clients of, and certain other persons
associated with, Alliance and its affiliates or the Fund, and (iv) through
registered investment advisers or other financial intermediaries who charge a
management, consulting or other fee for their service and who purchase shares
through a broker or agent approved by AFD and clients of such registered
investment advisers or financial intermediaries whose accounts are linked to the
master account of such investment adviser or financial intermediary on the books
of such approved broker or agent. For more detailed information about who may
purchase and hold Advisor Class shares see the Statement of Additional
Information. A shareholder's Advisor Class shares will automatically convert to
Class A shares of the Fund under certain circumstances. For a more detailed
description of the conversion feature and Class A shares, see "Conversion
Feature."
Generally, a fee-based program must charge an asset-based or other similar fee
and must invest at least $250,000 in Advisor Class shares of the Fund in order
to be approved by AFD for investment in Advisor Class shares. Share certificates
are issued only upon request. See the Subscription Application and the Statement
of Additional Information for more information.
The Fund may refuse any order to purchase Advisor Class shares. In this regard,
the Fund reserves the right to restrict purchases of Advisor Class shares
(including through exchanges) when there appears to be evidence of a pattern of
frequent purchases and sales made in response to short-term considerations.
How the Fund Values its Shares
The net asset value of Advisor Class shares of the Fund is calculated by
dividing the value of the Fund's net assets allocable to the Advisor Class by
the outstanding shares of the Advisor Class. Shares are valued each day the
Exchange is open as of the close of regular trading (currently 4:00 p.m. Eastern
time). The securities in the Fund are valued at their current market value
determined on the basis of market quotations or, if such quotations are not
readily available, such other methods as the Fund's Directors believe accurately
reflects fair market value.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares in the Fund to the Fund) on
any day the Exchange is open, either directly or through your financial
representative. The price you will receive is the net asset value next
calculated after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for shares recently
purchased by check or electronic funds transfer, the Fund will not send proceeds
until it is reasonably satisfied that the check or electronic funds transfer has
been collected (which may take up to 15 days). If you are in doubt about what
documents are required by your fee based program or employee benefit plan, you
should contact your financial representative.
Selling Shares Through Your Financial Representative
Your financial representative must receive your request before 4:00 p.m. Eastern
time, and your financial representative must transmit your request to the Fund
by 5:00 p.m. Eastern time, for you to receive that day's net asset value. Your
financial representative is responsible for furnishing all necessary
documentation to the Fund and may charge you for this service.
Selling Shares Directly To the Fund
Send a signed letter of instruction or stock power form to Alliance Fund
Services, Inc. ("AFS"), along with certificates, if any, that represent the
shares you want to sell. For your protection, signatures must be guaranteed by a
bank, a member firm of a national stock exchange or other eligible guarantor
institution. Stock power forms are available from your financial representative,
AFS and many commercial banks. Additional documentation is required for the sale
of shares by corporations, intermediaries, fiduciaries and surviving joint
owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value and, except for
certain omnibus accounts, may be made only once per day. A shareholder who has
completed the appropriate section of the Subscription Application, or the
Shareholder Options form obtained from AFS, can elect to have the proceeds of
his or her redemption sent to his or her bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a shareholder's
address of record. Except for certain omnibus accounts, redemption requests by
electronic funds transfer may not exceed $100,000 and redemption requests by
check may not exceed $50,000. Telephone redemption is not available for shares
held in nominee or "street name" accounts or retirement plan accounts or shares
held by a shareholder who has changed his or her address of record within the
previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, the Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Fund
reserves the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will
20
<PAGE>
receive 60 days' written notice to increase the account value before the account
is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS' toll-free number, 800-221-5672.
HOW TO EXCHANGE SHARES
You may exchange your Advisor Class shares of the Fund for Advisor Class shares
of other Alliance Mutual Funds (including AFD Exchange Reserves, a money market
fund managed by Alliance). Exchanges of shares are made at the net asset value
next determined and without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund business day in order to receive that
day's net asset value.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
General
If you are a Fund shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with respect to the
purchase, sale or exchange of Advisor Class shares of the Fund that are
different from those described in this Prospectus. A transaction, service,
administrative or other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with respect to the
purchase, sale or exchange of Advisor Class shares made through such financial
representative. Such financial intermediaries may also impose requirements with
respect to the purchase, sale or exchange of shares that are different from, or
in addition to, those imposed by the Fund, including requirements as to the
minimum initial and subsequent investment amounts.
The Fund offers three classes of shares other than the Advisor Class, which are
Class A, Class B and Class C. All classes of shares of the Fund have a common
investment objective and investment portfolio. Class A shares are offered with
an initial sales charge and pay a distribution services fee. Class B shares have
a contingent deferred sales charge (a "CDSC") and also pay a distribution
services fee. Class C shares have no initial sales charge or CDSC as long as
they are not redeemed within one year of purchase, but pay a distribution
services fee. Because Advisor Class shares have no initial sales charge or CDSC
and pay no distribution services fee, Advisor Class shares are expected to have
different performance from Class A, Class B or Class C shares. You can obtain
more information about Class A, Class B and Class C shares, which are not
offered by this Prospectus, by contacting AFS by telephone at 800-221-5672 or by
contacting your financial representative.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of the Fund,
subject to the general supervision and control of the Directors of the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of December 31, 1997 totaling more than $218 billion (of
which approximately $85 billion represented the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit funds, public
employee retirement systems, investment companies, foundations and endowment
funds. The 58 registered investment companies managed by Alliance comprising 122
separate investment portfolios currently have over three million shareholder
accounts. As of December 31, 1997 Alliance was retained as an investment manager
for employee benefit plan assets of 31 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC") the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of the Equitable Companies
Incorporated, a holding company controlled by AXA--UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable by AXA--UAP is set forth in the Fund's Statement of Additional
Information under "Management of the Fund."
The employee who is primarily responsible for the day-to-day management of the
Fund's portfolio is Wayne D. Lyski. Mr. Lyski is an Executive Vice President of
Alliance, with which he has been associated since prior to 1993.
21
<PAGE>
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services Agreement with AFD with
respect to the Advisor Class Shares. The Glass-Steagall Act and other applicable
laws may limit the ability of a bank or other depository institution to become
an underwriter or distributor of securities. However, in the opinion of the
Fund's management, based on the advice of counsel, these laws do not prohibit
such depository institutions from providing services for investment companies
such as the administrative, accounting and other services referred to in the
Agreement. In the event that a change in these laws prevented a bank from
providing such services, it is expected that other service arrangements would be
made and that shareholders would not be adversely affected.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of the Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays and
holidays will be declared on the previous business day. The Fund pays dividends
on its shares after the close of business on the twentieth day of each month or,
if that day is not a business day, the first business day thereafter. At your
election (which you may change at least 30 days prior to the record date for a
particular dividend or distribution), dividends and distributions are paid in
cash or reinvested without charge in additional shares of the same class having
an aggregate net asset value as of the payment date of the dividend or
distribution equal to the cash amount thereof.
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares without charge by returning to Alliance, with
appropriate instructions, the check representing such dividend or distribution.
Thereafter, unless you otherwise specify, you will be deemed to have elected to
reinvest all subsequent dividends and distributions in shares of the Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.
While it is the intention of the Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and timing of any such dividend or distribution must
necessarily depend upon the realization by the Fund of income and capital gains
from investments. There is no fixed dividend rate, and there can be no assurance
that the Fund will pay any dividends or realize any capital gains. If you buy
shares just before the Fund deducts a distribution from its net asset value, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
the Fund is liable for such foreign income taxes the Fund intends, if possible,
to operate so as to meet the requirements of the Code to "pass through" to the
Fund's shareholders credits or deductions for foreign income taxes paid, but
there can be no assurance that the Fund will be able to do so. Furthermore, a
shareholder's ability to claim a foreign tax credit or deduction in respect of
foreign taxes paid by the Fund may be subject to certain limitations imposed by
the Code (including a holding-period requirement applied at both the Fund and
shareholder levels imposed by the Taxpayer Relief Act of 1997), as a result of
which a shareholder may not be permitted to claim a full credit or deduction for
the amount of such taxes.
U.S. FEDERAL INCOME TAXES
The Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. So long as the Fund distributes at least 90% of its income,
qualification as a regulated investment company relieves the Fund of federal
income and excise taxes on that part of its taxable income, including net
capital gains, which it pays out to its shareholders. Dividends out of net
ordinary income and distributions of net short-term capital gains are taxable to
the recipient shareholders as ordinary income. In the case of corporate
shareholders, such dividends may be eligible for the dividends-received
deduction, but only to the extent of qualifying dividends received by the Fund.
In addition, corporate shareholders who receive qualifying distributions must
meet the holding-period requirements in the Code in order to take the
dividends-received deduction.
Pursuant to the Taxpayer Relief Act of 1997, two different tax rates apply to
net capital gains--that is, the excess of net gains from capital assets held for
more than one year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on capital assets held
for more than one year but not more than 18 months ("mid-term gains") and a
second rate (generally 20%) applies to the balance of such net capital gains
("adjusted net capital gains"). Distributions of mid-term gains and adjusted net
capital gains will be taxable to shareholders as such, regardless of how long a
shareholder has held shares in the Fund.
Under current federal tax law, the amount of an income dividend or capital gains
distribution declared by the Fund during October, November or December of a year
to shareholders of record as of a specified date in such a month that is paid
during January of the following year is includable in the prior year's taxable
income of shareholders that are calendar year taxpayers.
22
<PAGE>
Any dividend or distribution received by a shareholder on shares of the Fund
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend or distribution
made shortly after the purchase of such shares by a shareholder, although in
effect a return of capital to that particular shareholder, would be taxable to
him or her as described above. Any loss realized on the sale of shares held six
months or less will be a long-term capital loss to the extent of any
distributions of net capital gains received by the shareholder with respect to
such shares.
A dividend or capital gains distribution with respect to shares of the Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, generally
will not be taxable to the plan. Distributions from such plans will be taxable
to individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
The Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies the Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's federal income tax return.
Under certain circumstances, if the Fund realizes losses (e.g. from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of the Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant) any further returns of capital will be taxable as capital gain. See
"Dividends, Distributions and Taxes" in the Statement of Additional Information.
Shareholders will be advised annually as to the federal tax status of dividends
and capital gains distributions made by the Fund for the preceding year.
Shareholders are urged to consult their tax advisers regarding their own tax
situation. Distributions by the Fund may be subject to state and local taxes.
- --------------------------------------------------------------------------------
CONVERSION FEATURE
- --------------------------------------------------------------------------------
CONVERSION TO CLASS A SHARES
Advisor Class shares may be held solely through the fee-based program accounts,
employee benefit plans and registered investment advisory or other financial
intermediary relationships described above under "Purchase and Sale of
Shares--How to Buy Shares," and by investment advisory clients of, and certain
other persons associated with, Alliance and its affiliates or the Fund. If (i) a
holder of Advisor Class shares ceases to participate in the fee-based program or
plan, or to be associated with an investment adviser or financial intermediary,
in each case that satisfies the requirements to purchase shares set forth under
"Purchase and Sale of Shares--How to Buy Shares" or (ii) the holder is
otherwise no longer eligible to purchase Advisor Class shares as described in
this Prospectus (each, a "Conversion Event"), then all Advisor Class shares held
by the shareholder will convert automatically and without notice to the
shareholder, other than the notice contained in this Prospectus, to Class A
shares of the Fund during the calendar month following the month in which the
Fund is informed of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum investment
requirements to purchase Advisor Class shares will not constitute a Conversion
Event. The conversion would occur on the basis of the relative net asset values
of the two classes without the imposition of any sales load, fee or other
charge.
DESCRIPTION OF CLASS A SHARES
The following sets forth maximum transaction costs, annual expenses, per share
income and capital charges for Class A shares of the Fund. Class A shares are
subject to a distribution fee that may not exceed an annual rate of .30%. The
higher fees mean a higher expense ratio, so Class A shares pay correspondingly
lower dividends and may have a lower net asset value than Advisor Class shares.
Shareholder Transaction Expenses are one of several factors to consider when you
invest in the Fund. The following table summarizes your maximum transaction
costs from investing in Class A shares of the Fund and annual expenses for Class
A shares of the Fund. The "Example" following the table below shows the
cumulative expenses attributable to a hypothetical $1,000 investment in Class A
shares for the periods specified.
<TABLE>
<S> <C>
Class A Shares
Maximum sales charge imposed on purchase
(as a percentage of offering price) (a) ................ None
(sales charge
waived)
Sales charge imposed on dividend reinvestments ......... None
Deferred sales charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) .......................... None
Exchange fee............................................ None
Operating Expenses Class A
-------
Management fees (after waiver)(b) ...................... None
12b-1 fees ............................................. .30%
Other expenses (after reimbursement) (c)(d) ............ 1.60%
----
Total fund operating expenses
(after waiver/reimbursement) (d) .................... 1.90%
====
Example (d) Class A
-------
After 1 year ........................................... $ 19
After 3 years .......................................... $ 60
</TABLE>
- --------------------------------------------------------------------------------
(a) Advisor Class shares convert to Class A shares at net asset value and
without the imposition of any sales charge and accordingly the maximum
sales charge of 4.25% on most purchases of Class A shares for cash does not
apply.
(b) Net of voluntary fee waiver. Absent such waiver, management fees would have
been .75%.
(c) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Fund for each shareholder's account.
(d) Net of voluntary fee waiver and/or expense reimbursement. In the absence of
such waiver and/or expense reimbursement, other expenses would have been
3.01% and total fund operating expenses would have been 4.06%.
23
<PAGE>
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. Long-term shareholders of Class A shares of the Fund may pay
aggregate sales charges totaling more than the economic equivalent of the
maximum initial sales charges permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc. The Rule 12b-1 fee for Class A comprises
a service fee not exceeding .25% of the aggregate average daily net assets of
the Fund attributable to Class A and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. The Example set forth above assumes
reinvestment of all dividends and distributions and utilizes a 5% annual rate of
return as mandated by Commission regulations. The Example should not be
considered representative of past or future expenses; actual expenses may be
greater or less than those shown.
Financial Highlights. The following table presents per share income and capital
changes for a Class A share of the Fund outstanding throughout the periods
indicated. The information in the table has been audited by Ernst & Young LLP,
the independent auditors for the Fund. A report of Ernst & Young LLP on the
information appears in the Fund's Statement of Additional Information. The
following information should be read in conjunction with the financial
statements and related notes which are included in the Fund's Statement of
Additional Information.
Further information about the Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the "For Literature"
telephone number shown on the cover of this Prospectus.
<TABLE>
<CAPTION>
Year Ended Fiscal Year or Period
Class A Class A
10/31/97 1/9/96+ to 10/31/96
-------- -------------------
<S> <C> <C>
Net Asset Value Beginning of Period ............................................ $10.83 $10.00
Net Investment Income .......................................................... .74(a) .69(a)
Net Realized and Unrealized Gain On Investments ................................ 1.02 .95
Net Increase (Decrease) In Net Asset Value From Operations ..................... 1.76 1.64
Dividends From Net Investment Income ........................................... (.75) (.81)
Distributions From Net Realized Gains .......................................... (.10) 0.00
Distributions In Excess of Net Investment Income ............................... (.28) 0.00
Total Dividends and Distributions .............................................. (1.13) (.81)
Net Asset Value End of Period .................................................. 11.46 10.83
Total Investment Return Based on Net Asset Value (b) ........................... 16.83% 17.31%
Net Assets at End of Period (000's omitted) .................................... 12,954 2,295
Ratio of Expenses To Average Net Assets ........................................ 1.90%(c) 1.90%*(c)
Ratio of Net Investment Income To Average Net Assets ........................... 6.56% 8.36%*
Portfolio Turnover Rate ........................................................ 417% 282%
</TABLE>
- --------------------------------------------------------------------------------
+ Commencement of operations.
* Annualized.
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at the net asset value during the period, and a
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment returns calculated for periods of
less than one year are not annualized.
(c) Net expenses assumed and/or waived/reimbursed. If the Fund had borne all
expenses, the expense ratio would have been 19.20% (annualized) for the
period January 9, 1996 to October 31, 1996 and 4.06% for its fiscal year
ended in 1997.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
The Fund is a Maryland corporation organized in 1995. It is anticipated that
annual shareholder meetings will not be held; shareholder meetings will be held
only when required by Federal or state law. Shareholders have available certain
procedures for the removal of Directors.
A shareholder in the Fund will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions arising from the
Fund's assets and, upon redeeming shares, will receive the then current net
asset value of the Fund represented by the redeemed shares less any applicable
CDSC. The Fund is empowered to establish, without shareholder approval,
additional portfolios, which may have different investment objectives, and
additional classes of shares. If an additional portfolio or class were
established in the Fund, each share of the portfolio or class would normally be
entitled to one vote for all purposes. Generally, shares of each portfolio and
class would vote as a single series or class on matters, such as the election of
Directors, that affect each portfolio and class in substantially the same
manner. Advisor Class, Class A, Class B and Class C shares have identical
voting, dividend, liquidation and other rights, except that each class bears its
own transfer agency expenses, each of Class A,
24
<PAGE>
Class B and Class C shares bears its own distribution expenses and Class B
shares and Advisor Class shares convert to Class A shares under certain
circumstances. Each class of shares votes separately with respect to matters for
which separate class voting is appropriate under applicable law. Shares are
freely transferable, are entitled to dividends as determined by the Directors
and, in liquidation of the Fund, are entitled to receive the net assets of the
Fund. Certain additional matters relating to the Fund's organization are
discussed in its Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND
DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as the Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Fund.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
The Americas, New York, New York 10105, is the Principal Underwriter of shares
of the Fund.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its "total return", which is computed
separately for each class of shares including the Advisor Class. Such
advertisements disclose the Fund's average annual compounded total return for
the periods prescribed by the Commission. The Fund's total return for each such
period is computed by finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, income
dividends and capital gains distributions paid on shares of the Fund are assumed
to have been reinvested when paid and the maximum sales charges applicable to
purchases and redemptions of Fund shares are assumed to have been paid. The
Fund's advertisements may quote performance rankings or ratings of the Fund by
financial publications or independent organizations such as Lipper and
Morningstar, Inc. or compare the Fund's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statement of Additional Information, which is
incorporated by reference herein, do 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.
25
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A: BOND RATINGS
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
predominantly speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties
or major exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative
debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to an inadequate
capacity to pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay
A-1
<PAGE>
principal. Adverse business, financial or economic conditions will likely
impair the capacity or willingness to pay principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent upon
favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA--High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+,A, A--Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB--Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB--Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according
to industry conditions or company fortunes. Overall quality may move up or
down frequently within this category.
B+,B, B--Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC--Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP--Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D
represents the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
A-2
<PAGE>
[LOGO]
ALLIANCE GLOBAL STRATEGIC
INCOME TRUST, INC.
_________________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 2, 1998
_________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for Alliance Global Strategic Income Trust, Inc. (the
"Fund") that offers Class A, Class B and Class C shares of the
Fund and the current Prospectus for the Fund that offers the
Advisor Class shares of the Fund (the "Advisor Class Prospectus"
and, together with the Prospectus that offers the Class A,
Class B and Class C shares, the "Prospectus"). Copies of the
Prospectuses of the Fund may be obtained by contacting Alliance
Fund Services, Inc. at the address or the "For Literature"
telephone number shown above.
TABLE OF CONTENTS
Page
Description of the Fund..................................
Management of the Fund...................................
Expenses of the Fund.....................................
Purchase of Shares.......................................
Redemption and Repurchase of Shares......................
Shareholder Services.....................................
Net Asset Value .........................................
Dividends, Distributions and Taxes.......................
Brokerage and Portfolio Transactions.....................
General Information......................................
Financial Statements.....................................
Appendix: Certain Investment Practices.................. A-1
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
________________________________________________________________
DESCRIPTION OF THE FUND
________________________________________________________________
The Fund is a non-diversified investment company. The
Fund's investment objectives are "fundamental" and cannot be
changed without a shareholder vote. Except as noted, the Fund's
investment policies are not fundamental and thus can be changed
without a shareholder vote. The Fund will not change these
policies without notifying its shareholders. There is no
guarantee that the Fund will achieve its investment objectives.
Investment Objectives and Policies
The Fund is a non-diversified open-end investment
management company. Its primary investment objective is to seek
a high level of current income. Its secondary investment
objective is capital appreciation. The Fund pursues its
investment objectives by investing primarily in a portfolio of
fixed-income securities of U.S. and non-U.S. companies and U.S.
Government and foreign government securities and supranational
entities, including lower-rated securities. The Fund may also
use derivative instruments to enhance income. The average
weighted maturity of the Fund's portfolio of fixed-income
securities is expected to vary between 5 years and 30 years in
accordance with the Adviser's changing perceptions of the
relative attractiveness of various maturity ranges.
Under normal market conditions, at least 65% of the
value of the Fund's total assets will be invested in the fixed-
income securities of issuers located in three countries, one of
which may be the United States. No more than 25% of the value of
its total assets, however, will be invested in the securities of
any one foreign government. U.S. Government securities in which
the Fund may invest include mortgage-related securities and zero
coupon securities. Fixed-income securities in which the Fund may
invest include preferred stock, mortgage-related and other asset-
backed securities, and zero coupon securities. The Fund may also
invest in rights and warrants (for debt securities or for equity
securities that are acquired in connection with debt
instruments), and loan participations and assignments.
The Fund will maintain at least 65% of the value of its
total assets in investment grade securities and may maintain not
more than 35% of the value of its total assets in lower-rated
securities. See "Risk Considerations--Securities Ratings" and
"--Investment in Lower-Rated Fixed-Income Securities" sections in
the Fund's Prospectus. Unrated securities will be considered for
investment by the Fund when Alliance Capital Management L.P., the
Fund's investment adviser (the "Adviser") believes that the
2
<PAGE>
financial condition of the issuers of such obligations and the
protection afforded by the terms of the obligations themselves
limit the risk to the Fund to a degree comparable to that of
rated securities which are consistent with the Fund's investment
objectives and policies. Lower-rated securities in which the
Fund may invest include Brady Bonds and fixed-income securities
of issuers located in emerging markets. There is no minimum
rating requirement applicable to the Fund's investments in lower-
rated fixed-income securities.
Additional Investment Policies and Practices
To the extent not described in the Prospectus, set forth
below and in Appendix A hereto is additional information
regarding the Fund's investment policies and practices. Except
as otherwise noted, the Fund's investment policies are not
designated "fundamental policies" within the meaning of the
Investment Company Act of 1940 (the "1940 Act") and, therefore,
may be changed by the Directors of the Fund without a shareholder
vote. However, the Fund will not change its investment policies
without contemporaneous written notice to shareholders.
Loan Participations. In a typical corporate loan
syndication, a number of lenders, usually banks ("co-lenders"),
lend a corporate borrower a specified sum pursuant to the terms
and conditions of a loan agreement. One of the co-lenders
usually agrees to act as the agent bank with respect to the loan.
The loan agreement among the corporate borrower and the
co-lenders identifies the agent bank as well as sets forth the
rights and duties of the parties. The agreement often (but not
always) provides for the collateralization of the corporate
borrower's obligations thereunder and includes various types of
restrictive covenants which must be met by the borrower.
The participation interests acquired by the Fund may,
depending on the transaction, take the form of a direct
co-lending relationship with the corporate borrower, an
assignment of an interest in the loan by a co-lender or another
participant, or a participation in the seller's share of the
loan. Typically, the Fund will look to the agent bank to collect
principal of and interest on a participation interest, to monitor
compliance with loan covenants, to enforce all credit remedies,
such as foreclosures on collateral, and to notify co-lenders of
any adverse changes in the borrower's financial condition or
declarations of insolvency. The agent bank in such cases will be
qualified under the 1940 Act to serve as a custodian for a
registered investment company such as the Fund. The agent bank
is compensated for these services by the borrower pursuant to the
terms of the loan agreement.
3
<PAGE>
When the Fund acts as co-lender in connection with a
participation interest or when the Fund acquires a participation
interest the terms of which provide that the Fund will be in
primarily with the corporate borrower, the Fund will have direct
recourse against the borrower in the event the borrower fails to
pay scheduled principal and interest. In cases where the Fund
lacks such direct recourse, the Fund will look to the agent bank
to enforce appropriate credit remedies against the borrower.
The Fund believes that the principal credit risk
associated with acquiring participation interests from a
co-lender or another participant is the credit risk associated
with the underlying corporate borrower. The Fund may incur
additional credit risk, however, when the Fund is in the position
of a participant rather than a co-lender because the Fund must
assume the risk of insolvency of the co-lender from which the
participation interest was acquired and that of any person
interpositioned between the Fund and the co-lender. However, in
acquiring participation interests the Fund will conduct analysis
and evaluation of the financial condition of each such co-lender
and participant to ensure that the participation interest meets
the Fund's high quality standard and will continue to do so as
long as it holds a participation.
Brady Bonds. The Portfolio may invest in certain debt
obligations customarily referred to as "Brady Bonds," which are
created through the exchange of existing commercial bank loans to
foreign securities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary
of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Plan debt restructurings totalling more than
$120 billion have been implemented to date in Argentina, Bolivia,
Brazil, Costa Rica, the Dominican Republic, Ecuador, Mexico,
Nigeria, the Philippines, Uruguay and Venezuela, with the largest
proportion of Brady Bonds having been issued to date by
Argentina, Brazil, Mexico and Venezuela.
Brady Bonds have been issued only recently, and,
accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various
currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market. Certain
Brady Bonds are collateralized in full as to principal due at
maturity by zero coupon obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities having the
same maturity ("Collateralized Brady Bonds").
Dollar-denominated, Collateralized Brady Bonds may be
fixed rate bonds or floating rate bonds. Interest payments on
Brady Bonds are often collateralized by cash or securities in an
4
<PAGE>
amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of
floating rate bonds, initially is equal to a least one year's
rolling interest payments based on the applicable interest rate
at that time and is adjusted at regular intervals thereafter.
Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Brady
Bonds are often viewed as having three or four valuation
components: (i) collateralized repayment of principal at final
maturity; (ii) collateralized interest payments;
(iii) uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the
event of a default with respect to Collateralized Brady Bonds as
a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed
to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent
to the scheduled maturity of the defaulted Brady Bonds, which
will continue to be outstanding, at which time the face amount of
the collateral will equal the principal payments which would have
been due on the Brady Bonds in the normal course. In addition,
in light of the residual risk of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank
loans by public and private entitles of countries issuing Brady
Bonds, investments in Brady Bonds are to be viewed as
speculative.
Standby Commitment Agreements. The purchase of a
security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued and the value of
the security will thereafter be reflected in the calculation of
the Fund's net asset value. The cost basis of the security will
be adjusted by the amount of the commitment fee. In the event
the security is not issued, the commitment fee will be recorded
as income on the expiration date of the standby commitment.
Eurodollar Instruments. Eurodollar instruments are
essentially U.S. Dollar-denominated further 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 thereon, which are described in Appendix A.
Repurchase Agreements. The Fund'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 Fund enters into
repurchase agreement transactions.
5
<PAGE>
Illiquid Securities. Historically, illiquid securities
have included securities subject to contractual or legal
restrictions on resale because they have not been registered
under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted 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 might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act, including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
During the coming year, the Fund may invest up to 5% of
its total assets in restricted securities issued under
Section 4(2) of the Securities Act, which exempts from
registration "transactions by an issuer not involving any public
offering." Section 4(2) instruments are restricted in the sense
that they can only be resold through the issuing dealer to
institutional investors and in private transactions; they cannot
be resold to the general public without registration.
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 Fund, however, could affect adversely the
6
<PAGE>
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System, an automated
system for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers sponsored by the
National Association of Securities Dealers, Inc. The Fund's
investments in Rule 144A eligible securities are not subject to
the limitations described above on securities issued under
Section 4(2).
The Adviser, under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio. In reaching liquidity decisions, the
Adviser will consider, among other factors, the following:
(1) the frequency of trades and quotes for the security; (2) the
number of dealers making 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 Securities and Exchange Commission (the
"Commission") interpretation or position with respect to such
type of security.
General. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast price movements or currency
exchange rate movements correctly. Should exchange rates move in
an unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts, options or forward contracts or
may realize losses and thus be in a worse position than if such
strategies had not been used. Unlike many exchange-traded
futures contracts and options on futures contracts, there are no
daily price fluctuation limits with respect to options on
currencies and forward contracts, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. In addition, the correlation between movements in the
prices of such instruments and movements in the prices of the
securities and currencies hedged or used for cover will not be
perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of types of
7
<PAGE>
securities and currencies are relatively new and still
developing, and there is no public market for forward contracts.
It is impossible to predict the amount of trading interest that
may exist in various types of futures contracts, options and
forward contracts. If a secondary market does not exist with
respect to an option purchased or written by the Fund over-the-
counter, it might not be possible to effect a closing transaction
in the option (i.e., dispose of the option) with the result that
(i) an option purchased by the Fund would have to be exercised in
order for the Fund to realize any profit and (ii) the Fund may
not be able to sell currencies or portfolio securities covering
an option written by the Fund until the option expires or it
delivers the underlying futures contract or currency upon
exercise. Therefore, no assurance can be given that the Fund
will be able to utilize these instruments effectively for the
purposes set forth above.
Defensive Position. For temporary defensive purposes,
the Fund may vary from its investment objectives during periods
in which conditions in securities markets or other economic or
political conditions warrant. During such periods, the Fund may
increase without limit its position in short-term, liquid, high-
grade debt securities, which may include securities issued by the
U.S. government, its agencies and, instrumentalities ("U.S.
Government Securities"), bank deposit, money market instruments,
short-term (for this purpose, securities with a remaining
maturity of one year or less) debt securities, including notes
and bonds, and short-term foreign currency denominated debt
securities rated A or higher by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services ("S&P"), Duff &
Phelps Credit Rating Co. ("Duff & Phelps") or Fitch IBCA, Inc.
("Fitch") or, if not so rated, of equivalent investment quality
as determined by the Adviser. For this purpose, the fund will
limit its investments in foreign currency denominated debt
securities to securities that are denominated in currencies in
which the Fund anticipates its subsequent investments will be
denominated.
Subject to its policy of investing at least 65% of its
total assets in fixed-income securities of issuers located in
three countries, the Fund may also at any time temporarily invest
funds awaiting reinvestment or held as reserves for dividends and
other distributions to shareholders in money market instruments
referred to above.
Portfolio Turnover. The Fund may engage in active
short-term trading to benefit from yield disparities among
different issues of securities, to seek short-term profits during
periods of fluctuating interest rates, or for other reasons. Such
trading will increase the Fund's rate of turnover and the
incidence of short-term capital gain taxable as ordinary income.
8
<PAGE>
The portfolio turnover rate of securities of the Fund for the
fiscal period January 9, 1996 (commencement of operations)
through October 31, 1996 and for the fiscal year ended
October 31, 1997 was 282% and 417%, respectively. Management
anticipates that the annual turnover in the Fund will not be in
excess of 500%. An annual turnover rate of 500% occurs, for
example, when all of the securities in the Fund's portfolio are
replaced five times in a period of one year. A higher rate of
portfolio turnover involves correspondingly greater expenses than
a lower rate, which expenses must be borne by the Fund and its
shareholders. High portfolio turnover also may result in the
realization of substantial net short-term capital gains.
U.S. and Foreign Taxes. Foreign taxes paid by the Fund
may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable
tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct
such foreign taxes. Investors should review carefully the
information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the
specific tax consequences of investing in the Fund.
Certain Fundamental Investment Policies
The following restrictions, which supplement those set
forth in the Fund's Prospectus, may not be changed without
approval by the vote of a majority of the Fund's outstanding
voting securities, which means the affirmative vote of the
holders of (i) 67% or more or the shares represented at a meeting
at which more than 50% of the outstanding shares are represented,
or (ii) more than 50% of the outstanding shares, whichever is
less.
To reduce investment risk, as a matter of fundamental
policy the Fund may not:
(i) invest 25% or more of its total assets in
securities of issuers conducting their principal
business activities in the same industry, except that
this restriction does not apply to U.S. Government
Securities;
(ii) borrow money or issue any senior security within
the meaning of the 1940 Act, except the Fund may, in
accordance with provisions of the 1940 Act, (a) borrow
from a bank if after such borrowing there is asset
coverage of at least 300% as defined in the 1940 Act,
and (b) borrow for temporary or emergency purposes in an
amount not exceeding 5% of the value of the total assets
of the Fund;
9
<PAGE>
(iii) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted
borrowings;
(iv) make loans except through (a) the purchase of loan
assignments and participations and other debt
obligations in accordance with its investment objectives
and policies; (b) the lending of portfolio securities;
or (c) the use of repurchase agreements;
(v) participate on a joint or joint and several basis
in any securities trading account;
(vi) invest in companies for the purpose of exercising
control;
(vii) make short sales of securities or maintain a
short position, unless not more than 25% of the Fund's
net assets (taken at market value) are held as
collateral for such sales at any one time; or
(viii) (a) purchase or sell real estate, except that it
may purchase and sell securities of companies which deal
in real estate or interests therein; (b) purchase or
sell commodities or commodity contracts including
futures contracts (except foreign currencies, foreign
currency options and futures, options and futures on
securities and securities indices and forward contracts
or contracts for the future acquisition or delivery of
securities and foreign currencies and related options on
futures contracts and similar contracts); (c) invest in
interests in oil, gas, or other mineral exploration or
development programs; (d) purchase securities on margin,
except for such short-term credits as may be necessary
for the clearance of transactions; and (e) act as an
underwriter of securities, except that the Fund may
acquire restricted securities under circumstances in
which, if such securities were sold, the Fund might be
deemed to be an underwriter for purposes of the
Securities Act.
________________________________________________________________
MANAGEMENT OF THE FUND
________________________________________________________________
DIRECTORS AND OFFICERS
The Directors and officers of the Fund, their ages and
their principal occupations during the past five years are set
forth below. Each such Director and officer is also a trustee,
10
<PAGE>
director or officer of other registered investment companies
sponsored by the Adviser. Unless otherwise specified, the
address of each of the following persons is 1345 Avenue of the
Americas, New York, New York 10105.
Directors
JOHN D. CARIFA,* 52, Chairman and President, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), with which he has been
associated since prior to 1993.
RUTH BLOCK, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States ("Equitable"). She is a Director of
Ecolab Incorporated (specialty chemicals) and Amoco Corporation
(oil and gas). Her address is P.O. Box 4653, Stamford,
Connecticut 06903.
DAVID H. DIEVLER, 68, was formerly a Senior Vice
President of ACMC with which he had been associated since prior
to 1992 through 1994. He is currently an independent consultant.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 56, has been the President of Historic
Hudson Valley (historic preservation) since 1993. Previously, he
was Director of the National Academy of Design. His address is
150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 65, is an investment advisor and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Suite 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 73, is President of the Harry Frank
Guggenheim Foundation. He was formerly President of New York
University, the New York Botanical Garden and Rector of the
United Nations University. His address is 45 East 89th Street,
New York, New York 10128.
CLIFFORD L. MICHEL, 58, is a partner in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is 80 Pine Street, New
York, New York 10005.
____________________
* An interested person of the Fund as defined in the 1940
Act.
11
<PAGE>
DONALD J. ROBINSON, 63, was formerly a senior partner
and a member of The Executive Committee in the law firm of
Orrick, Herrington & Sutcliffe and is currently senior counsel to
that firm. His address is 666 Fifth Avenue, 19th Floor, New
York, New York 10103.
Officers
JOHN D. CARIFA, President, see biography, under
"Directors" section, above.
KATHLEEN A. CORBET, Senior Vice President, 37, is an
Executive Vice President of ACMC with which she has been
associated since July, 1993. Prior thereto, she headed Equitable
Capital Management Corporation's Fixed Income Management
Department since prior to 1993.
WAYNE D. LYSKI, 56, Senior Vice President, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1993.
DOUGLAS J. PEEBLES, 32, Vice President, is a Vice
President of ACMC with which he has been associated since prior
to 1993.
EDMUND P. BERGAN, JR., 47, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD"), with which he has been associated since prior to
1993.
ANDREW L. GANGOLF, 43, Assistant Secretary, is Vice
President and Assistant General Counsel of AFD since December
1994. Prior thereto, he was a Vice President and Assistant
Secretary of Delaware Management Company, Inc. since prior to
1993.
DOMENICK PUGLIESE, 36, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD with which he has
been associated since May 1995. Previously, he was Vice President
and Counsel of Concord Holding Corporation since 1994 and Vice
President and Associate General Counsel of Prudential Securities
since prior to 1993.
EMILIE D. WRAPP, 41, Assistant Secretary, is a Vice
President and Special Counsel of AFD, with which she has been
associated since prior to 1993.
MARK D. GERSTEN, 47, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc. ("AFS"), with which he has been associated since prior to
1993.
12
<PAGE>
JUAN J. RODRIGUEZ, 40, Controller, is an Assistant Vice
President of AFS with which he has been associated since prior to
1993.
CARLA LAROSE, 34, Assistant Controller, is a Manager of
AFS with which she has been associated since prior to 1993.
JOSEPH J. MANTINEO, 38, Assistant Controller, has been a
Vice President of AFS since prior to 1993.
VINCENT S. NOTO, 33, Assistant Controller, is a Vice
President of AFS with which he has been associated since prior to
1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended through October 31,
1997, the aggregate compensation paid to each of the Directors
during calendar year 1997 by all of the registered investment
companies to which the Adviser provides investment advisory
services (collectively, the "Alliance Fund Complex"), and the
total number of registered investment companies (and separate
investment portfolios within those companies) in the Alliance
Fund Complex with respect to which each of the Directors serves
as a director or trustee, are set forth below. Neither the
registered investment company nor any other fund in the Alliance
Fund Complex provides compensation in the form of pensions or
retirement benefits to any of its directors or trustees. Each of
the Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
13
<PAGE>
Total Number Total Number
of Investment of Investment
Companies in Portfolios
the Alliance Within the
Total Fund Complex, Alliance
Compensation Including the Fund Complex,
from the Fund, as to Including the
Alliance Fund which the Fund, as to which
Aggregate Complex, Director is the Director is a
Compensation Including a Director Director or
Name of Director From the Fund the Fund or Trustee Trustee
John D. Carifa $-0- $-0- 54 118
Ruth Block $3,039 $164,000 40 80
David H. Dievler $3,046 $188,500 47 83
John H. Dobkin $3,030 $126,500 44 80
William H. Foulk, Jr. $3,106 $176,250 48 113
Dr. James M. Hester $3,006 $156,500 40 76
Clifford L. Michel $2,775 $194,500 41 92
Donald J. Robinson $2,971 $235,500 41 94
As of February 6, 1998, the Directors and officers of the Fund as a group
owned 4.14% of the Class A shares of the Fund.
Adviser
Alliance Capital Management L.P., 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 Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1997 totaling more than $218 billion (of which
approximately $85 billion represented the assets of investment
companies). The Adviser's clients are primarily major corporate
employee benefit funds, public employee retirement systems,
investment companies, foundation and endowment funds. As of
December 31, 1997, the Adviser was an investment manager of
employee benefit fund assets for 31 of the FORTUNE 100 companies.
As of that date, the Adviser and its subsidiaries employed
approximately 1,500 employees who operated out of domestic
offices and the offices of subsidiaries in Bahrain, Bangalore,
Chennai, Istanbul, London, Madrid, Mumbai, New Delhi, Paris,
Seoul, Singapore, Sydney, Tokyo and Toronto and affiliate offices
located in Vienna, Warsaw, Hong Kong, Sao Paulo and Moscow. The
58 registered investment companies comprising more than 122
14
<PAGE>
separate investment portfolios managed by the Adviser currently
have more than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"). ECI is a holding company
controlled by AXA-UAP, a French insurance holding company which
at September 30, 1997, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1997, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
AXA-UAP is a holding company for an international group
of insurance and related financial services companies. AXA-UAP's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA-UAP is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, as of
September 30, 1997 more than 25% of the voting power of AXA-UAP
was controlled directly and indirectly by FINAXA, a French
holding company. As of September 30, 1997 more than 25% of the
voting power of FINAXA was controlled directly and indirectly by
four French mutual insurance companies (the "Mutuelles AXA"), one
of which, AXA Assurances I.A.R.D. Mutuelle, itself controlled
directly and indirectly more than 25% of the voting power of
FINAXA. Acting as a group, the Mutuelles AXA control AXA-UAP and
FINAXA.
Under the Advisory Agreement, the Adviser provides
investment advisory services and other placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.
15
<PAGE>
The Advisory Agreement is terminable without penalty 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 on 60 days'
written notice, 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 became effective on January 2,
1996. The Advisory Agreement will continue in effect for
successive twelve-month periods (computed from each January 1),
provided, however, 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 of
Directors, including in either case approval by a majority of the
Directors who are not parties to the Advisory Agreement or
interested persons as defined by the 1940 Act of any such party.
Most recently, continuance of the Agreement was approved for the
period ending December 31, 1998 by the Board of Directors,
including majority of the Directors who are not parties to the
Advisory Agreement or interested periods of any such party, at
their Regular Meeting held on December 9, 1997.
For the fiscal period January 9, 1996 (commencement of
operations) through October 31, 1996 and for the fiscal year
ended October 31, 1997, the Adviser received from the Fund
advisory fees of $12,613, and $138,196, respectively. The Fund
was reimbursed by the Adviser in the amount of $289,911 for the
fiscal period January 9, 1996 (commencement of operations)
through October 31, 1996 and in the amount of $397,971 for the
fiscal year ended October 31, 1997.
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 which result in the
purchase or sale of a 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 or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which 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-dealer, such transactions may be averaged as
to price.
16
<PAGE>
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: ACM Institutional Reserves, Inc., AFD Exchange
Reserves, The Alliance Fund, Inc., Alliance All-Asia Investment
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Developing Markets
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Environment Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China '97 Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
Institutional Funds, Inc., Alliance International Fund, Alliance
International Premier Growth Fund, Inc., Alliance Money Market
Fund, Alliance Mortgage Securities Income Fund, Inc., Alliance
Limited Maturity Government Fund, Inc., Alliance Multi-Market
Strategy Trust, Inc., Alliance Municipal Income Fund, Inc.,
Alliance Municipal Income Fund II, Alliance Municipal Trust,
Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance Technology
Fund, Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all open-end investment companies; and to ACM Government
Income Fund, Inc., ACM Government Securities Fund, Inc., ACM
Government Spectrum Fund, Inc., ACM Government Opportunity Fund,
Inc., ACM Managed Income Fund, Inc., ACM Managed Dollar Income
Fund, Inc., ACM Municipal Securities Income Fund, Inc., Alliance
All-Market Advantage Fund, Inc., Alliance World Dollar Government
Fund, Inc., Alliance World Dollar Government Fund II, Inc., The
Austria Fund, Inc., The Korean Investment Fund, Inc., The
Southern Africa Fund, Inc. and The Spain Fund, Inc., all
registered closed-end investment companies.
________________________________________________________________
EXPENSES OF THE FUND
________________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with AFD, the Fund's principal
underwriter (the "Principal Underwriter"), to permit the
Principal Underwriter to distribute the Fund's shares and to
permit the Fund to pay distribution services fees to defray
17
<PAGE>
expenses associated with distribution of its Class A, Class B and
Class C shares in accordance with a plan of distribution which is
included in the Agreement and 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 are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined contingent deferred sales charge and
distribution services fee on the Class B shares and Class C
shares, are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Fund's shares.
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 for their review 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 became effective on January 2, 1996 with
respect to Class A shares, Class B shares and Class C shares and
September 30, 1996 with respect to Advisor Class shares. The
Agreement will continue in effect for successive twelve-month
periods (computed from each January 1), provided, however, 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 voting securities (as defined in the 1940 Act)
of that class, 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 Plan or any
agreement related thereto. Most recently, continuance of the
Agreement was approved for the period ending December 31, 1998 by
the Board of Directors, including majority of the Directors who
are not parties to the Advisory Agreement or interested periods
of any such party, at their Regular Meeting held on December 9,
1997.
18
<PAGE>
In approving the Agreement, the Directors of the Fund
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders.
Information with respect to distribution services fees and other
revenues and expenses of the Principal Underwriter will be
presented to the Directors each year for their consideration in
connection with their deliberations as to the continuance of the
Agreement. In their review of the Agreement, the Directors will
be asked to take into consideration separately with respect to
each class the distribution expenses incurred with respect to
such class. The distribution services fee of a particular class
will not be used to subsidize the provision of distribution
services with respect to any other class.
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 the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
During the fiscal year ended October 31, 1997,
distribution services fees for expenditures the Fund paid under
the Agreement, with respect to Class A shares, in amounts
aggregating $17,509 which constituted .30 of 1%, annualized, of
the Fund's average daily net assets attributable to Class A
shares during such fiscal year, and the Adviser made payments
from its own resources as described above aggregating $134,098.
Of the $151,607 paid by the Fund and the Adviser under the Plan
with respect to Class A shares, $18,625 was spent on advertising,
$1,534 on the printing and mailing of prospectuses for persons
other than current shareholders, $58,569 for compensation to
broker-dealers and other financial intermediaries (including,
$39,003 to the Fund's Principal Underwriter), $20,868 for
compensation to sales personnel and $52,011 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the fiscal year ended October 31, 1997,
distribution services fees for expenditures the Fund paid under
the Agreement, with respect to Class B shares, in amounts
aggregating $100,393 which constituted 1.00% of the Fund's
average daily net assets attributable to Class B shares during
such fiscal year and the Adviser made payments from its own
resources aggregating $862,851. Of the $963,244 paid by the Fund
and the Adviser under the Plan with respect to Class B shares,
$48,870 was spent on advertising, $3,945 on the printing and
mailing of prospectuses for persons other than current
shareholders, $745,454 for compensation to broker-dealers and
other financial intermediaries (including, $97,109 to the Fund's
Principal Underwriter), $28,088 for compensation to sales
19
<PAGE>
personnel and $123,925 was spent on the printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses, and $12,962 on interest on Class B
financing.
During the fiscal year ended October 31, 1997,
distribution services fees for expenditures the Fund paid under
the Agreement, with respect to Class C shares, in amounts
aggregating $25,503 which constituted 1.00% of the Fund's average
daily net assets attributable to Class C shares during such
fiscal year, and the Adviser made payments from its own resources
as described above aggregating $104,806. Of the $130,309 paid by
the Fund and the Adviser under the Plan with respect to Class C
shares, $14,332 was spent on advertising, $930 on the printing
and mailing of prospectuses for persons other than current
shareholders, $72,552 for compensation to broker-dealers and
other financial intermediaries (including, $31,401 to the Fund's
Principal Underwriter), $5,685 for compensation to sales
personnel $33,917 was spent on the printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses, and $2,893 on interest on Class C financing.
The Agreement will continue in effect for successive
twelve-month periods (computed from each January 1), provided,
however, 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 Fund's outstanding voting securities (as
defined in the 1940 Act) of that class, and, in either case,
approval 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. Most recently, continuance of the Agreement was
approved for the period ending December 31, 1998 by the Board of
Directors, including a majority of the Directors who are not
interested persons, as defined in the 1940 Act, at their Regular
Meeting held on December 9, 1997.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
20
<PAGE>
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that a particular class may bear
pursuant to the Agreement without the approval of a majority of
the holders of the outstanding voting shares of the class or
classes affected. The Agreement may be terminated (a) by the
Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting
separately by class or by a majority vote of the Directors who
are not "interested persons" as defined in the 1940 Act, or
(b) by the Principal Underwriter. To terminate the Agreement,
any party must give the other parties 60 days' written notice; to
terminate the Rule 12b-1 Plan only, the Fund need give no notice
to the Principal Underwriter. The Agreement will terminate
automatically in the event of its assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class A shares, Class B shares,
Class C shares and Advisor Class shares of the Fund, plus
reimbursement for out-of-pocket expenses. The transfer agency
fee with respect to the Class B shares and Class C shares is
higher than the transfer agency fee with respect to the Class A
shares and Advisor Class shares, reflecting the additional costs
associated with the Class B and Class C contingent deferred sales
charges. For the fiscal period January 9, 1996 (commencement of
operations) through October 31, 1997 the Fund paid AFS $19,791
pursuant to the Transfer Agency Agreement.
PURCHASE OF SHARES
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Buy Shares."
General
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A Shares"), with a
contingent deferred sales charge ("Class B Shares"), or without
any initial sales charge and, as long as the shares are held for
21
<PAGE>
one year or more, without any contingent deferred sales charge
("Class C Shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales-charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the National
Association of Securities Dealers, Inc. and have entered into
selected dealer agreements with the Principal Underwriter
("selected dealers"), (ii) depository institutions and other
financial intermediaries or their affiliates, that have entered
into selected agent agreements with the Principal Underwriter
("selected agents"), and (iii) the Principal Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, or (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or
(iv) by directors and present or retired full-time employees of
CB Commercial Real Estate Group, Inc. Generally, a fee-based
program must charge an asset-based or other similar fee and must
invest at least $250,000 in Advisor Class shares of each Fund in
which the program invests in order to be approved by AFD for
investment in Advisor Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial intermediaries may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
22
<PAGE>
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under
"Class A Shares." On each Fund business day on which a purchase
or redemption order is received by the Fund and trading in the
types of securities in which the Fund invests might materially
affect the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of regular trading on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern
time) by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day on which the Exchange is open for
trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset values
of the Class A and Advisor Class shares as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
23
<PAGE>
applicable, is responsible for transmitting such orders by
5:00 p.m. If the selected dealer, agent, or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by electronic
funds transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription. As
a convenience to the subscriber, and to avoid unnecessary expense
to the Fund, stock certificates representing shares of the Fund
are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
24
<PAGE>
amount of the shares of the Fund and/or other Alliance Mutual
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives will take the form
of payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
Class A, Class B and Class C and Advisor Class shares
each represent an interest in the same portfolio of investments
of the Fund, have the same rights and are identical in all
respects, except that (i) Class A shares bear the expense of the
initial sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
that borne by Class A shares and Advisor Class shares do not bear
such a fee, (iii) Class B shares and Class C shares bear higher
transfer agency costs than those borne by Class A shares and
Advisor Class shares; (iv) each of Class A, Class B and Class C
shares has exclusive voting rights with respect to provisions of
the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of the Class A shareholders, an amendment to
the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B shareholders and
Advisor Class shareholders and the Class A, Class B and Advisor
Class shareholders will vote separately by class, and (v) Class B
shares and Advisor Class shares are subject to a conversion
feature. Each class has different exchange privileges and
certain different shareholder service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements --
Class A, Class B, and Class C Shares**
____________________
** Advisor Class shares are sold only to investors described
above in this section under "-- General."
25
<PAGE>
The alternative purchase arrangements available with
respect to Class A, Class B and Class C shares permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Fund, the accumulated distribution services fee
and contingent deferred sales charges on Class B shares prior to
conversion, or the accumulated distribution services fee and
contingent deferred sales charge on Class C shares, would be less
than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher
return of Class A shares. Class A shares will normally be more
beneficial than Class B shares to the investor who qualifies for
reduced initial sales charges on Class A shares, as described
below. In this regard, the Principal Underwriter will reject any
order (except orders from certain retirement plans) for more than
$250,000 for Class B shares. Class C shares will normally not be
suitable for the investor who qualifies to purchase Class A
shares at net asset value. For this reason, the Principal
Underwriter will reject any order for more than $1,000,000 for
Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and,
being subject to a contingent deferred sales charge for a three-
year period and one-year period, respectively. For example,
based on current fees and expenses, an investor subject to the
4.25% initial sales charge on Class A shares would have to hold
his or her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee of Class A shares. In
26
<PAGE>
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value
of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance
assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the fiscal period January 9, 1996 (commencement
of operations) through October 31, 1996 and for the fiscal year
ended October 31, 1997, the aggregate amount of underwriting
commission payable with respect to shares of the Fund was $9,434
and $328,612, respectively. Of that amount, the Principal
Underwriter received the amounts of $240 and $10,947,
respectively representing that portion of the sales charges paid
on shares of the Fund sold during the year which was not
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter). During the Fund's fiscal period
January 9, 1996 (commencement of operations) through October 31,
1996 and for the fiscal year ended October 31, 1997, the
Principal Underwriter received contingent deferred sales charges
of $-0- and $-0-, respectively on Class A shares, $743 and
$11,816, respectively on Class B shares and $-0- and $4,488,
respectively on Class C shares.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
27
<PAGE>
SALES CHARGE
Discount or
Commission
As % of As % of to Dealers or
Amount of Net Amount the Public Agents As % of
Purchase Invested Offering Price Offering Price
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . . 1.78 1.75 1.50
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, described below under "--Class B Shares."
In determining the contingent deferred sales charge applicable to
a redemption of Class A shares, it will be assumed that the
redemption is, first, of any shares that are not subject to a
contingent deferred sales charge (for example, because an initial
sales charge was paid with respect to the shares, or they have
been held beyond the period during which the charge applies or
were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
28
<PAGE>
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under
"--Class B Shares Conversion Feature" and "--Conversion of
Advisor Class Shares to Class A Shares." The Fund receives the
entire net asset value of its Class A shares sold to investors.
The Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Fund on April 30, 1997.
Net Asset Value per Class A Share at $11.46
October 31, 1997
Class A Per Share Sales Charge
4.25% of offering price 4.44% of
net asset value per share) .51
______
Class A Per Share Offering Price to
the public $11.97
======
29
<PAGE>
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
30
<PAGE>
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
31
<PAGE>
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all shares of the Fund
held by the investor and (b) all shares of any
other Alliance Mutual Fund held by the investor;
and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs a Statement of Intention; however, the 13-month period
during which the Statement of Intention is in effect will begin
on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
32
<PAGE>
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in
shares of the Fund or any other Alliance Mutual Fund, to qualify
for the 3.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in sales charge will
be used to purchase additional shares of the Fund subject to the
rate of sales charge applicable to the actual amount of the
aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period, and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
33
<PAGE>
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date, and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without any initial sales
charge) and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present full-time employees
of selected dealers or agents; or the spouse, sibling, direct
ancestor or direct descendant (collectively "relatives") of any
such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates;
and certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their services and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
34
<PAGE>
intermediaries whose accounts are linked to the master account of
such investment adviser of financial intermediary on the books of
such approved broker or agent; (v) persons participating in a
fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial intermediary,
or its affiliate or agent, for services in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing, within such time period as may be designated by
the Principal Underwriter, proceeds of redemption of shares of
such other registered investment companies as may be designated
from time to time by the Principal Underwriter; and
(vii) employer-sponsored qualified pension or profit-sharing
plans (including Section 401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7) retirement plans and
individual retirement accounts (including individual retirement
accounts to which simplified employee pension ("SEP")
contributions are made), if such plans or accounts are
established or administered under programs sponsored by
administrators or other persons that have been approved by the
Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the
payment of compensation to selected dealers and agents for
selling Class B shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class B shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class B shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that
are redeemed within four years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
35
<PAGE>
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to the
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 3.0% (the
applicable rate in the second year after purchase, as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a %
of Dollar Amount Subject to Charge
Shares Purchased Shares Purchased
prior to on or after
Years Since Purchase April 12, 1997 April 12, 1997
First 3.00% 4.00%
Second 2.00% 3.00%
Third 1.00% 2.00%
Fourth None 1.00%
Fifth and thereafter None None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions, and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
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The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services-Systematic Withdrawal Plan" below).
Conversion Feature. Eight years*** after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
____________________
*** Six years in the case of Class B shares purchased prior to
April 12, 1997.
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<PAGE>
ending eight years*** after the end of the calendar month in
which the shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A and Advisor
Class shares, and will thus have a higher expense ratio and pay
correspondingly lower dividends than Class A shares and Advisor
Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1% charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares." In determining the contingent deferred
sales charge applicable to a redemption of Class C shares, it
will be assumed that the redemption is, first, of any shares that
are not subject to a contingent deferred sales charge (for
example, because the shares have been held beyond the period
during which the charge applies or were acquired upon the
reinvestment of dividends or distributions) and, second, of
shares held longest during the time they are subject to the sales
charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
38
<PAGE>
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary, in each case, that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
39
<PAGE>
________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within
seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except 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 it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permits for the protection of security holders of
the Fund.
Payment of the redemption price will be made in cash.
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 Fund's
portfolio securities at the time of such redemption or
40
<PAGE>
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. 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.
To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by share
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request by electronic funds transfer may
not exceed $100,000 (except for certain omnibus accounts), and
must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
Telephone Redemption By Check. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no stock certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
41
<PAGE>
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Telephone
redemption by check is not available with respect to shares
(i) for which certificates have been issued, (ii) held in nominee
or "street name" accounts, (iii) held by a shareholder who has
changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account.
Neither the Fund nor the Adviser, the Principal Underwriter or
Alliance Fund Services, Inc. will be responsible for the
authenticity of telephone requests for redemptions that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for redemptions are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers or agents may charge a commission
for handling telephone requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
42
<PAGE>
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
43
<PAGE>
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or services
charges.
Exchanges may be made by telephone or written request.
Telephone exchange requests must be received by Alliance Fund
Services, Inc. by 4:00 p.m. Eastern time on a Fund business day
in order to receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purposes of determining the CDSC, if any, upon redemption
and, in the case of Class B shares, for the purpose of conversion
to Class A Shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
44
<PAGE>
Call Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Exchanges of shares as described above in
this section are taxable transactions for federal income tax
purposes. The exchange service may be changed, suspended, or
terminated on 60 days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such Fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
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<PAGE>
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
46
<PAGE>
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by the qualified plan reaches $1
million on or before December 15 in any year, all Class B or
Class C shares of the Fund held by the plan can be exchanged, at
the Plan's request, without any sales charge, for Class A shares
of the Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
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<PAGE>
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account(s) with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on the shareholder's Class A, Class B,
Class C or Advisor Class Fund shares be automatically reinvested,
in any amount, without the payment of any sales or service
charges, in shares of the same class of such other Alliance
Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares--General." Purchases of additional shares
48
<PAGE>
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B and Class C Shares. Under a
systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
quarterly of the value at the time of redemption of the Class B
or Class C shares in a shareholder's account may be redeemed free
of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
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SHAREHOLDER SERVICES APPLICABLE TO
CLASS A AND CLASS C SHAREHOLDERS ONLY
Checkwriting
A Class A or Class C investor may fill out the Signature
Card which is included in this Prospectus to authorize the Fund
to arrange for a checkwriting service through State Street Bank
and Trust Company (the "Bank") to draw against Class A or Class C
shares of the Fund redeemed from the investor's account. Under
this service, checks may be made payable to any payee in any
amount not less than $500 and not more than 90% of the net asset
value of the Class A or Class C shares in the investor's account
(excluding for this purpose the current month's accumulated
dividends and shares for which certificates have been issued). A
Class A or Class C shareholder wishing to establish this
checkwriting service subsequent to the opening of his or her fund
account should contact the Fund by telephone or mail.
Corporations, fiduciaries and institutional investors are
required to furnish a certified resolution or other evidence of
authorization. This checkwriting service will be subject to the
Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge to
the shareholder for the initiation and maintenance of this
service or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes, due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return check (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service
enables the shareholder to receive the daily dividends declared
on the shares to be redeemed until the day that the check is
presented to the Bank for payment.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
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Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors of the
Fund deems appropriate or necessary in order to comply with Rule
22c-1 under the 1940 Act. The Fund's per share net asset value
is calculated by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any weekday on which the
Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
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 quoted bid prices on such day. If no bid prices are
quoted on such day, then the security is valued at the mean of
the bid and asked prices at the close of the Exchange on such day
as obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
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believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund 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.
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.
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 the Board of Directors determines that
this method does not represent fair value).
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.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Funds calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
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in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the determination of
the Funds net asset value (and the offering and sales of shares),
subject to the rules of the SEC 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 Fund 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 SEC 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 Funds net asset value
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 of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value 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.
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
United States Federal Income Taxes
General. The Fund intends for each taxable year to be
qualified as a "regulated investment company" under sections 851
through 855 of the Code. To so qualify, the Fund must, among
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other things, (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of
stock or securities or foreign currency, or certain other income
(including, but not limited to, gains from options, futures and
forward contracts) derived with respect to its business of
investing in stock, securities or currency; and (ii) diversify
its holdings so that, at the end of each quarter of its taxable
year, the following two conditions are met: (a) at least 50% of
the value of the Fund's assets is represented by cash, U.S.
Government Securities, securities of other regulated investment
companies and other securities with respect to which the Fund's
investment is limited, in respect of any one issuer, to an amount
not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (b) not more
than 25% of the value of the Fund's assets is invested in
securities of any one issuer (other than U.S. Government
Securities or securities of other regulated investment
companies).
If the Fund qualifies as a regulated investment company
for any taxable year and makes timely distributions to its
shareholders of 90% or more of its investment company taxable
income for that year (calculated without regard to its net
capital gain, i.e., the excess of its net long-term capital gain
over its net short- term capital loss), it will not be subject to
federal income tax on the portion of its taxable income for the
year (including any net capital gain) that it distributes to
shareholders.
The Fund intends to also avoid the 4% federal excise tax
that would otherwise apply to certain undistributed income for a
given calendar year if it makes timely distributions to the
shareholders equal to the sum of (i) 98% of its ordinary income
for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 of that year; and (iii) any ordinary income or capital
gain net income from the preceding calendar year that was not
distributed during that year. For this purpose, income or gain
retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared
and payable to shareholders of record as of a date in October,
November or December of a given year but actually paid during the
immediately following January will be treated as if paid by the
Fund on December 31 of that calendar year, and will be taxable to
these shareholders for the year declared, and not for the year in
which the shareholders actually receive the dividend.
The Fund intends to make timely distributions of the
Fund's taxable income (including any net capital gain) so that
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the Fund will not be subject to federal income or excise taxes.
However, exchange control or other regulations on the
repatriation of investment income, capital or the proceeds of
securities sales, if any exist or are enacted in the future, may
limit the Fund's ability to make distributions sufficient in
amount to avoid being subject to one or both of such federal
taxes.
Dividends and Distributions. Dividends of the Fund's
net ordinary income and distributions of any net realized short-
term capital gain are taxable to shareholders as ordinary income.
Pursuant to the Taxpayer Relief Act of 1997, two
different tax rates apply to net capital gains---that is, the
excess of net gains from capital assets held for more than one
year over net losses from capital assets held for not more than
one year. One rate (generally 28%) applies to net gains on
capital assets held for more than one year but not more than 18
months ("mid-term gains"), and a second rate (generally 20%)
applies to the balance of such net capital gains ("adjusted net
capital gains"). Distributions of net capital gains will be
treated in the hands of shareholders as mid-term gains to the
extent designated by the Fund as deriving from net gains from
assets held for more than one year but not more than 18 months,
and the balance will be treated as adjusted net capital gains,
regardless of how long a shareholder has held shares in the Fund.
Any dividend or distribution received by a shareholder on shares
of the Fund will have the effect of reducing the net asset value
of such shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be
taxable to him as described above. Dividends are taxable in the
manner discussed regardless of whether they are paid to the
shareholder in cash or are reinvested in additional shares of the
Fund.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
It is the present policy of the Fund to distribute to
shareholders all net investment income and to distribute realized
capital gains, if any, annually. There is no fixed dividend rate
and there can be no assurance that the Fund will pay any
dividends. The amount of any dividend or distribution paid on
shares of the Fund must necessarily depend upon the realization
of income and capital gains from the Fund's investments.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
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or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. In the case of an individual shareholder,
the applicable tax rate imposed on long-term capital gains
differs depending on whether the shares were held at the time of
the sale or redemption for more than 18 months, or for more than
one year but not more than 18 months. If a shareholder has held
shares in the Fund for six months or less and during that period
has received a distribution of net capital gains, any loss
recognized by the shareholder on the sale of those shares during
the six-month period will be treated as a long-term capital loss
to the extent of the distribution. In determining the holding
period of such shares for this purpose, any period during which a
shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted.
Any loss realized by a shareholder on a sale or exchange
of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Foreign Taxes. Income received by the Fund may also be
subject to foreign income taxes, including withholding taxes. The
United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of such taxes
or exemption from taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance since the
amount of the Fund's assets to be invested within various
countries is not known. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal
Revenue Service to pass through to its shareholders the amount of
foreign taxes paid by the Fund. However, there can be no
assurance that the Fund will be able to do so. Pursuant to this
election a United States shareholder will be required to
(i) include in gross income (in addition to taxable dividends
actually received) his pro rata share of foreign taxes paid by
the Fund, (ii) treat his pro rata share of such foreign taxes as
having been paid by him, and (iii) either deduct such pro rata
share of foreign taxes in computing his taxable income or treat
such foreign taxes as a credit against United States federal
income taxes. Shareholders who are not liable for federal income
taxes, such as retirement plans qualified under section 401 of
the Code, will not be affected by any such pass through of taxes
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by the Fund. No deduction for foreign taxes may be claimed by an
individual United States shareholder who does not itemize
deductions. In addition, certain United States shareholders may
be subject to rules which limit or reduce their ability to fully
deduct, or claim a credit for, their pro rata share of the
foreign taxes paid by the Fund. A shareholder's foreign tax
credit with respect to a dividend received from the Fund will be
disallowed unless the shareholder holds shares in the Fund on the
ex-dividend date and for at least 15 other days during the 30-day
period beginning 15 days prior to the ex-dividend date. Each
shareholder will be notified within 60 days after the close of
the Fund's taxable year whether the foreign taxes paid by the
Fund will pass through for that year and, if so, such
notification will designate (i) the shareholder's portion of the
foreign taxes paid to each such country and (ii) the portion of
dividends that represents income derived from sources within each
such country.
The federal income tax status of each year's
distributions by the Fund will be reported to shareholders and to
the Internal Revenue Service. The foregoing is only a general
description of the treatment of foreign taxes under the United
States federal income tax laws. Because the availability of a
foreign tax credit or deduction will depend on the particular
circumstances of each shareholder, potential investors are
advised to consult their own tax advisers.
Backup Withholding. The Fund may be required to
withhold United States federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification
numbers or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to
backup withholding. Corporate shareholders and certain other
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a shareholder's
United States federal income tax liability or refunded.
United States Federal Income Taxation of the Fund
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
Passive Foreign Investment Companies. If the Fund owns
shares in a foreign corporation that constitutes a "passive
foreign investment company" (a "PFIC") for federal income tax
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purposes and the Fund does not elect to treat the foreign
corporation as a "qualified electing fund" within the meaning of
the Code, the Fund may be subject to United States federal income
taxation on a portion of any "excess distribution" it receives
from the PFIC or any gain it derives from the disposition of such
shares, even if such income is distributed as a taxable dividend
by the Fund to its shareholders. The Fund may also be subject to
additional interest charges in respect of deferred taxes arising
from such distributions or gains. Any tax paid by the Fund as a
result of its ownership of shares in a PFIC will not give rise to
any deduction or credit to the Fund or to any shareholder. A
PFIC means any foreign corporation if, for the taxable year
involved, either (i) it derives at least 75% of its gross income
from "passive income" (including, but not limited to, interest,
dividends, royalties, rents and annuities), or (ii) on average,
at least 50% of the value (or adjusted tax basis, if elected ) of
the assets held by the corporation produce "passive income."
Pursuant to the Taxpayer Relief Act of 1997, the Fund could elect
for taxable years beginning after 1997 to "mark-to-market" stock
in a PFIC. Under such an election, the Fund would include in
income each year an amount equal to the excess, if any, of the
fair market value of the PFIC stock as of the close of the
taxable year over the Fund's adjusted basis in the PFIC stock.
The Fund would be allowed a deduction for the excess, if any, of
the adjusted basis of the PFIC stock over the fair market value
of the PFIC stock as of the close of the taxable year, but only
to the extent of any net mark-to-market gains included by the
Fund for prior taxable years. The Fund's adjusted basis in the
PFIC stock would be adjusted to reflect the amounts included in,
or deducted from, income under this election. Amounts included
in income pursuant to this election, as well as gain realized on
the sale or other disposition of the PFIC stock, would be treated
as ordinary income. The deductible portion of any mark-to-market
loss, as well as loss realized on the sale or other disposition
of the PFIC stock to the extent that such loss does not exceed
the net mark-to-market gains previously included by the Fund,
would be treated as ordinary loss. The Fund generally would not
be subject to the deferred tax and interest charge provisions
discussed above with respect to PFIC stock for which a mark-to-
market election has been made. If the Fund purchases shares in a
PFIC and the Fund does elect to treat the foreign corporation as
a "qualified electing fund" under the Code, the Fund may be
required to include in its income each year a portion of the
ordinary income and net capital gains of the foreign corporation,
even if this income is not distributed to the Fund. Any such
income would be subject to the 90% and calendar year distribution
requirements described above.
Currency Fluctuations-"Section 988" Gains or Losses.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
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interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of foreign currencies, from
the disposition of debt securities denominated in a foreign
currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. To the
extent that such distributions exceed such shareholder's basis,
each distribution will be treated as a gain from the sale of
shares.
Options, Futures and Forward Contracts. Certain listed
options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for
federal income tax purposes. Section 1256 contracts held by the
Fund at the end of each taxable year will be "marked to market"
and treated for federal income tax purposes as though sold for
fair market value on the last business day of such taxable year.
Gain or loss realized by the Fund on section 1256 contracts other
than forward foreign currency contracts will be considered 60%
long-term and 40% short-term capital gain or loss. Gain or loss
realized by the Fund on forward foreign currency contracts will
be treated as section 988 gain or loss and will therefore be
characterized as ordinary income or loss and will increase or
decrease the amount of the Fund's net investment income available
to be distributed to shareholders as ordinary income, as
described above. The Fund can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described
below) from the application of section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
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regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to equity options or options traded over-
the-counter or on certain foreign exchanges, gain or loss
realized by the Fund upon the lapse or sale of such options held
by the Fund will be either long-term or short-term capital gain
or loss depending upon the Fund's holding period with respect to
such option. However, gain or loss realized upon the lapse or
closing out of such options that are written by the Fund will be
treated as short-term capital gain or loss. In general, if the
Fund exercises an option, or an option that the Fund has written
is exercised, gain or loss on the option will not be separately
recognized but the premium received or paid will be included in
the calculation of gain or loss upon disposition of the property
underlying the option.
Gain or loss realized by the Fund on the lapse or sale
of put and call options on foreign currencies which are traded
over-the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, forward
foreign currency contract, currency swap, or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
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rules that may affect the character and timing of the Fund's
gains and losses with respect to straddle positions by requiring,
among other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position is ordinary and at least one
position is capital. No such regulations have yet been issued.
Various elections are available to the Fund which may mitigate
the effects of the straddle rules, particularly with respect to
mixed straddles. In general, the straddle rules described above
do not apply to any straddles held by the Fund all of the
offsetting positions of which consist of section 1256 contracts.
Short Sales. In general, gain or loss realized by the
Fund on the closing of a short sale will be considered to be
short-term capital gain or loss.
Zero Coupon Securities. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon
security accrue a portion of the discount at which the security
was purchased as income each year even though the Fund receives
no interest payment in cash on the security during the year.
Accordingly, the Fund may be required to pay out as an income
distribution each year an amount which is greater than the total
amount of cash interest the Fund actually received. Such
distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary. If a
distribution of cash necessitates the liquidation of portfolio
securities, the Adviser will select which securities to sell.
The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such transactions,
its shareholders may receive a larger capital gain distribution,
if any, than they would have in the absence of such transactions.
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Taxation of Foreign Stockholders
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders who are United
States citizens or residents or United States corporations. The
effects of federal income tax law on shareholders who are non-
resident alien individuals or foreign corporations may be
substantially different. Foreign investors should therefore
consult their counsel for further information as to the United
States tax consequences of receipt of income from the Fund.
BROKERAGE AND PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Directors of
the Fund, the Adviser makes the investment decisions and places
the orders for portfolio securities for the Fund and determines
the broker or dealer to be used in each specific transaction.
Most transactions made by the Fund will be principal transactions
at net prices and the Fund will incur little or no brokerage
costs. Where possible, securities will be purchased directly
from the issuer or from an underwriter or market maker for the
securities unless the Adviser believes a better price and
execution is available elsewhere. Purchases from underwriters of
newly-issued securities for inclusion in the Fund's portfolio
usually will include a concession paid to the underwriter by the
issuer and purchases from dealers serving as market makers will
include the spread between the bid and asked price.
The Fund has no obligation to enter into transactions in
portfolio securities with any broker, dealer, issuer, underwriter
or other entity. In placing orders, it is the policy of the Fund
to obtain the best price and execution for its transactions.
Where best price and execution may be obtained from more than one
broker or dealer, the Adviser may, in its discretion, purchase
and sell securities through brokers and dealers who provide
research, statistical and other information to the Adviser. Such
services may be used by the Adviser for all of its investment
advisory accounts and, accordingly, not all such services may be
used by the Adviser in connection with the Fund. The
supplemental information received from a dealer is in addition to
the services required to be performed by the Adviser under the
Advisory Agreement, and the expenses of the Adviser will not
necessarily be reduced as a result of the receipt of such
information. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Fund may consider sales of shares
of the Fund as a factor in the selection of dealers to enter into
portfolio transactions with the Fund.
62
<PAGE>
No transactions for the Fund will be executed through
any broker or dealer affiliated with the Fund's Adviser, Alliance
Capital Management L.P., or with Donaldson, Lufkin & Jenrette
Securities Corporation, an affiliate of the Adviser.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The authorized capital stock of the Fund currently
consists of 3,000,000,000 shares of Class A Common Stock,
3,000,000,000 shares of Class B Common Stock, 3,000,000,000
shares of Class C Common Stock and 3,000,000,000 shares of
Advisor Class Common Stock, each having a par value of $.001 per
share. All shares of the Fund, when issued, are fully paid and
non-assessable. The Directors are authorized to reclassify and
issue any unissued shares to any number of additional series and
classes without shareholder approval. Accordingly, the Directors
in the future, for reasons such as the desire to establish one or
more additional portfolios with different investment objectives,
policies or restrictions, may create additional classes or series
of shares. Any issuance of shares of another class or series
would be governed by the 1940 Act and the law of the State of
Maryland. If shares of another series were issued in connection
with the creation of a second portfolio, each share of either
portfolio would normally be entitled to one vote for all
purposes. Generally, shares of both portfolios would vote as a
single series on matters, such as the election of Directors, that
affected both portfolios 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 a separate series.
Procedures for calling a shareholders' meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act will be available to shareholders
of the Fund. The rights of the holders of shares of a series may
not be modified except by the vote of a majority of the
outstanding shares of such series.
As of the close of business on February 6, 1998, there
were 4,044,771 shares of common stock of the Fund outstanding,
including 1,299,102 Class A shares, 2,279,944 Class B shares,
415,905 Class C shares and 49,820 Advisor Class shares. To the
knowledge of the Fund, the following persons owned of record or
beneficially 5% or more of the outstanding shares of the Fund as
of February 6, 1997.
63
<PAGE>
Name and Address No. of Shares % of Class
Class A
Alliance Capital Mgmt. L.P. 110,000 8.47%
Attn: Sarah Powell
1345 Avenue of the Americas
New York, NY 10105
MLPF&S 101,509 7.81%
For The Sole Benefit
of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East - 3rd Flr.
Jacksonville, FL 32246-6484
Trust for Profit Sharing Plan 82,979 6.39%
For Employees of Alliance
Capital Mgmt. L.P. Plan Z
Attn: Pete Swetz - 32nd FL.
1345 Avenue of the Americas
New York, NY 10105
Cotia USA Ltd. Inc. 180,067 13.86%
375 Park Avenue - Suite 2504
New York, NY 10152-2599
Class B
MLPF&S 452,214 19.83%
For The Sole Benefit
of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East - 3rd Flr.
Jacksonville, FL 32246-6484
Class C
MLPF&S 164,147 39.47%
For The Sole Benefit
of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East - 3rd Flr.
Jacksonville, FL 32246-6484
64
<PAGE>
PaineWebber For The Benefit of 38,410 9.24%
PaineWebber CDN FBO
Jean L. Tobey
P.O. Box 3321
Weehawken, NJ 07087-8154
Advisor Class
Infid & Co. Inc. 49,594 99.55%
c/o Bankers Trust Co.
P.O. Box 9005
Church Street Station
New York, NY 10008
Custodian
Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 20109, will act as the Fund's custodian for the
assets 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, Brown Brothers Harriman & Co. may enter into
sub-custodial agreements for the holding of the Fund's foreign
securities.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement, the Fund has agreed to indemnify the
Principal Underwriter, in the absence of its willful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations thereunder, against certain civil liabilities,
including liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel, New
York, New York. Seward & Kissel has relied upon the opinion of
Venable, Baetjer and Howard, LLP, Baltimore, Maryland, for
matters relating to Maryland law.
Independent Auditors
Ernst & Young LLP, New York, New York have been
appointed as independent auditors for the Fund.
65
<PAGE>
Yield and Total Return Quotations
From time to time the Fund advertises its "yield,"
"actual distribution rate" and "total return." The Fund's yield
for any 30-day (or one-month) period is computed by dividing the
net investment income per share earned during such period by the
maximum public offering price per share on the last day of the
period, and then annualizing such 30-day (or one-month) yield in
accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis. The Fund's
actual distribution rate, which may be advertised in items of
sales literature, is computed in the same manner as yield except
that actual income dividends declared per share during the period
in question is substituted for net investment income per share.
The actual distribution rate is computed separately for each
class of shares. Advertisements of the Fund's total return
disclose the Fund's average annual compounded total return for
its most recently completed one, five and ten year periods (or
the period since the Fund's inception). The Fund's total return
for each such period is computed by finding, through the use of a
formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an
assumed initial amount invested in the value of such investment
at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on
shares of the Fund are assumed to have been reinvested when
received and the maximum sales charge applicable to purchases of
Fund shares is assumed to have been paid.
The Fund's yields for the month ended October 31, 1997
were 5.25%, 4.71% and 4.68% for Class A shares, Class B shares
and Class C shares, respectively. The Fund's actual distribution
rates for the month ended October 31, 1997 were 8.56%, 8.34%, and
8.34% for Class A shares, Class B shares and Class C shares,
respectively. The Fund's total returns for the one-year ended
October 31, 1997 were 11.88%, 13.12% and 15.12% for Class A,
Class B and Class C shares, respectively. The Fund's total
returns for Class A shares for the period from January 9, 1996
(commencement of operations) and for Class B and Class C shares
for the period from March 25, 1996 (commencement of distribution)
through October 31, 1997 were 16.20%, 18.29% and 19.40%,
respectively.
Yield and total return are computed separately for each
class of shares. Yield and total return are not fixed and will
fluctuate in response to prevailing market conditions or as a
function of the type, and quality of the securities in the Fund's
portfolio, the Fund's average portfolio maturity and its
expenses. Quotations of yield and total return do not include
any provision for the effect of individual income taxes. An
investor's principal invested in the Fund is not fixed and will
66
<PAGE>
fluctuate in response to prevailing market conditions. The Fund
may advertise the fluctuation of its net asset value over certain
time periods and compare its performance to that available from
other investments, including money market funds and certificates
of deposit, the later of which, unlike the Fund, are insured and
have fixed rates of return.
Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc., and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers,
magazines such as The Wall Street Journal, The New York Times,
Barrons, Investor's Daily, Money Magazine, Changing Times,
Business Week and Forbes or other media on behalf of the
Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission under the Securities Act of 1933. 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.
67
<PAGE>
_________________________________________________________________
FINANCIAL STATEMENTS
_________________________________________________________________
68
<PAGE>
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
500 Plaza Drive, Secaucus, NJ 07094, (201) 319-4000
ANNUAL REPORT
OCTOBER 31, 1997
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997 ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
ARGENTINA-6.5%
CORPORATE DEBT OBLIGATIONS-4.3%
Bridas Corp.
12.50%, 6/10/03 (a) ARS 500 $ 600,440
Perez Companc, SA
8.13%, 7/15/07 (a) 1,000 935,000
------------
1,535,440
GOVERNMENT OBLIGATION-2.2%
Republic of Argentina
Pensioner-Bocon Series 1 FRN
3.24%, 4/01/07 (b) 1,238 807,638
Total Argentinian Securities
(cost $2,575,235) 2,343,078
AUSTRALIA-1.7%
GOVERNMENT OBLIGATION-1.7%
Republic of Australia
9.75%, 3/15/02 (b)
(cost $635,823) AU$ 750 611,828
BELGIUM-0.8%
CORPORATE DEBT OBLIGATION-0.8%
ITT Promedia
9.13%, 9/15/07 (a)(b)
(cost $282,087) DEM 500 294,288
BRAZIL-1.3%
CORPORATE DEBT OBLIGATION-1.3%
Trikem, SA
10.63%, 07/24/07 (a)(b)
(cost $499,641) US$ 500 468,750
CANADA-3.7%
CORPORATE DEBT OBLIGATIONS-3.7%
Clearnet Communications
11.75%, 8/13/07 (b)(c) CA$ 1,500 662,681
Microcell Telecommunications
11.13%, 10/15/07 (a)(c) 1,700 675,633
Total Canadian Securities
(cost $1,376,041) 1,338,314
DENMARK-2.7%
GOVERNMENT OBLIGATION-2.7%
Kingdom of Denmark
7.00%, 11/15/07 (b)
(cost $944,395) DKK 6,000 970,500
DOMINICAN REPUBLIC-2.7%
CORPORATE DEBT OBLIGATION-2.7%
Tricom, SA
11.38%, 9/01/04 (a)
(cost $1,040,000) US$ 1,000 975,000
ECUADOR-1.4%
CORPORATE DEBT OBLIGATION-1.4%
Conecel Holdings, Ltd.
14.00%, 10/1/00 (a)
(cost $517,500) US$ 500 520,000
GERMANY-7.8%
CORPORATE DEBT OBLIGATION-3.2%
Exide Holding Europe, SA
9.13%, 4/15/04 (a) DEM 2,000 1,165,555
GOVERNMENT OBLIGATION-4.6%
Republic of Germany
6.00%, 7/04/07 (b) 2,780 1,662,035
Total German Securities
(cost $2,815,671) 2,827,590
GREECE-1.0%
CORPORATE DEBT OBLIGATION-1.0%
Merrill Lynch & Co.
9.38%, 2/18/99 (b)
(cost $368,114) GRD 100,000 361,037
ITALY-8.4%
GOVERNMENT OBLIGATIONS-8.4%
Republic of Italy
6.25%, 3/01/02 (b) ITL 2,000,000 1,205,641
6.25%, 5/15/02 (b) 1,450,000 875,460
8.25%, 7/01/01 (b) 1,500,000 958,176
Total Italian Securities
(cost $2,918,292) 3,039,277
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
MEXICO-1.2%
GOVERNMENT OBLIGATIONS-1.2%
Mexican Treasury Bills
20.30%, 7/02/98 (b)(d) MXP 1,667 $ 172,028
20.45%, 7/02/98 (b)(d) 2,403 247,855
(cost $458,451) 419,883
NEW ZEALAND-5.6%
GOVERNMENT OBLIGATIONS- 5.6%
Government of New Zealand
8.00%, 11/15/06 (b) NZD 900 614,462
10.00%, 3/15/02 (b) 2,000 1,395,359
Total New Zealand Securities
(cost $2,132,650) 2,009,821
NORWAY-1.2%
GOVERNMENT OBLIGATION-1.2%
Kingdom of Norway
5.75%, 11/30/04 (b)
(cost $457,109) NOK 3,000 432,126
POLAND-5.3%
GOVERNMENT OBLIGATIONS-5.3%
Government of Poland
12.00%, 6/12/02 PLN 4,000 833,859
Republic of Poland PDI
4.00%, 10/27/14 (b)(e) US$ 1,300 1,067,625
Total Polish Securities
(cost $2,018,865) 1,901,484
QATAR-1.3%
CORPORATE DEBT OBLIGATION-1.3%
Ras Laffan Liquid Natural Gas
8.29%, 3/15/14 (a)(b)
(cost $462,945) US$ 450 472,840
RUSSIA-3.4%
GOVERNMENT DEBT OBLIGATION-1.6%
Russia Principal Loan-WI FRN
12/15/20 (a)(f) US$ 1,000 590,000
SOVEREIGN DEBT RELATED-1.8%
Credit Suisse First Boston Corp.
Indexed Note Linked Russian
Federation GKO
12.50%, 11/03/97 (d)(g) US$ 650 646,750
Total Russian Securities
(cost $1,374,878) 1,236,750
SOUTH AFRICA-0.7%
CORPORATE DEBT OBLIGATION-0.7%
Development Bank of South Africa
18.59%, 12/31/27 (b)(d)
(cost $286,758) ZAR 50,000 238,812
SPAIN-5.1%
GOVERNMENT OBLIGATION-5.1%
Government of Spain
7.40%, 7/30/99 (b)
(cost $1,828,789) ESP 260,000 1,856,681
SWEDEN-7.9%
GOVERNMENT OBLIGATIONS-7.9%
Government of Sweden
5.50%, 4/12/02 (b) SEK 14,500 1,900,656
8.00%, 8/15/07 (b) 6,500 964,813
Total Swedish Securities
(cost $2,876,007) 2,865,469
UNITED KINGDOM-7.9%
GOVERNMENT OBLIGATION-7.9%
U.K. Treasury Gilts
6.75%, 11/26/04 (b)
(cost $2,731,569) GBP 1,700 2,876,960
UNITED STATES-20.3%
CORPORATE DEBT OBLIGATIONS-6.9%
InterAmericas Communication
14.00%, 10/27/07 (a)(b) US$ 500 476,250
Iridium LLC Capital Corp.
14.00%, 7/15/05 (a)(b) 500 527,500
OpTel Inc., Series B
13.00%, 2/15/05 (b)(h) 500 517,500
8
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
Providian Capital I
9.53%, 02/01/27 (a)(b) US$ 400 $ 437,875
Riggs Capital, Trust II
8.88%, 3/15/27 (a)(b) 500 532,250
------------
2,491,375
U.S. GOVERNMENT OBLIGATIONS-9.8%
U.S. Treasury Notes
6.13%, 8/15/07 1,000 1,022,187
6.25%, 8/31/02 (b) 2,500 2,550,000
------------
3,572,187
TIME DEPOSIT-3.6%
Dresdner Bank
5.65%, 11/03/97 US$ 1,300 1,300,000
Total United States Securities
(cost $7,236,588) 7,363,562
TOTAL INVESTMENTS-97.9%
(cost $35,837,408) 35,424,050
Other assets less liabilities-2.1% 773,142
NET ASSETS-100% $36,197,192
(a) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31, 1997,
these securities amounted to $8,671,381 or 23.96% of net assets.
(b) Securities, or portion thereof, with an aggregate market value of
$26,159,626 have been segregated to collateralize forward exchange currency
contracts.
(c) Indicates a security that has a zero coupon that remains in effect until a
predetermined date at which time the stated coupon rate becomes effective until
final maturity.
(d) Annualized yield to maturity at purchase date.
(e) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at October 31, 1997.
(f) An interest rate based on the six-month Libor Rate plus 81.25 basis points
will take effect upon issuance of bond.
(g) Redemption value of this security will be an amount equal to the principal
amount of such note; plus or minus any calculated cost to the issuer.
(h) Consists of $500,000 senior notes and 500 shares of common stock.
Glossary of terms:
FRN - Floating Rate Note.
PDI - Past Due Interest.
WI - When Issued.
See notes to financial statements.
9
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997 ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $35,837,408) $35,424,050
Cash 1,536,383
Receivable for investment securities sold 1,918,880
Receivable for capital stock sold 1,069,097
Interest receivable 811,346
Receivable from adviser 24,973
Deferred organization expenses 96,843
Total assets 40,881,572
LIABILITIES
Payable for investment securities purchased 3,671,482
Payable for capital stock sold 589,337
Unrealized depreciation of forward exchange currency contracts 252,690
Dividend payable 89,259
Distribution fee payable 22,396
Accrued expenses and other liabilities 59,216
Total liabilities 4,684,380
NET ASSETS $36,197,192
COMPOSITION OF NET ASSETS
Capital stock, at par $ 3,159
Additional paid-in capital 35,555,331
Undistributed net investment income 70,179
Accumulated net realized gain on investments and foreign
currency transactions 1,230,367
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (661,844)
$36,197,192
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($12,954,453/
1,130,634 shares of capital stock issued and outstanding) $11.46
Sales charge--4.25% of public offering price .51
Maximum offering price $11.97
CLASS B SHARES
Net asset value and offering price per share ($18,854,593/
1,645,592 shares of capital stock issued and outstanding) $11.46
CLASS C SHARES
Net asset value and offering price per share ($4,388,146/
382,968 shares of capital stock issued and outstanding) $11.46
See notes to financial statements.
10
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997 ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest (net of foreign taxes withheld of $118) $1,537,572
Dividends 12,595 $1,550,167
EXPENSES
Advisory fee 138,196
Distribution fee - Class A 17,509
Distribution fee - Class B 100,393
Distribution fee - Class C 25,503
Custodian 148,289
Administration 118,000
Registration 93,019
Audit and legal 77,523
Transfer agency 31,235
Amortization of organization expenses 29,910
Printing 23,916
Directors' fees 23,547
Miscellaneous 9,172
Total expenses 836,212
Less expenses waived and assumed by the Adviser
(see Note B) (397,971)
Net expenses 438,241
Net investment income 1,111,926
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 1,242,731
Net realized gain on foreign currency transactions 542,613
Net change in unrealized appreciation of:
Investments (571,544)
Foreign currency denominated assets and liabilities (256,445)
Net gain on investments 957,355
NET INCREASE IN NET ASSETS FROM OPERATIONS $2,069,281
See notes to financial statements.
11
STATEMENT OF CHANGES
IN NET ASSETS ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
YEAR ENDED JAN. 9,1996*
OCTOBER 31, TO
1997 OCT. 31,1996
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 1,111,926 $ 137,202
Net realized gain on investments and foreign
currency transactions 1,785,344 60,401
Net change in unrealized appreciation of
investments and foreign currency denominated
assets and liabilities. (827,989) 166,145
Net increase in net assets from operations 2,069,281 363,748
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (382,874) (139,600)
Class B (581,432) (13,366)
Class C (147,620) (12,007)
Distributions in excess of net investment income
Class A (142,461) -0-
Class B (253,949) -0-
Class C (64,814) -0-
Net realized gain on investments
Class A (22,494) -0-
Class B (23,190) -0-
Class C (10,520) -0-
CAPITAL STOCK TRANSACTIONS
Net increase 31,913,077 3,545,413
Total increase 32,353,004 3,744,188
NET ASSETS
Beginning of period 3,844,188 100,000
End of period (undistributed net investment
income of $70,179) $36,197,192 $3,844,188
* Commencement of operations.
See notes to financial statements.
12
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Global Strategic Income Trust, Inc. (the "Fund"), was incorporated in
the State of Maryland on October 25, 1995 as a non-diversified, open-end
management investment company. Prior to commencement of operations on January
9, 1996, the Fund had no operations other than the sale to Alliance Capital
Management L.P. (the "Adviser") of 10,000 shares of Class A shares for the
aggregate amount of $100,000 on December 18, 1995. The Fund offers Class A,
Class B, Class C and Advisor Class shares. Class A shares are sold with a
front-end sales charge of up to 4.25% for purchases not exceeding $1,000,000.
With respect to purchases of $1,000,000 or more, Class A shares redeemed within
one year of purchase will be subject to a contingent deferred sales charge of
1%. Class B shares are currently sold with a contingent deferred sales charge
which declines from 4% to zero depending on the period of time the shares are
held. Class B shares will automatically convert to Class A shares eight years
after the end of the calendar month of purchase. Class C shares are subject to
a contingent deferred sales charge of 1% on redemptions made within the first
year after purchase. Advisor Class shares are sold without an initial or
contingent deferred sales charge and are not subject to ongoing distribution
expenses. Advisor Class shares are offered to investors participating in
certain fee-based programs and retirement plans. All four classes of shares
have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that each class bears different distribution
expenses and has exclusive voting rights with respect to its distribution plan.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Investments are stated at value. Investments for which market quotations are
readily available are valued at the closing price on the day of valuation or if
no such closing price is available, at the mean of the last bid and ask price
quoted on such day. However, readily marketable portfolio securities may be
valued on the basis of prices provided by a pricing service when such prices
are believed by the Adviser to reflect the fair value of such security. Options
are valued at market value or fair value using methods determined by the Board
of Directors. Securities which mature in 60 days or less are valued at
amortized cost, which approximates market value, unless this method does not
represent fair value. Securities for which market quotations are not readily
available and restricted securities are valued in good faith at fair value
using methods determined by the Board of Directors.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated at the rates
of exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when earned or accrued.
Net realized gains on foreign currency transactions represent foreign exchange
gains and losses from sales and maturities of securities and forward exchange
currency contracts, holdings of foreign currencies, exchange gains and losses
realized between the trade and settlement dates on investment transactions, and
the difference between the amounts of interest recorded on the Fund's books and
the U.S. dollar equivalent amounts actually received or paid. Net change in
unrealized appreciation (depreciation) of foreign currency denominated assets
and liabilities represents net currency gains and losses from valuing foreign
currency denominated assets and liabilities at period end exchange rates.
3. ORGANIZATION EXPENSES
Organization expenses of approximately $151,270 have been deferred and are
being amortized on a straight-line basis through January 2001.
4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's
13
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
Class B and Class C shares bear higher distribution and transfer agent fees
than Class A shares and the Advisor Class shares have no distribution fees.
6. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date the securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discounts as an
adjustment to interest income.
7. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal year, permanent differences,
primarily due to foreign currency gains, resulted in a net decrease in
accumulated net realized gain on investments and foreign currency transactions
and a corresponding increase in undistributed net investment income. This
reclassification had no effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee at an annual rate of
.75 of 1% of the average daily net assets of the Fund. Such fee is accrued
daily and paid monthly.
The Adviser has agreed to voluntarily waive its fees and bear certain expenses
so that total expenses do not exceed on an annual basis 1.90%, 2.60% and 2.60%
of the average daily net assets for the Class A, Class B and Class C shares
respectively.
For the year ended October 31, 1997, the Adviser waived $138,196 in fees and
reimbursed the Fund $135,775 for additional expenses. Pursuant to the Advisory
Agreement, the Fund may reimburse the Adviser for certain legal and accounting
services provided to the Fund by the Adviser. For the year ended October 31,
1997, the Adviser agreed to waive administrative expenses in the amount of
$118,000.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. For the year ended
October 31, 1997 the transfer agent agreed to waive fees in the amount of
$6,000.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $10,947 from the sale of Class A shares and $11,816,
and $4,488 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B and Class C shares, respectively, for the year ended
October 31, 1997.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the average daily net assets attributable to the
Class A shares and up to 1% of the average daily net assets attributable to
both Class B and Class C shares. There is no distribution fee on the Advisor
Class shares. The fees are accrued daily and paid monthly. The Agreement
provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activities. The Distributor has
incurred expenses in excess of the distribution costs reimbursed by the Fund in
the amount of $994,542 and $188,869 for Class B and Class C shares,
respectively. Such costs may be recovered from the Fund in future periods so
long as the Agreement is in effect. In accordance with the Agreement, there is
no provision for recovery of unreimbursed distribution costs, incurred by the
Distributor, beyond the current fiscal period for Class A shares. The Agreement
also provides that the Adviser may use its own resources to finance the
distribution of the Fund's shares.
14
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $90,499,741 and $65,056,215,
respectively, for the year ended October 31, 1997. There were purchases of
$9,459,588 and sales of $6,294,264 of U.S. government and government agency
obligations for the year ended October 31, 1997.
At October 31, 1997, the cost of investments for federal income tax purposes
was the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $543,718 and gross unrealized
depreciation of investments was $957,076, resulting in net unrealized
depreciation of $413,358 (excluding foreign currency transactions).
1. FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sales commitments denominated in
foreign currencies and for investment purposes. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future
date at a negotiated forward rate. The gain or loss arising from the difference
between the original contracts and the closing of such contracts is included in
realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid assets in a separate account of the Fund having a value equal
to the aggregate amount of the Fund's commitments under forward exchange
currency contracts entered into with respect to position hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
At October 31, 1997, the Fund had outstanding forward exchange currency
contracts, as follows:
<TABLE>
<CAPTION>
U.S. $
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
FORWARD EXCHANGE CURRENCY BUY CONTRACTS
Canadian Dollars, expiring 11/03/97-12/16/97 2,633 $1,893,273 $1,871,617 $(21,656)
Deutsche Marks, expiring 11/07/97 2,300 1,311,266 1,333,997 22,731
European Currency Unit, expiring 11/06/97 213 243,185 242,925 (260)
Indonesia Rupiah, expiring 11/12/97-1 /16/98 550,000 218,692 150,128 (68,564)
Japanese Yen, expiring 1/12/98 10,485 92,103 87,985 (4,118)
Norwegian Krone, expiring 11/03/97-12/03/97 7,302 1,027,438 1,042,844 15,406
</TABLE>
15
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
U.S. $
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
FORWARD EXCHANGE CURRENCY SALE CONTRACTS
Australian Dollars, expiring 11/14/97 869 $ 638,425 $ 611,410 $ 27,015
British Pounds, expiring 11/24/97 1,634 2,650,871 2,739,598 (88,727)
Canadian Dollars, expiring 11/03/97-12/16/97 3,520 2,548,502 2,501,817 46,685
Danish Krone, expiring 11/25/97 5,282 786,648 805,863 (19,215)
Deutsche Marks, expiring 11/07/97-12/03/97 9,989 5,670,587 5,798,450 (127,863)
European Currency Unit, expiring 11/06/97 213 235,487 242,925 (7,438)
French Francs, expiring 11/06/97 10,023 1,685,724 1,738,828 (53,104)
Greek Dracmas, expiring 1/05/98 100,000 357,526 362,985 (5,459)
Indonesian Rupiah, expiring 11/12/97-1/16/98 550,000 214,691 150,127 64,564
Italian Lira, expiring 11/10/97-11/24/97 5,125,284 2,960,322 3,025,066 (64,744)
Japanese Yen, expiring 1/12/98 10,485 108,822 87,986 20,836
New Zealand Dollar, expiring 11/10/97 3,109 1,994,596 1,935,257 59,339
Norwegian Krone, expiring 11/03/97 3,240 457,212 462,322 (5,110)
Spanish Pesetas, expiring 11/06/97 29,754 198,941 204,188 (5,247)
Swedish Krona, expiring 12/04/97 22,474 2,956,102 2,993,863 (37,761)
$(252,690)
</TABLE>
2. OPTION TRANSACTIONS
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign securities and foreign currencies that are
traded on U.S. and foreign securities exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
16
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from written options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from options
written. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security or currency purchased by the Fund. In writing an option, the Fund
bears the market risk of an unfavorable change in the price of the security or
currency underlying the written option. Exercise of an option written by the
Fund could result in the Fund selling or buying a security or currency at a
price different from the current market value. There were no transactions in
written options for the year ended October 31, 1997.
NOTE E: CAPITAL STOCK
There are 12,000,000 shares of $.001 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C and Advisor
Class shares. Each class consists of 3,000,000 authorized shares. Transactions
in capital stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED JAN. 9,1996* YEAR ENDED JAN. 9, 1996*
OCTOBER 31, TO OCTOBER 31 TO
1997 OCT. 31,1996 1997 OCT. 31, 1996
------------ ------------ -------------- --------------
CLASS A
Shares sold 1,031,467 253,587 $11,857,018 $2,571,898
Shares issued in
reinvestment of
dividends and
distributions 23,531 4,140 268,816 42,969
Shares converted
from Class B 3,566 -0- 40,424 -0-
Shares redeemed (139,876) (55,781) (1,591,569) (570,111)
Net increase 918,688 201,946 $10,574,689 $2,044,756
MARCH 25,1996** MARCH 25,1996**
TO TO
OCT. 31,1996 OCT. 31, 1996
------------ --------------
CLASS B
Shares sold 1,904,244 78,358 $21,544,554 $ 822,339
Shares issued in
reinvestment of
dividends and
distributions 26,698 107 304,645 1,138
Shares converted
to Class A (3,566) -0- (40,424) -0-
Shares redeemed (355,663) (4,586) (4,010,478) (47,937)
Net increase 1,571,713 73,879 $17,798,297 $ 775,540
* Commencement of operations.
** Commencement of distribution.
17
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED MAR. 25,1996** YEAR ENDED MAR. 25,1996**
OCTOBER 31, TO OCTOBER 31, TO
1997 OCT. 31,1996 1997 OCT. 31,1996
------------ ------------ -------------- --------------
CLASS C
Shares sold 425,583 74,590 $ 4,822,709 $781,283
Shares issued in
reinvestment of
dividends and
distributions 5,283 117 60,139 1,225
Shares redeemed (117,161) (5,444) (1,342,757) (57,391)
Net increase 313,705 69,263 $ 3,540,091 $725,117
** Commencement of distribution.
18
FINANCIAL HIGHLIGHTS ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A
-------------------------
YEAR ENDED JAN. 9,
OCTOBER 31, 1996(A) TO
1997 OCT. 31, 1996
----------- ------------
Net asset value, beginning of period $10.83 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)(c) .74 .69
Net realized and unrealized gain on investments and
foreign currency transactions 1.02 .95
Net increase in net asset value from operations 1.76 1.64
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.75) (.81)
Distributions in excess of net investment income (.28) -0-
Distributions from net realized gains on investments (.10) -0-
Total dividends and distributions (1.13) (.81)
Net asset value, end of period $11.46 $10.83
TOTAL RETURN
Total investment return based on net asset value(d) 16.83% 17.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $12,954 $2,295
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.90% 1.90%(e)
Expenses, before waivers/reimbursements 4.06% 19.20%(e)
Net investment income 6.56% 8.36%(e)
Portfolio turnover rate 417% 282%
See footnote summary on page 21.
19
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B
-------------------------
YEAR ENDED MARCH 25,
OCTOBER 31, 1996(F) TO
1997 OCT. 31,1996
----------- ------------
Net asset value, beginning of period $10.83 $ 9.97
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)(c) .66 .41
Net realized and unrealized gain on investments
and foreign currency transactions 1.03 1.01
Net increase in net asset value from operations 1.69 1.42
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.67) (.56)
Distributions in excess of net investment income (.29) -0-
Distributions from net realized gains on investments (.10) -0-
Total dividends and distributions (1.06) (.56)
Net asset value, end of period $11.46 $10.83
TOTAL RETURN
Total investment return based on net asset value(d) 16.12% 14.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $18,855 $800
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 2.60% 2.60%(e)
Expenses, before waivers/reimbursements 4.76% 19.57%(e)
Net investment income 5.86% 7.26%(e)
Portfolio turnover rate 417% 282%
See footnote summary on page 21.
20
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
-------------------------
YEAR ENDED MARCH 25,
OCTOBER 31, 1996(F) TO
1997 OCT. 31,1996
----------- ------------
Net asset value, beginning of period $10.83 $ 9.97
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b)(c) .66 .39
Net realized and unrealized gain on investments
and foreign currency transactions 1.03 1.03
Net increase in net asset value from operations 1.69 1.42
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.67) (.56)
Distributions in excess of net investment income (.29) -0-
Distributions from net realized gains on investments (.10) -0-
Total dividends and distributions (1.06) (.56)
Net asset value, end of period $11.46 $10.83
TOTAL RETURN
Total investment return based on net asset value(d) 16.12% 14.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,388 $750
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 2.60% 2.60%(e)
Expenses, before waivers/reimbursements 4.77% 19.49%(e)
Net investment income 5.86% 7.03%(e)
Portfolio turnover rate 417% 282%
(a) Commencement of operations.
(b) Based on average shares outstanding.
(c) Net of expenses waived/reimbursed by the Adviser.
(d) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period and redemption
on the last day of the period.
Total investment return calculated for a period of less than one year is not
annualized.
(e) Annualized.
(f) Commencement of distribution.
21
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE GLOBAL STRATEGIC INCOME
TRUST, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance Global Strategic Income Trust, Inc. (the "Fund"), including the
portfolio of investments, as of October 31, 1997, and the related statement of
operations for the year then ended and the statement of changes in net assets
and the financial highlights for the year ended October 31, 1997 and for the
period from January 9, 1996 (commencement of operations) to October 31, 1996.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance Global Strategic Income Trust, Inc., at October 31, 1997, the results
of its operations for the year then ended and the changes in its net assets and
the financial highlights for the year ended October 31, 1997 and for the period
from January 9, 1996 to October 31, 1996 in conformity with generally accepted
accounting principles.
New York, New York
December 10, 1997
22
<PAGE>
________________________________________________________________
APPENDIX:
CERTAIN INVESTMENT PRACTICES
________________________________________________________________
The following investment practices in which the Fund is
authorized to engage may not be currently permitted under the
laws or regulations or may otherwise be unavailable in many
countries. The Fund intends to engage in these investment
practices to the extent such practices become available and
permissible in the future.
Options
The Fund may write covered put and call options and
purchase put and call options on securities of the types in which
it is permitted to invest that are traded on U.S. and foreign
securities exchanges and over-the-counter, including options on
market indices. The Fund will only write "covered" put and call
options unless such options are written for cross-hedging
purposes. There are no specific limitations on the Fund's
writing and purchasing of options.
The Fund may purchase put options to hedge against a
decline in the value of its portfolio. By using put options in
this way, the Fund will reduce any profit it might otherwise have
realized in the underlying security by the amount of the premium
paid for the put option and by transaction costs. The Fund may
purchase call options to hedge against an increase in the price
of securities that the Fund anticipates purchasing in the future.
The premium paid for the call option plus any transaction costs
will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to
the Fund.
A put option gives the purchaser of such option, upon
payment of a premium, the right to deliver a specified amount of
a security to the writer of the option on or before a fixed date
at a predetermined price. A call option gives the purchaser of
the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by
the Fund is "covered" if the Fund owns the underlying security
covered by the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or
for additional cash consideration held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund
A-1
<PAGE>
holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in cash and
liquid high-grade debt securities in a segregated account with
its custodian. A put option written by the Fund is "covered" if
the Fund maintains cash or liquid high-grade debt securities with
a value equal to the exercise price in a segregated account with
its custodian, or else holds a put on the same security and in
the same principal amount as the put written where the exercise
price of the put held is equal to or greater than the exercise
price of the put written. The premium paid by the purchaser of
an option will reflect, among other things, the relationship of
the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and
demand and interest rates.
A call option is for cross-hedging purposes if the Fund
does not own the underlying security but seeks to provide a hedge
against a decline in value in another security which the Fund
owns or has the right to acquire. In such circumstances, the
Fund collateralizes its obligation under the option by
maintaining in a segregated account with the Fund's custodian
cash or liquid high-grade debt securities in an amount not less
than the market value of the underlying security, marked to
market daily. The Fund would write a call option for cross-
hedging purposes, instead of writing a covered call option, when
the premium to be received from the cross-hedge transaction would
exceed that which would be received from writing a covered call
option, while at the same time achieving the desired hedge.
In purchasing a call option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security increased by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period, by more than the amount of the
premium. In purchasing a put option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period by more than the amount of the
premium. If a put or call option purchased by the Fund were
permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
If a put option written by the Fund were exercised, the
Fund would be obligated to purchase the underlying security at
the exercise price. If a call option written by the Fund were
A-2
<PAGE>
exercised, the Fund would be obligated to sell the underlying
security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value
of the underlying security caused by rising interest rates or
other factors. If this occurred, the option could be exercised
and the underlying security would then be sold by the option
holder to the Fund at a higher price than its current market
value. The risk involved in writing a call option is that there
could be an increase in the market value of the underlying
security caused by declining interest rates or other factors. If
this occurred, the option could be exercised and the underlying
security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering
into a closing transaction prior to the option expiration dates
if a liquid market is available. The Fund retains the premium
received from writing a put or call option whether or not the
option is exercised.
The Fund 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 Fund 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 purchased or written
by the Fund in negotiated transactions are illiquid and it may
not be possible for the Fund to effect a closing transaction at a
time when the Adviser believes it would be advantageous to do so.
An option on a securities index is similar to an option
on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon
exercises 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. There are no specific limitations on the Fund's
purchasing and selling of options on securities indices.
The writer of an option may have no control over when
the underlying securities must be sold, in the case of a call
option, or purchased, in the case of a put option, since with
regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount, of course, may, in the
case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period.
If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option
A-3
<PAGE>
is exercised, the writer must fulfill the obligation to purchase
the underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of a listed option that wishes to terminate
its obligation may effect a "closing purchase transaction." This
is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing
corporation. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option.
Likewise, an investor who is the holder of a listed option may
liquidate its position by effecting a "closing sale transaction."
This is accomplished by selling an option of the same series as
the option previously purchased. There can be no guarantee that
either a closing purchase or a closing sale transaction can be
effected in any particular situation.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other Fund
investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing
transaction if the price of the transaction is less than the
premium received from writing the option or is more than the
premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is
more than the premium received from writing the option or is less
than the premium paid to purchase the option. Because increases
in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing
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purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market include the following:
(i) there may be insufficient trading interest in certain
options, (ii) restrictions may be imposed by a national
securities exchange ("Exchange") on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular
classes or series of options or underlying securities,
(iv) unusual or unforeseen circumstances may interrupt normal
operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate
to handle current trading volume, or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a
particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of
options) would cease to exist, although outstanding options on
that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue
to be exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-
write transactions; that is, the Fund may purchase a security and
then write a call option against that security. The exercise
price of the call the Fund determines to write will depend upon
the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"),
equal to ("at-the-money") or above ("out-of-the-money") the
current value of the underlying security at the time the option
is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during
the option period. Buy-and-write transactions using at-the-money
call options may be used when it is expected that the price of
the underlying security will remain fixed or advance moderately
during the option period. Buy-and-write transactions using out-
of-the-money call options may be used when it is expected that
the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone. If the call options are
exercised in such transactions, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted
upwards or downwards by the difference between the Fund's
purchase price of the security and the exercise price. If the
options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
A-5
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The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price
and the Fund's return will be the premium received from the put
option minus the amount by which the market price of the security
is below the exercise price. Out-of-the-money, at-the-money, and
in-the-money put options may be used by the Fund in the same
market environments that call options are used in equivalent buy-
and-write transactions.
Futures Contracts and Options on Futures Contracts
The Fund may enter into contracts for the purchase or
sale for future delivery of foreign currencies, or contracts
based on financial indices, including any index of U.S.
Government Securities, securities issued by foreign government
entities, or common stocks ("futures contracts") and may purchase
and write put and call options to buy or sell futures contracts
("options on futures contracts"). A "sale" of a futures contract
means the acquisition of a contractual obligation to deliver the
securities or foreign currencies called for by the contract at a
specified price on a specified date. A "purchase" of a futures
contract means the incurring of a contractual obligation to
acquire the securities or foreign currencies called for by the
contract at a specified price on a specified date. The purchaser
of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified
dollar multiple of the value of the index on the expiration date
of the contract ("current contract value") and the price at which
the contract was originally struck. No physical delivery of the
securities underlying the index is made.
Options on futures contracts written or purchased by the
Fund will be traded on U.S. or foreign exchanges or over-the-
counter. These investment techniques will be used only to hedge
against anticipated future changes in market conditions and
interest or exchange rates which otherwise might either adversely
affect the value of the Fund's portfolio securities or adversely
affect the prices of securities which the Fund intends to
purchase at a later date.
The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which
it is based or the price of the underlying debt securities, it
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may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested it may
purchase a call option on a futures contract to hedge against
adverse market conditions.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract or securities comprising an index. If
the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline
that may have occurred in the Fund's portfolio holdings. The
writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or
foreign currency which is deliverable upon exercise of the
futures contract or securities comprising an index. If the
futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any
increase in the price of securities which the Fund intends to
purchase. If a put or call option the Fund has written is
exercised, the Fund 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 futures positions, the
Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Fund may
purchase a put option on a futures contract to hedge the Fund's
portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC"), and must be executed through
a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade
on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the
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contracts as between the clearing members of the exchange. The
Fund is not a commodity pool and all transactions in futures
contracts and options on futures contracts engaged in by the Fund
must constitute bona fide hedging or other permissible
transactions in accordance with the rules and regulations
promulgated by the CFTC.
At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 l/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or
increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different price or
interest rate from that specified in the contract. In some (but
not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
The Fund's Custodian will place cash not available for
investment or liquid high grade debt securities in a separate
account of the Fund having a value equal to the aggregate amount
of the Fund's commitments under futures contracts.
Options on Foreign Currencies
The Fund may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign currency-denominated
portfolio securities and against increases in the U.S. dollar
cost of such securities to be acquired. For example, a decline
in the dollar value of a foreign currency in which portfolio
A-8
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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 Fund may purchase put options
on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would
have resulted. As in the case of other kinds of options,
however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations
in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction costs. Options on
foreign currencies to be written or purchased by the Fund are
traded on U.S. and foreign exchanges or over-the-counter.
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
Fund 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 Fund deriving 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 Fund 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 Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund
anticipates a decline in the dollar value of foreign currency
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 will 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 Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased
A-9
<PAGE>
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 Fund
would 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 Fund
also may be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable movements
in exchange rates.
The Fund intends to write covered call options on
foreign currencies. A call option written on a foreign currency
by the Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option
is also covered if the Fund has a call on the same foreign
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash and high-grade liquid debt
securities in a segregated account with its custodian.
The Fund also intends to write call options on foreign
currencies for cross-hedging purposes. An option that is cross-
hedged is not covered, but is designed to provide a hedge against
a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
custodian, cash or high-grade liquid debt securities in an amount
not less than the value of the underlying foreign currency in
U.S. dollars marked to market daily. There is no specific
percentage limitation on the Fund's investment in options on
foreign currencies.
Additional Risks of Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies
Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the
Securities and Exchange Commission. To the contrary, such
instruments are traded through financial institutions acting as
A-10
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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 Securities and Exchange Commission
regulation. Similarly, options on securities 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. 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 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 SEC, 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 Fund 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 exercise, 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.
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In addition, futures contracts, options on futures
contracts, forward 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 Fund'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.
Forward Foreign Currency Exchange Contracts
The Fund may purchase or sell forward foreign currency
exchange contracts ("forward contracts") to attempt to minimize
the risk to the Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date, and is individually
negotiated and privately traded by currency traders and their
customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of the security ("transaction hedge").
The Fund may not engage in transaction hedges with respect to the
currency of a particular country to an extent greater than the
aggregate amount of the Fund's transactions in that currency.
Additionally, for example, when the Fund believes that a foreign
currency may suffer a substantial decline against the U.S.
dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such
foreign currency, or when the Fund believes that the U.S. dollar
may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this
situation the Fund may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S.
dollar amount where the Fund believes that the U.S. dollar value
of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the
currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). The Fund's custodian will place
cash not available for investment or liquid high-grade debt
securities in a segregated account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under
forward contracts entered into with respect to position hedges
A-12
<PAGE>
and cross-hedges. If the value of the securities placed in a
segregated account declines, additional cash or securities will
be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with
respect to such contracts. As an alternative to maintaining all
or part of the segregated account, the Fund may purchase a call
option permitting the Fund to purchase the amount of foreign
currency being hedged by a forward sale contract at a price no
higher than the forward contract price or the Fund may purchase a
put option permitting the Fund to sell the amount of foreign
currency subject to a forward purchase contract at a price as
high or higher than the forward contract price. Unanticipated
changes in currency prices may result in poorer overall
performance for the Fund than if it had not entered into such
contracts.
Forward Commitments
The Fund may enter into forward commitments for the
purchase or sale of securities. Such transactions 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, which generally is expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the
purchaser prior to the settlement date. At the time the Fund
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 Fund's right to receive or deliver a security under
a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in a segregated account of the Fund,
cash and/or liquid high grade debt securities having value equal
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to, or greater than, any commitments to purchase securities on a
forward commitment basis and, with respect to forward commitments
to sell portfolio securities of the Fund, the portfolio
securities themselves. If the Fund, however, chooses to dispose
of the right to receive or deliver a security subject to a
forward commitment prior to the settlement date of the
transaction, it may incur a gain or loss. In the event the other
party to a forward commitment transaction were to default, the
Fund might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.
Repurchase Agreements
The Fund may enter into agreements pertaining to U.S.
Government Securities 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 Fund's ability to enter into repurchase
agreements. Currently, the Fund intends to enter into repurchase
agreements only with its custodian and such primary dealers. A
repurchase agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-
upon future date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an
agreed-upon interest rate which 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 rather than the coupon rate on
the purchased security. Such agreements permit the Fund to keep
all of its assets at work while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund
requires continual maintenance by its custodian for its account
in the Federal Reserve/Treasury Book Entry System of collateral
in an amount equal to, or in excess of, the resale price. In the
event a vendor defaulted on its repurchase obligation, the Fund
might suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. In the
event of a vendor's bankruptcy, the Fund might be delayed in, or
prevented from, selling the collateral for its benefit. The
Fund's Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Fund's
Adviser monitors the creditworthiness of the dealers with which
the Fund enters into repurchase agreement transactions.
Reverse Repurchase Agreements and Dollar Rolls
The Fund may use reverse repurchase agreements and
dollar rolls as part of its investment strategy. Reverse
repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase
the same assets at a later date at a fixed price. Generally, the
effect of such a transaction is that the Fund can recover all or
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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 only advantageous if
the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of otherwise obtaining the
cash.
The Fund may enter into dollar rolls in which the Fund
sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar
(same type and coupon) securities on a specified future date.
During the roll period, the Fund forgoes principal and interest
paid on the securities. The Fund 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.
The Fund will establish a segregated account with its
custodian in which it will maintain cash and/or liquid high grade
debt securities equal in value to its obligations in respect of
reverse repurchase agreements and dollar rolls. Reverse
repurchase agreements and dollar rolls involve the risk that the
market value of the securities the Fund 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 Fund'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 Fund's
obligation to repurchase the securities.
Standby Commitment Agreements
The Fund may from time to time enter into standby
commitment agreements. Such agreements commit the Fund, for a
stated period of time, to purchase a stated amount of a security
which may be issued and sold to the Fund at the option of the
issuer. The price and coupon of the security are fixed at the
time of the commitment. At the time of entering into the
agreement the Fund is paid a commitment fee, regardless of
whether or not the security ultimately is issued, which is
typically approximately 0.5% of the aggregate purchase price of
the security which the Fund has committed to purchase. The Fund
will enter into such agreements only for the purpose of investing
in the security underlying the commitment at a yield and price
which are considered advantageous to the Fund and which are
unavailable on a firm commitment basis. The Fund will at all
times maintain a segregated account with its custodian of cash
and/or liquid high grade debt securities in an aggregate amount
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equal to the purchase price of the securities underlying the
commitment.
There can be no assurance that the securities subject to
a standby commitment will be issued and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund will bear the risk of capital loss in the event the value of
the security declines and may not benefit from an appreciation in
the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
The purchase of a security subject to a standby
commitment agreement and the related commitment fee will be
recorded on the date on which the security can reasonably be
expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net
asset value. The cost basis of the security will be adjusted by
the amount of the commitment fee. In the event the security is
not issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
Currency Swaps
The Fund may enter into currency swaps for hedging
purposes. Currency swaps involve the exchange by the Fund with
another party of a series of payments in specified currencies.
Since currency swaps are individually negotiated, the Fund
expects to achieve an acceptable degree of correlation between
its portfolio investments and its currency swaps positions. A
currency swap may involve the delivery at the end of the exchange
period of a substantial amount of one designated currency in
exchange for the other designated currency. 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 Fund's obligations over its entitlements with respect to each
currency swap will be accrued on a daily basis and an amount of
cash or high-grade liquid debt securities having an aggregate net
asset value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's custodian. The
Fund will not enter into any currency swap unless the credit
quality of the unsecured senior debt or the claims-paying ability
of the other party thereto is rated in the highest rating
category of at least one nationally recognized rating
organization at the time of entering into the transaction. If
there is a default by the other party to such a transaction, the
Fund will have contractual remedies pursuant to the agreements
related to the transactions.
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Interest Rate Transactions (Swaps, Caps and Floors)
The Fund may enter into interest rate swap, cap or floor
transactions primarily for hedging purposes, which may include
preserving a return or spread on a particular investment or
portion of its portfolio or protecting against an increase in the
price of securities the Fund anticipates purchasing at a later
date. The Fund does not intend to use these transactions in a
speculative manner.
Interest rate swaps involve the exchange by the Fund
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 Fund receiving or paying, as the case may
be, only the net amount of the two payments). Interest rate caps
and floors are similar to options in that the purchase of an
interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls
below (in the case of a floor) a predetermined interest rate, to
receive payments of interest on a notional amount from the party
selling the interest rate cap or floor. The Fund may enter into
interest rate swaps, caps and floors on either an asset-based or
liability-based basis, depending upon whether it is hedging its
assets or liabilities.
The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest
rate swap is accrued daily, and an amount of cash or liquid high-
grade debt securities having an aggregate net asset value at
least equal to the accrued excess is maintained in a segregated
account by the Fund's custodian. To the extent the Fund sells
(i.e., writes) caps and floors, it will maintain segregated
account assets having an aggregate value at least equal to the
full amount, accrued daily, of its obligations with respect to
any caps or floors.
Loans of Portfolio Securities
The Fund may make secured loans of its portfolio
securities to entities with which it can enter into repurchase
agreements, provided that cash and/or liquid high grade debt
securities equal to at least 100% of the market value of the
securities loaned are deposited and maintained by the borrower
with the Fund. See "Repurchase Agreements" above. The risks in
lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend
securities to a particular borrower, the Adviser (subject to
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review by the Board of Directors) will consider all relevant
facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay
the Fund any income earned thereon and the Fund may invest any
cash collateral in portfolio securities, thereby earning
additional income, or receive an agreed upon amount of income
from a borrower who has delivered equivalent collateral. The
Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as voting rights,
subscription rights and rights to dividends, interest or
distributions. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan.
Short Sales
When engaging in a short sale, in addition to depositing
collateral with a broker-dealer, the Fund is currently required
under the 1940 Act to establish a segregated account with its
custodian and to maintain therein cash or liquid high grade debt
securities in an amount that, when added to cash or liquid high
grade debt securities deposited with the broker- dealer, will at
all times equal at least 100% of the current market value of the
security sold short. Until the Commission has approved the use
of equity securities for such purpose, the Fund will maintain
cash or liquid high grade debt securities with the broker-dealer
and/or in a segregated account with its custodian in an aggregate
amount equal to the market value of the securities sold short. To
the extent that in the future the Fund is permitted to satisfy
all or part of its segregation obligation with equity securities,
the Fund intends to utilize securities that are similar to those
borrowed, including, to the extent practicable, equity securities
of companies from the same industry that have comparable
characteristics.
General
The successful use of the foregoing investment practices
draws upon the Adviser's special skills and experience with
respect to such instruments and usually depends on the Adviser's
ability to forecast price movements or currency exchange rate
movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of
futures contracts, options or forward contracts or may realize
losses and thus be in a worse position than if such strategies
had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price
fluctuation limits with respect to options on currencies and
forward contracts, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In
addition, the correlation between movements in the prices of such
instruments and movements in the prices of the securities and
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currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.
The Fund's ability to dispose of its position in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of fixed income
securities and currencies are relatively new and still
developing. It is impossible to predict the amount of trading
interest that may exist in various types of futures contracts,
options and forward contracts. If a secondary market does not
exist with respect to an option purchased or written by the Fund
over-the-counter, it might not be possible to effect a closing
transaction in the option (i.e., dispose of the option) with the
result that (i) an option purchased by the Fund would have to be
exercised in order for the Fund to realize any profit and
(ii) the Fund may not be able to sell currencies or portfolio
securities covering an option written by the Fund until the
option expires or it delivers the underlying futures contract or
currency upon exercise. Therefore, no assurance can be given
that the Fund will be able to utilize these instruments
effectively for the purposes set forth above.
Future Developments
The Fund may, following written notice to its
shareholders, take advantage of other investment practices which
are not at present contemplated for use by the Fund or which
currently are not available but which may be developed, to the
extent such investment practices are both consistent with the
Fund's investment objective and legally permissible for the Fund.
Such investment practices, if they arise, may involve risks which
exceed those involved in the activities described above.
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PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Financial Statements
Included in the Registrants Prospectus filed
herewith:
Financial Highlights
Included in the Registrant's Statement of
Additional Information.
Portfolio of Investments, year ended October 31,
1997
Statement of Assets and Liabilities, October 31,
1997
Statement of Operations, year ended October 31,
1997
Statement of Changes in Net Assets, January 9, 1996
(commencement of operations) to October 31,
1996 and for the year ended October 31, 1997
Notes to Financial Statements, October 31, 1997
Financial Highlights, for Class A shares for the
period January 9, 1996 (commencement of
operations) to October 31, 1996 and for the
fiscal year ended October 31, 1997 and for
Class B and Class C shares for the period
March 25, 1996 (commencement of distribution)
to October 31, 1996 and for the year ended
October 31, 1997.
Report of Independent Auditors
Included in Part C of the Registration Statement.
All other financial statements or schedules are not
required or the required information is shown in
the Statement of Assets and Liabilities or the
notes thereto.
(b) Exhibits
(1) (a) Articles of Incorporation - Incorporated by
reference from the Registrant's Registration
Statement on Form N-1A, filed with the
Securities and Exchange Commission on
October 27, 1995.
(b) Articles of Amendment - Incorporated by
reference to Exhibit 1(b) to Post-Effective
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Amendment No. 3 to Registrant's Registration
Statement on Form N-1A, filed with the
Securities and Exchange Commission on February
28, 1997.
(2) By-Laws of the Registrant - Incorporated by
reference to Exhibit 2 to Post-Effective
Amendment No. 3 to Registrant's Registration
Statement on Form N-1A, filed with the
Securities and Exchange Commission on February
28, 1997.
(4) (a) Form of Share Certificate for Class A Shares
-Incorporated by reference from Pre-Effective
Amendment No. 1 to the registrant's
Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on
December 22, 1995.
(b) Form of Share Certificate for Class B Shares -
Incorporated by reference from Pre-Effective
Amendment No. 1 to the registrant's
Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on
December 22, 1995.
(c) Form of Share Certificate for Class C Shares -
Incorporated by reference from Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on
December 22, 1995.
(5) Advisory Agreement between the Registrant and
Alliance Capital Management L.P. - filed herewith.
(6) (a) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors,
Inc. - filed herewith.
(b) Amendment to Distribution Service Agreement -
Incorporated by reference to Exhibit 6(b) to
Post- Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-
1A, filed with the Securities and Exchange
Commission on February 28, 1997.
(c) Selected Dealer Agreement between Alliance
Fund Distributors, Inc. and selected dealers
offering shares of Registrant - Incorporated
by reference from Pre-Effective Amendment No.
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1 to the Registrant's Registration Statement
on Form N-1A, filed with the Securities and
Exchange Commission on December 22, 1995.
(d) Selected Agent Agreement between Alliance Fund
Distributors, Inc. and selected agents making
available shares of Registrant - Incorporated
by reference from Pre-Effective Amendment No.
1 to the Registrant's Registration Statement
on Form N-1A, filed with the Securities and
Exchange Commission on December 22, 1995.
(7) Not applicable.
(8) Custodian Contract between the Registrant and Brown
Brothers Harriman & Co. - filed herewith.
(9) Transfer Agency Agreement between the Registrant
and Alliance Fund Services, Inc. - filed herewith.
(10) (a) Opinion and Consent of Seward & Kissel -
Incorporated by reference from Pre-Effective
Amendment No. 1 to the registrant's
Registration Statement on Form N-1A, filed
with the Securities and Exchange Commission on
December 22, 1995.
(b) Opinion and Consent of Venable, Baetjer &
Howard, LLP - Incorporated by reference from
Pre-Effective Amendment No. 1 to the
registrant's Registration Statement on Form N-
1A, filed with the Securities and Exchange
Commission on December 22, 1995.
(11) Consent of Independent Auditors - filed
herewith.
(12) Not applicable.
(13) Investment representation letter of Alliance
Capital Management L.P. - Incorporated by reference
from Pre- Effective Amendment No. 1 to the
registrant's Registration Statement on Form N-1A,
filed with the Securities and Exchange Commission
on December 22, 1995.
(14) Not applicable.
(15) Rule 12b-1 Plan - See Exhibit 6(a) hereto.
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(16) Schedule for computation of performance quotations
- Incorporated by reference to Exhibit (16) to
Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A, filed with the
Securities and Exchange Commission on October 31,
1997.
(18) (a) Rule 18f-3 Plan - Incorporated by reference
from Pre-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-
1A, filed with the Securities and Exchange
Commission on December 22, 1995.
(b) Amended Rule 18f-3 Plan - Incorporated by
reference to Exhibit 18(b) to Post-Effective
Amendment No. 3 to Registrant's Registration
Statement on Form N-1A, filed with the
Securities and Exchange Commission on February
28, 1997.
(27) Financial Data Schedule - filed herewith.
OTHER EXHIBITS: Powers of Attorney of John D. Carifa,
Ruth Block, David H. Dievler, John H.
Dobkin, William H. Foulk, James M.
Hester, Clifford L. Michel, and Donald J.
Robinson - filed herewith.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None.
ITEM 26. Number of Holders of Securities.
As of February 6, 1998, the Registrant had 334 record
holders of Class A shares of common stock, 952 record
holders of Class B shares of common stock, and 152
record holders of Class C shares and 2 record holders of
Advisor Class of common stock.
ITEM 27. Indemnification.
It is the Registrant's policy to indemnify its directors
and officers, employees and other agents to the maximum
extent permitted by Section 2-418 of the General
Corporation Law of the State of Maryland and as set
forth in Article EIGHTH of Registrant's Articles of
Incorporation, filed as Exhibit 1 in response to
Item 24, Article VII and Article VIII of Registrant's
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By-Laws, filed as Exhibit 2 in response to Item 24, and
Section 10 of the proposed Distribution Services
Agreement, filed as Exhibit 6(a) in response to Item 24,
all as set forth below. The liability of the
Registrant's directors and officers is dealt with in
Article EIGHTH of Registrant's Articles of
Incorporation, as set forth below. The Adviser's
liability for any loss suffered by the Registrant or its
shareholders is set forth in Section 4 of the proposed
Advisory Agreement, filed as Exhibit 5 in response to
Item 24, as set forth below.
Section 2-418 of the Maryland General Corporation Law
reads as follows:
"2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS.--(a) In this section the
following words have the meanings indicated.
(1) "Director" means any person who is or was a
director of a corporation and any person who, while a
director of a corporation, is or was serving at the
request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture,
trust, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign
predecessor entity of a corporation in a merger,
consolidation, or other transaction in which the
predecessor's existence ceased upon consummation of the
transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the
office of director in the corporation; and
(ii) When used with respect to a person other
than a director as contemplated in subsection (j), the
elective or appointive office in the corporation held by
the officer, or the employment or agency relationship
undertaken by the employee or agent in behalf of the
corporation.
(iii) "Official capacity" does not include
service for any other foreign or domestic corporation or
any partnership, joint venture, trust, other enterprise,
or employee benefit plan.
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(5) "Party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in
a proceeding.
(6) "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative.
(b)(1) A corporation may indemnify any director
made a party to any proceeding by reason of service in
that capacity unless it is established that:
(i) The act or omission of the director was
material to the matter giving rise to the proceeding;
and
1. Was committed in bad faith; or
2. Was the result of active and
deliberate dishonesty; or
(ii) The director actually received an
improper personal benefit in money, property, or
services; or
(iii) In the case of any criminal proceeding,
the director had reasonable cause to believe that the
act or omission was unlawful.
(2) (i) Indemnification may be against judgments,
penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with the
proceeding.
(ii) However, if the proceeding was one by or in
the right of the corporation, indemnification may not be
made in respect of any proceeding in which the director
shall have been adjudged to be liable to the
corporation.
(3) (i) The termination of any proceeding by
judgment, order or settlement does not create a
presumption that the director did not meet the requisite
standard of conduct set forth in this subsection.
(ii) The termination of any proceeding by
conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior
to judgment, creates a rebuttable presumption that the
director did not meet that standard of conduct.
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(c) A director may not be indemnified under
subsection (b) of this section in respect of any
proceeding charging improper personal benefit to the
director, whether or not involving action in the
director's official capacity, in which the director was
adjudged to be liable on the basis that personal benefit
was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on
the merits or otherwise, in the defense of any
proceeding referred to in subsection (b) of this section
shall be indemnified against reasonable expenses
incurred by the director in connection with the
proceeding.
(2) A court of appropriate jurisdiction upon
application of a director and such notice as the court
shall require, may order indemnification in the
following circumstances:
(i) If it determines a director is
entitled to reimbursement under paragraph (1) of this
subsection, the court shall order indemnification, in
which case the director shall be entitled to recover the
expenses of securing such reimbursement; or
(ii) If it determines that the director
is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not
the director has met the standards of conduct set forth
in subsection (b) of this section or has been adjudged
liable under the circumstances described in subsection
(c) of this section, the court may order such
indemnification as the court shall deem proper.
However, indemnification with respect to any proceeding
by or in the right of the corporation or in which
liability shall have been adjudged in the circumstances
described in subsection (c) shall be limited to
expenses.
(3) A court of appropriate jurisdiction may
be the same court in which the proceeding involving the
director's liability took place.
(e)(1) Indemnification under subsection (b) of this
section may not be made by the corporation unless
authorized for a specific proceeding after a
determination has been made that indemnification of the
director is permissible in the circumstances because the
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director has met the standard of conduct set forth in
subsection (b) of this section.
(2) Such determination shall be made:
(i) By the board of directors by a
majority vote of a quorum consisting of directors not,
at the time, parties to the proceeding, or, if such a
quorum cannot be obtained, then by a majority vote of a
committee of the board consisting solely of two or more
directors not, at the time, parties to such proceeding
and who were duly designated to act in the matter by a
majority vote of the full board in which the designated
directors who are parties may participate;
(ii) By special legal counsel selected
by the board of directors or a committee of the board by
vote as set forth in subparagraph (i) of this paragraph,
or, if the requisite quorum of the full board cannot be
obtained therefor and the committee cannot be
established, by a majority vote of the full board in
which directors who are parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and
determination as to reasonableness of expenses shall be
made in the same manner as the determination that
indemnification is permissible. However, if the
determination that indemnification is permissible is
made by special legal counsel, authorization of
indemnification and determination as to reasonableness
of expenses shall be made in the manner specified in
subparagraph (ii) of paragraph (2) of this subsection
for selection of such counsel.
(4) Shares held by directors who are parties
to the proceeding may not be voted on the subject matter
under this subsection.
(f)(1) Reasonable expenses incurred by a
director who is a party to a proceeding may be paid or
reimbursed by the corporation in advance of the final
disposition of the proceeding, upon receipt by the
corporation of:
(i) A written affirmation by the
director of the director's good faith belief that the
standard of conduct necessary for indemnification by the
corporation as authorized in this section has been met;
and
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(ii) A written undertaking by or on
behalf of the director to repay the amount if it shall
ultimately be determined that the standard of conduct
has not been met.
(2) The undertaking required by subparagraph
(ii) of paragraph (1) of this subsection shall be an
unlimited general obligation of the director but need
not be secured and may be accepted without reference to
financial ability to make the repayment.
(3) Payments under this subsection shall be
made as provided by the charter, bylaws, or contract or
as specified in subsection (e) of this section.
(g) The indemnification and advancement of
expenses provided or authorized by this section may not
be deemed exclusive of any other rights, by
indemnification or otherwise, to which a director may be
entitled under the charter, the bylaws, a resolution of
stockholders or directors, an agreement or otherwise,
both as to action in an official capacity and as to
action in another capacity while holding such office.
(h) This section does not limit the
corporation's power to pay or reimburse expenses
incurred by a director in connection with an appearance
as a witness in a proceeding at a time when the director
has not been made a named defendant or respondent in the
proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have
requested a director to serve an employee benefit plan
where the performance of the director's duties to the
corporation also imposes duties on, or otherwise
involves services by, the director to the plan or
participants or beneficiaries of the plan:
(2) Excise taxes assessed on a director with
respect to an employee benefit plan pursuant to
applicable law shall be deemed fines; and
(3) Action taken or omitted by the director
with respect to an employee benefit plan in the
performance of the director's duties for a purpose
reasonably believed by the director to be in the
interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
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(j) Unless limited by the charter:
(1) An officer of the corporation shall be
indemnified as and to the extent provided in subsection
(d) of this section for a director and shall be
entitled, to the same extent as a director, to seek
indemnification pursuant to the provisions of subsection
(d);
(2) A corporation may indemnify and advance
expenses to an officer, employee, or agent of the
corporation to the same extent that it may indemnify
directors under this section; and
(3) A corporation, in addition, may indemnify
and advance expenses to an officer, employee, or agent
who is not a director to such further extent, consistent
with law, as may be provided by its charter, bylaws,
general or specific action of its board of directors or
contract.
(k)(1) A corporation may purchase and maintain
insurance on behalf of any person who is or was a
director, officer, employee, or agent of the
corporation, or who, while a director, officer,
employee, or agent of the corporation, is or was serving
at the request, of the corporation as a director,
officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit
plan against any liability asserted against and incurred
by such person in any such capacity or arising out of
such person's position, whether or not the corporation
would have the power to indemnify against liability
under the provisions of this section.
(2) A corporation may provide similar
protection, including a trust fund, letter of credit, or
surety bond, not inconsistent with this section.
(3) The insurance or similar protection may
be provided by a subsidiary or an affiliate of the
corporation.
(l) Any indemnification of, or advance of
expenses to, a director in accordance with this section,
if arising out of a proceeding by or in the right of the
corporation, shall be reported in writing to the
stockholders with the notice of the next stockholders'
meeting or prior to the meeting."
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Article EIGHTH of the Registrant's Articles of
Incorporation reads as follows:
"(1) To the full extent that limitations on
the liability of directors and officers are permitted by
the Maryland General Corporation Law, no director or
officer of the Corporation shall have any liability to
the Corporation or its stockholders for money damages.
This limitation on liability applies to events occurring
at the time a person serves as a director or officer of
the Corporation whether or not such person is a director
or officer at the time of any proceeding in which
liability is asserted.
"(2) The Corporation shall indemnify and
advance expenses to its currently acting and its former
directors to the full extent that indemnification of
directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and
advance expenses to its officers to the same extent as
its directors and may do so to such further extent as is
consistent with law. The Board of Directors may by
By-Law, resolution or agreement make further provision
for indemnification of directors, officers, employees
and agents to the full extent permitted by the Maryland
General Corporation Law.
"(3) No provision of this Article shall be
effective to protect or purport to protect any director
or officer of the Corporation against any liability to
the Corporation or its stockholders to which he or she
would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
or her office.
"(4) References to the Maryland General
Corporation Law in this Article are to that law as from
time to time amended. No amendment to the charter of
the Corporation shall affect any right of any person
under this Article based on any event, omission or
proceeding prior to the amendment."
Article VII, Section 7 of the Registrant's By-Laws reads
as follows:
Section 7. Insurance Against Certain Liabilities.
The Corporation shall not bear the cost of insurance
that protects or purports to protect directors and
officers of the Corporation against any liabilities to
the Corporation or its security holders to which any
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such director or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of his office.
ARTICLE VIII of the Registrant's By-Laws reads as
follows:
Section 14. Indemnification of Directors and
Officers. The Corporation shall indemnify its directors
to the full extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify its officers to the same
extent as its directors and to such further extent as is
consistent with law. The Corporation shall indemnify
its directors and officers who while serving as
directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee,
employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or
employee benefit plan to the full extent consistent with
law. The indemnification and other rights provided by
this Article shall continue as to a person who has
ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators
of such a person. This Article shall not protect any
such person against any liability to the Corporation or
any stockholder thereof to which such person would
otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office ("disabling
conduct").
Section 15. Advances. Any current or former
director or officer of the Corporation seeking
indemnification within the scope of this Article shall
be entitled to advances from the Corporation for payment
of the reasonable expenses incurred by him in connection
with the matter as to which he is seeking
indemnification in the manner and to the full extent
permissible under the Maryland General Corporation Law.
The person seeking indemnification shall provide to the
Corporation a written affirmation of his good faith
belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a
written undertaking to repay any such advance if it
should ultimately be determined that the standard of
conduct has not been met. In addition, at least one of
the following additional conditions shall be met:
(a) the person seeking indemnification shall provide a
security in form and amount acceptable to the
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Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance;
or (c) a majority of a quorum of directors of the
Corporation who are neither "interested persons" as
defined in Section 2(a)(19) of the Investment Company
Act of 1940, as amended, nor parties to the proceeding
("disinterested non-party directors"), or independent
legal counsel, in a written opinion, shall have
determined, based on a review of facts readily available
to the Corporation at the time the advance is proposed
to be made, that there is reason to believe that the
person seeking indemnification will ultimately be found
to be entitled to indemnification.
Section 15. Procedure. At the request of any
person claiming indemnification under this Article, the
Board of Directors shall determine, or cause to be
determined, in a manner consistent with the Maryland
General Corporation Law, whether the standards required
by this Article have been met. Indemnification shall be
made only following: (a) a final decision on the merits
by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable
by reason of disabling conduct or (b) in the absence of
such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified
was not liable by reason of disabling conduct by (i) the
vote of a majority of a quorum of disinterested non-
party directors or (ii) an independent legal counsel in
a written opinion.
Section 16. Indemnification of Employees and
Agents. Employees and agents who are not officers or
directors of the Corporation may be indemnified, and
reasonable expenses may be advanced to such employees or
agents, as may be provided by action of the Board of
Directors or by contract, subject to any limitations
imposed by the Investment Company Act of 1940.
Section 16. Other Rights. The Board of Directors
may make further provision consistent with law for
indemnification and advance of expenses to directors,
officers, employees and agents by resolution, agreement
or otherwise. The indemnification provided by this
Article shall not be deemed exclusive of any other
right, with respect to indemnification or otherwise, to
which those seeking indemnification may be entitled
under any insurance or other agreement or resolution of
stockholders or disinterested directors or otherwise.
The rights provided to any person by this Article shall
be enforceable against the Corporation by such person
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who shall be presumed to have relied upon it in serving
or continuing to serve as a director, officer, employee,
or agent as provided above.
Section 16. Amendments. References in this
Article are to the Maryland General Corporation Law and
to the Investment Company Act of 1940 as from time to
time amended. No amendment of these By-laws shall
affect any right of any person under this Article based
on any event, omission or proceeding prior to the
amendment.
The proposed Advisory Agreement to be between the
Registrant and Alliance Capital Management L.P. provides
that Alliance Capital Management L.P. will not be liable
under such agreements for any mistake of judgment or in
any event whatsoever except for lack of good faith and
that nothing therein shall be deemed to protect Alliance
Capital Management L.P. against any liability to the
Registrant or its security holders to which it would
otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its
duties thereunder, or by reason of reckless disregard of
its duties and obligations thereunder.
The proposed Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc. provides
that the Registrant will indemnify, defend and hold
Alliance Fund Distributors, Inc., and any person who
controls it within the meaning of Section 15 of the
Securities Act of 1933 (the ``Securities Act"), free and
harmless from and against any and all claims, demands,
liabilities and expenses which Alliance Fund
Distributors, Inc. or any controlling person may incur
arising out of or based upon any alleged untrue
statement of a material fact contained in the
Registrant's Registration Statement, Prospectus or
Statement of Additional Information or arising out of,
or based upon any alleged omission to state a material
fact required to be stated in any one of the foregoing
or necessary to make the statements in any one of the
foregoing not misleading.
The foregoing summaries are qualified by the entire text
of Registrant's Articles of Incorporation and By-Laws,
the proposed Advisory Agreement between Registrant and
Alliance Capital Management L.P. and the proposed
Distribution Services Agreement between Registrant and
Alliance Fund Distributors, Inc. which are filed
herewith as Exhibits 1, 2, 5 and 6(a), respectively, in
C-14
<PAGE>
response to Item 24 and each of which are incorporated
by reference herein.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection
with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
In accordance with Release No. IC-11330 (September 2,
1980), the Registrant will indemnify its directors,
officers, investment manager and principal underwriters
only if (1) a final decision on the merits was issued by
the court or other body before whom the proceeding was
brought that the person to be indemnified (the
"indemnitee") was not liable by reason or willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the facts,
that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the directors who are neither "interested
persons" of the Registrant as defined in section
2(a)(19) of the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
trustees"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters
in defending a proceeding, upon the undertaking by or on
behalf of the indemnitee to repay the advance unless it
is ultimately determined that he is entitled to
indemnification and, as a condition to the advance,
(1) the indemnitee shall provide a security for his
C-15
<PAGE>
undertaking, (2) the Registrant shall be insured against
losses arising by reason of any lawful advances, or
(3) a majority of a quorum of disinterested, non-party
directors of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on
a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found
entitled to indemnification.
The Registrant participates in a joint
trustees/directors and officers liability insurance
policy issued by the ICI Mutual Insurance Company.
Coverage under this policy has been extended to
directors, trustees and officers of the investment
companies managed by Alliance Capital Management L.P.
Under this policy, outside trustees and directors are
covered up to the limits specified for any claim against
them for acts committed in their capacities as trustee
or director. A pro rata share of the premium for this
coverage is charged to each investment company and to
the Adviser.
ITEM 28. Business and Other Connections of Investment Adviser.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Fund" in the
Prospectus and in the Statement of Additional
Information constituting Parts A and B, respectively, of
this Registration Statement are incorporated by
reference herein.
The information as to the directors and executive
officers of Alliance Capital Management Corporation, the
general partner of Alliance Capital Management L.P., set
forth in Alliance Capital Management L.P.'s Form ADV
filed with the Securities and Exchange Commission on
April 21, 1988 (File No. 801-32361) and amended through
the date hereof, is incorporated by reference.
ITEM 29. Principal Underwriters.
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale
of shares of the Registrant, also acts as Principal
Underwriter or Distributor for the following
investment companies:
ACM Institutional Reserves, Inc.
AFD Exchange Reserves
C-16
<PAGE>
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund, Inc. II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust,
Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and officers of
Alliance Fund Distributors, Inc., the principal
place of business of which is 1345 Avenue of the
Americas, New York, New York, 10105.
C-17
<PAGE>
NAME POSITIONS AND OFFICES POSITIONS AND OFFICES
WITH UNDERWRITER WITH REGISTRANT
Michael J. Laughlin Chairman
Robert L. Errico President
David Conine Executive Vice
President
Richard K. Saccullo Executive Vice
President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel and
Secretary
Karen J. Bullot Senior Vice President
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Richard A. Davies Senior Vice President,
Managing Director
Byron M. Davis Senior Vice President
Anne S. Drennan Senior Vice President
and Treasurer
Mark J. Dunbar Senior Vice President
Donald N. Fritts Senior Vice President
Bradley F. Hanson Senior Vice President
Geoffrey L. Hyde Senior Vice President
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. McGinley Senior Vice President
Ryne A. Nishimi Senior Vice President
C-18
<PAGE>
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
John C. Endahl Vice President
Sohaila S. Farsheed Vice President
William C. Fisher Vice President
Gerard J. Friscia Vice President and
Controller
C-19
<PAGE>
Andrew L. Gangolf Vice President and Assistant Secretary
Assistant General
Counsel
Mark D. Gersten Vice President Treasurer and Chief
Financial Officer
Joseph W. Gibson Vice President
John Grambone Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Scott F. Heyer Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Scott Hutton Vice President
Thomas K. Intoccia Vice President
Larry P. Johns Vice President
Richard D. Keppler Vice President
Gwenn M. Kessler Vice President
Donna M. Lamback Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Christopher W. Moore Vice President
C-20
<PAGE>
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
Domenick Pugliese Vice President & Assistant
Assistant General Secretary
Counsel
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Karen C. Satterberg Vice President
Robert C. Schultz Vice President
Raymond S. Sclafani Vice President
Richard J. Sidell Vice President
Teris A. Sinclair Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Thomas J. Vaughn Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
William C. White Vice President
Emilie D. Wrapp Vice President & Assistant
Special Counsel Secretary
Michael W. Alexander Assistant Vice
President
C-21
<PAGE>
Richard J. Appaluccio Assistant Vice
President
Charles M. Barrett Assistant Vice
President
Robert F. Brendli Assistant Vice
President
Maria L. Carreras Assistant Vice
President
John P. Chase Assistant Vice
President
Russell R. Corby Assistant Vice
President
John W. Cronin Assistant Vice
President
Jean A. Cronin Assistant Vice
President
Terri J. Daly Assistant Vice
President
Ralph A. DiMeglio Assistant Vice
President
Faith C. Dunn Assistant Vice
President
John E. English Assistant Vice
President
Duff C. Ferguson Assistant Vice
President
Brian S. Hanigan Assistant Vice
President
James J. Hill Assistant Vice
President
Eric G. Kalendar Assistant Vice
President
C-22
<PAGE>
Robin L. Kraebel Assistant Vice
President
Edward W. Kelly Assistant Vice
President
Michael Laino Assistant Vice
President
Nicholas J. Lapi Assistant Vice
President
Patrick Look Assistant Vice
President &
Assistant Treasurer
Kristine J. Luisi Assistant Vice
President
Richard F. Meier Assistant Vice
President
Richard J. Olszewski Assistant Vice
President
Catherine N. Peterson Assistant Vice
President
Rizwan A. Raja Assistant Vice
President
Carol H. Rappa Assistant Vice
President
Clara Sierra Assistant Vice
President
Gayle S. Stamer Assistant Vice
President
Vincent T. Strangio Assistant Vice
President
Marie R. Vogel Assistant Vice
President
Wesley S. Williams Assistant Vice
President
C-23
<PAGE>
Matthew Witschel Assistant Vice
President
Christopher J. Zingaro Assistant Vice
President
Mark R. Manley Assistant Secretary
(c) Not applicable.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder
are maintained as follows: journals, ledgers, securities
records and other original records are maintained
principally at the offices of Alliance Fund Services,
Inc., 500 Plaza Drive, Secaucus, New Jersey, 07094 and
at the offices of Brown Brothers Harriman & Co., the
Registrant's custodian, 40 Water Street, Boston,
Massachusetts 02109. All other records so required to
be maintained are maintained at the offices of Alliance
Capital Management L.P., 1345 Avenue of the Americas,
New York, New York, 10105.
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal of
any Director of the Fund in accordance with Section 16
of the Investment Company Act of 1940.
The Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon
request and without charge.
C-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 23rd day of February, 1998.
ALLIANCE GLOBAL STRATEGIC INCOME
TRUST, INC.
By: /s/John D. Carifa
__________________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
1933, as amended, this Amendment to the Registration Statement
has been signed below by the following persons in the capacities
and on the date indicated.
SIGNATURE TITLE DATE
1. Principal
Executive Officer:
/s/ John D. Carifa Chairman and February 23, 1998
____________________ President
John D. Carifa
2. Principal Financial and
Accounting Officer:
Mark D. Gersten Treasurer and February 23, 1998
____________________ Chief Financial
/s/ Mark D. Gersten Officer
Mark D. Gersten
C-25
<PAGE>
3. All of the Directors:
Ruth Block
John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
Dr. James Hester
Clifford L. Michel
Donald J. Robinson
By:/s/ Edmund P. Bergan, Jr. February 23, 1998
________________________
Edmund P. Bergan, Jr.
(Attorney-in-Fact)
C-26
<PAGE>
Index to Exhibits
(5) Advisory Agreement
(6)(a) Distribution Services Agreement
(8) Custodian Contract
(9) Transfer Agency Agreement
(11) Consent of Independent Auditors
(27) Financial Data Schedules
OTHER EXHIBITS: Powers of Attorney of Ms. Block and Messrs.
Carifa, Dievler, Dobkin, Foulk, Hester, Michel and Robinson.
C-27
00250223.AS7
<PAGE>
ADVISORY AGREEMENT
ALLIANCE GLOBAL STRATEGIC INCOME TRUST, INC.
1345 Avenue Of The Americas
New York, New York 10105
January 2, 1996
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
We, the undersigned Alliance Global Strategic Income
Trust, Inc. herewith confirm our agreement with you as follows:
1. We are an open-end, non-diversified management
investment company registered under the Investment Company Act of
1940, as amended (the "Act"). We are currently authorized to
issue separate classes of shares and our Directors are authorized
to reclassify and issue any unissued shares to any number of
additional classes or series (portfolios) each having its own
investment objective, policies and restrictions, all as more
fully described in the prospectus and the statement of additional
information constituting parts of the Registration Statement
filed on our behalf under the Securities Act of 1933, as amended,
and the Act. We propose to engage in the business of investing
and reinvesting the assets of each of our portfolios in
securities ("the portfolio assets") of the type and in accordance
with the limitations specified in our Charter, By-Laws,
<PAGE>
Registration Statement on Form N-1A filed with the Securities and
Exchange Commission under the Securities Act of 1933 and the Act
("Registration Statement"), and any representations made in our
prospectus and statement of additional information, all in such
manner and to such extent as may from time to time be authorized
by our Board of Directors. We enclose copies of the documents
listed above and will from time to time furnish you with any
amendments thereof.
2. (a) We hereby employ you to manage the investment
and reinvestment of the portfolio assets as above specified and,
without limiting the generality of the foregoing, to provide
management and other services specified below.
(b) You will make decisions with respect to all
purchases and sales of the portfolio assets. To carry out such
decisions, you are hereby authorized, as our agent and attorney-
in-fact, for our account and at our risk and in our name, to
place orders for the investment and reinvestment of the portfolio
assets. In all purchases, sales and other transactions in the
portfolio assets you are authorized to exercise full discretion
and act for us in the same manner and with the same force and
effect as we might or could do with respect to such purchases,
sales or other transactions, as well as with respect to all other
things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions.
2
<PAGE>
(c) You will report to our Board of Directors at
each meeting thereof all changes in the portfolio assets since
the prior report, and will also keep us in touch with important
developments affecting the portfolio assets and on your own
initiative will furnish us from time to time with such
information as you may believe appropriate for this purpose,
whether concerning the individual issuers whose securities are
included in the portfolio assets, the industries in which they
engage, or the conditions prevailing in the economy generally.
You will also furnish us with such statistical and analytical
information with respect to the portfolio assets as you may
believe appropriate or as we reasonably may request. In making
such purchases and sales of the portfolio assets, you will bear
in mind the policies set from time to time by our Board of
Directors as well as the limitations imposed by our Charter and
in our Registration Statement, the limitations in the Act and of
the Internal Revenue Code of 1986, as amended, in respect of
regulated investment companies and the investment objective,
policies and restrictions applicable to each of our portfolios.
(d) It is understood that you will from time to
time employ or associate with yourselves such persons as you
believe to be particularly fitted to assist you in the execution
of your duties hereunder, the cost of performance of such duties
to be borne and paid by you. No obligation may be incurred on
our behalf in any such respect. During the continuance of this
3
<PAGE>
agreement and at our request you will provide to us persons
satisfactory to our Board of Directors to serve as our officers.
You or your affiliates will also provide persons, who may be our
officers, to render such clerical, accounting and other services
to us as we may from time to time request of you. Such personnel
may be employees of you or your affiliates. We will pay to you
or your affiliates the cost of such personnel for rendering such
services to us, provided that all time devoted to the investment
or reinvestment of the portfolio assets shall be for your
account. Nothing contained herein shall be construed to restrict
our right to hire our own employees or to contract for services
to be performed by third parties. Furthermore, you or your
affiliates shall furnish us without charge with such management
supervision and assistance and such office facilities as you may
believe appropriate or as we may reasonably request subject to
the requirements of any regulatory authority to which you may be
subject. You or your affiliates shall also be responsible for
the payment of any expenses incurred in promoting the sale of our
shares (other than the portion of the promotional expenses to be
borne by us in accordance with an effective plan pursuant to Rule
12b-1 under the Act and the costs of printing our prospectuses
and other reports to shareholders and fees related to
registration with the Securities and Exchange Commission and with
state regulatory authorities).
4
<PAGE>
3. It is further agreed that you shall be responsible
for the portion of the net expenses of each of our portfolios
(except interest, taxes, brokerage, fees paid in accordance with
an effective plan pursuant to Rule 12b-1 under the Act,
expenditures which are capitalized in accordance with generally
accepted accounting principles and extraordinary expenses, all to
the extent permitted by applicable state law and regulation)
incurred by us during each of our fiscal years or portion thereof
that this agreement is in effect between us which, as to a
portfolio, in any such year exceeds the limits applicable to such
portfolio under the laws or regulations of any state in which our
shares are qualified for sale (reduced pro rata for any portion
of less than a year). We hereby confirm that, subject to the
foregoing, we shall be responsible and hereby assume the
obligation for payment of all our other expenses, including:
(a) payment of the fee payable to you under paragraph 5 hereof;
(b) custody, transfer and dividend disbursing, and administration
expenses; (c) fees of directors who are not your affiliated
persons; (d) legal and auditing expenses; (e) clerical,
accounting and other office costs; (f) the cost of personnel
providing services to us, as provided in subparagraph (d) of
paragraph 2 above; (g) costs of printing our prospectuses and
shareholder reports; (h) cost of maintenance of our corporate
existence; (i) interest charges, taxes, brokerage fees and
commissions; (j) costs of stationery and supplies; (k) expenses
5
<PAGE>
and fees related to registration and filing with the Securities
and Exchange Commission and with state regulatory authorities;
and (l) such promotional expenses as may be contemplated by an
effective plan pursuant to Rule 12b-1 under the Act provided,
however, that our payment of such promotional expenses shall be
in the amounts, and in accordance with the procedures, set forth
in such plan.
4. We shall expect of you, and you will give us the
benefit of, your best judgment and efforts in rendering these
services to us, and we agree as an inducement to your undertaking
these services that you shall not be liable hereunder for any
mistake of judgment or in any event whatsoever, except for lack
of good faith, provided that nothing herein shall be deemed to
protect, or purport to protect, you against any liability to us
or to our security holders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties
hereunder.
5. In consideration of the foregoing, we will pay you
a monthly fee at an annualized rate of .75% of our average daily
net assets. Such fee shall be payable in arrears on the last day
of each calendar month for services performed hereunder during
such month. If our initial Registration Statement is declared
effective by the Securities and Exchange Commission after the
6
<PAGE>
beginning of a month or this agreement terminates prior to the
end of a month, such fee shall be prorated according to the
proportion which such portion of the month bears to the full
month.
6. This agreement shall become effective on the date
hereof and shall remain in effect until December 31, 1997 and may
be continued for successive twelve-month periods (computed from
each January 1 thereafter) with respect to each portfolio
provided that such continuance is specifically approved at least
annually by the Board of Directors or by the vote of a majority
of the outstanding voting securities of such portfolio (as
defined in the Act), and, in either case, by a majority of the
Board of Directors who are not parties to this agreement or
interested persons, as defined in the Act, of any party to this
agreement (other than as Directors of our corporation), provided
further, however, that if the continuation of this agreement is
not approved as to a portfolio, you may continue to render to
such portfolio the services described herein in the manner and to
the extent permitted by the Act and the rules and regulations
thereunder. Upon the effectiveness of this agreement, it shall
supersede all previous agreements between us covering the subject
matter hereof. This agreement may be terminated with respect to
any portfolio at any time, without the payment of any penalty, by
vote of a majority of the outstanding voting securities (as so
defined) of such portfolio, or by a vote of the Board of
7
<PAGE>
Directors on 60 days' written notice to you, or by you with
respect to any portfolio on 60 days' written notice to us.
7. This agreement may not be transferred, assigned,
sold or in any manner hypothecated or pledged by you and this
agreement shall terminate automatically in the event of any such
transfer, assignment, sale, hypothecation or pledge by you. The
terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing
law and any interpretation thereof contained in rules or
regulations promulgated by the Securities and Exchange Commission
thereunder.
8. (a) Except to the extent necessary to perform your
obligations hereunder, nothing herein shall be deemed to limit or
restrict your right, or the right of any of your employees, or
any of the officers or directors of Alliance Capital Management
Corporation, your general partner, who may also be a Director,
officer or employee of ours, or persons otherwise affiliated with
us (within the meaning of the Act) to engage in any other
business or to devote time and attention to the management or
other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other
trust, corporation, firm, individual or association.
(b) You will notify us of any change in the general
partners of your partnership within a reasonable time after such
change.
8
<PAGE>
9. If you cease to act as our investment adviser, or,
in any event, if you so request in writing, we agree to take all
necessary action to change our name to a name not including the
term "Alliance." You may from time to time make available
without charge to us for our use such marks or symbols owned by
you, including marks or symbols containing the term "Alliance" or
any variation thereof, as you may consider appropriate. Any such
marks or symbols so made available will remain your property and
you shall have the right, upon notice in writing, to require us
to cease the use of such mark or symbol at any time.
10. This Agreement shall be construed in accordance
with the laws of the State of New York, provided, however, that
nothing herein shall be construed as being inconsistent with the
Act.
9
<PAGE>
If the foregoing is in accordance with your
understanding, will you kindly so indicate by signing and
returning to us the enclosed copy hereof.
Very truly yours,
ALLIANCE GLOBAL STRATEGIC
INCOME TRUST, INC.
/s/ John D. Carifa
By__________________________
Agreed to and accepted
as of the date first set forth above
ALLIANCE CAPITAL MANAGEMENT L.P.
By ALLIANCE CAPITAL MANAGEMENT
CORPORATION, its general
partner
/s/ John D. Carifa
By_______________________________
10
00250223.AD2
<PAGE>
DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made as of January 2, 1996 between ALLIANCE
GLOBAL STRATEGIC INCOME TRUST, INC., a Maryland corporation (the
"Fund"), and ALLIANCE FUND DISTRIBUTORS, INC., a Delaware
corporation (the "Underwriter").
WITNESSETH
WHEREAS, the Fund is registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"),
as a non-diversified, open-end management investment company and
it is in the interest of the Fund to offer its shares for sale
continuously;
WHEREAS, the Underwriter is a securities firm engaged in
the business of selling shares of investment companies either
directly to purchasers or through other securities dealers;
WHEREAS, the Fund and the Underwriter wish to enter into
an agreement with each other with respect to the continuous
offering of the Fund's shares in order to promote the growth of
the Fund and facilitate the distribution of its shares;
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Appointment of the Underwriter. The Fund
hereby appoints the Underwriter as the principal underwriter and
distributor of the Fund to sell to the public shares and of its
Class A Common Stock (the "Class A shares"), Class B Common Stock
(the "Class B shares"), Class C Common Stock (the "Class C
shares") and Class Y Common Stock (the "Class Y shares") (the
Class A shares, Class B shares, the Class C shares and the Class
Y shares being collectively referred to herein as the "shares")
and hereby agrees during the term of this Agreement to sell
shares to the Underwriter upon the terms and conditions herein
set forth.
SECTION 2. Exclusive Nature of Duties. The Underwriter
shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the shares except that
the rights given under this Agreement to the Underwriter shall
not apply to shares issued in connection with (a) the merger or
consolidation of any other investment company with the Fund, (b)
the Fund's acquisition by purchase or otherwise of all or
substantially all of the assets or stock of any other investment
<PAGE>
company or (c) the reinvestment in shares by the Fund's
shareholders of dividends or other distributions.
SECTION 3. Purchase of Shares from the Fund.
(a) The Underwriter shall have the right to buy from
the Fund the shares needed to fill unconditional orders for
shares of the Fund placed with the Underwriter by investors or
securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers. The price
which the Underwriter shall pay for the shares so purchased from
the Fund shall be the net asset value, determined as set forth in
Section 3(d) hereof, used in determining the public offering
price on which such orders are based.
(b) The shares are to be resold by the Underwriter to
investors at a public offering price, as set forth in Section
3(c) hereof, or to securities dealers, depository institutions or
other financial intermediaries acting as agent for their
customers having agreements with the Underwriter upon the terms
and conditions set forth in Section 8 hereof.
(c) The public offering price of the shares, i.e., the
price per share at which the Underwriter or selected dealers or
selected agents (each as defined in Section 8(a) below) may sell
shares to the public, shall be the public offering price
determined in accordance with the then current Prospectus and
Statement of Additional Information of the Fund (the "Prospectus"
and "Statement of Additional Information," respectively) under
the Securities Act of 1933, as amended (the "Securities Act"),
relating to such shares, but not to exceed the net asset value at
which the Underwriter is to purchase such shares, plus, in the
case of Class A shares, an initial sales charge equal to a
specified percentage or percentages of the public offering price
of the Class A shares as set forth in the Prospectus. Class A
shares may be sold without such a sales charge to certain classes
of persons as from time to time set forth in the Prospectus and
Statement of Additional Information. All payments to the Fund
hereunder shall be made in the manner set forth in Section 3(f)
hereof.
(d) The net asset value of shares of the Fund shall be
determined by the Fund, or any agent of the Fund, as of the close
of regular trading on the New York Stock Exchange on each Fund
business day in accordance with the method set forth in the
Prospectus and Statement of Additional Information and guidelines
established by the Directors of the Fund.
(e) The Fund reserves the right to suspend the offering
of its shares at any time in the absolute discretion of its
Directors.
2
<PAGE>
(f) The Fund, or any agent of the Fund designated in
writing to the Underwriter by the Fund, shall be promptly advised
by the Underwriter of all purchase orders for shares received by
the Underwriter. Any order may be rejected by the Fund;
provided, however, that the Fund will not arbitrarily or without
reasonable cause refuse to accept or confirm orders for the
purchase of shares. The Fund (or its agent) will confirm orders
upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment thereof, will
deliver deposit receipts or certificates for such shares pursuant
to the instructions of the Underwriter. Payment shall be made to
the Fund in New York Clearing House funds. The Underwriter
agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
SECTION 4. Repurchase or Redemption of
Shares by the Fund.
(a) Any of the outstanding shares may be tendered for
redemption at any time, and the Fund agrees to redeem or
repurchase the shares so tendered in accordance with its
obligations as set forth in Section 8(d) of ARTICLE FIFTH of its
Articles of Incorporation and in accordance with the applicable
provisions set forth in the Prospectus and Statement of
Additional Information. The price to be paid to redeem or
repurchase the shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(c)
hereof, less any applicable sales charge. All payments by the
Fund hereunder shall be made in the manner set forth below. The
redemption or repurchase by the Fund of any of the Class A shares
purchased by or through the Underwriter will not affect the
initial sales charge secured by the Underwriter or any selected
dealer or compensation paid to any selected agent (unless such
selected dealer or selected agent has otherwise agreed with the
Underwriter), in the course of the original sale, regardless of
the length of the time period between purchase by an investor and
his tendering for redemption or repurchase.
The Fund (or its agent) shall pay the total amount of
the redemption price and, except as may be otherwise required by
the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD") and any interpretations
thereof ("NASD rules and interpretations"), the deferred sales
charges, if any, pursuant to the instructions of the Underwriter
in New York Clearing House funds on or before the seventh
business day subsequent to its having received the notice of
redemption in proper form.
(b) Redemption of shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading
thereon is closed, when trading thereon is restricted, when an
3
<PAGE>
emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or during any other period when the Securities
and Exchange Commission, by order, so permits.
SECTION 5. Plan of Distribution.
(a) It is understood that Sections 5, 12, and 16 hereof
together constitute a plan of distribution (the "Plan") within
the meaning of Rule 12b-1 adopted by the Securities and Exchange
Commission under the Investment Company Act ("Rule 12b-1").
(b) Except as may be required by NASD rules and
interpretations, the Fund will pay to the Underwriter each month
a distribution services fee with respect to each portfolio of the
Fund ("Portfolio") that will not exceed, on an annualized basis,
.30% of the aggregate average daily net assets of the Fund
attributable to the Class A shares, 1.00% of the aggregate
average daily net assets of the Fund attributable to the Class B
shares and 1.00% of the aggregate average daily net assets of the
Fund attributable to the Class C shares. With respect to each
Portfolio, the distribution services fee will be used in its
entirety by the Underwriter to make payments (i) to compensate
broker-dealers or other persons for providing distribution
assistance, (ii) to otherwise promote the sale of shares of each
Portfolio, including payment for the preparation, printing and
distribution of prospectuses and sales literature or other
promotional activities, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for
providing administrative, accounting and other services with
respect to each Portfolio's shareholders. A portion of the
distribution services fee that will not exceed, on an annualized
basis, .25% of the aggregate average daily net assets of the Fund
attributable to each of the Class A shares, Class B shares and
Class C shares will constitute a service fee that will be used by
the Underwriter for personal service and/or the maintenance of
shareholder accounts within the meaning of NASD rules and
interpretations.
(c) Alliance Capital Management L.P., the Fund's
investment adviser (the "Adviser"), may make payments from time
to time from its own resources for the purposes described in
Section 5(b) hereof.
(d) Payment for any expenses incurred for the purposes
described in Section 5(b) by the Underwriter with respect to the
Class Y shares will be made by the Adviser or the Underwriter or
any of their affiliates (other than the Fund) from their own
resources.
4
<PAGE>
(d) Payments to broker-dealers, depository institutions
and other financial intermediaries for the purposes set forth in
Section 5(b) are subject to the terms and conditions of the
written agreements between the Underwriter and each broker-
dealer, depository institution or other financial intermediary.
Such agreements will be in a form satisfactory to the Directors
of the Fund.
(e) The Treasurer of the Fund will prepare and furnish
to the Fund's Directors, and the Directors will review, at least
quarterly, a written report complying with the requirements of
Rule 12b-1 setting forth all amounts expended hereunder and the
purposes for which such expenditures were made.
(f) The Fund is not obligated to pay any distribution
expense in excess of the distribution services fee described
above in Section 5(b) hereof. Any expenses of distribution of
the Fund's Class A shares accrued by the Underwriter in one
fiscal year of the Fund may not be paid from distribution
services fees received from the Fund in respect of Class A shares
in another fiscal year. Any expenses of distribution of the
Fund's Class B shares or Class C shares accrued by the
Underwriter in one fiscal year of the Fund may be carried forward
and paid from distribution services fees received from the Fund
in respect of such class of shares in another fiscal year. No
portion of the distribution services fees received from the Fund
in respect of Class A shares may be used to pay any interest
expense, carrying charges or other financing costs or allocation
of overhead of the Underwriter. The distribution services fees
received from the Fund in respect of Class B shares and Class C
shares may be used to pay interest expenses, carrying charges and
other financing costs or allocation of overhead of the
Underwriter to the extent permitted by Securities and Exchange
Commission rules, regulations or Securities and Exchange
Commission staff no-action or interpretative positions in effect
from time to time. In the event this Agreement is terminated by
either party or is not continued with respect to a class as
provided in Section 12 below: (i) no distribution services fees
(other than current amounts accrued but not yet paid) will be
owed by the Fund to the Underwriter with respect to that class,
and (ii) the Fund will not be obligated to pay the Underwriter
for any amounts expended hereunder not previously reimbursed by
the Fund from distribution services fees in respect of shares of
such class or recovered through deferred sales charges. The
distribution services fee of a particular class may not be used
to subsidize the sale of shares of any other class.
SECTION 6. Duties of the Fund.
(a) The Fund shall furnish to the Underwriter copies of
all information, financial statements and other papers that the
5
<PAGE>
Underwriter may reasonably request for use in connection with the
distribution of shares of the Fund, and this shall include one
certified copy, upon request by the Underwriter, of all financial
statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Underwriter
such number of copies of the Prospectus as the Underwriter shall
reasonably request.
(b) The Fund shall take, from time to time, but subject
to the necessary approval of its shareholders, all necessary
action to fix the number of authorized shares and such steps as
may be necessary to register the same under the Securities Act,
to the end that there will be available for sale such number of
shares as the Underwriter reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its shares
under the securities laws of such states as the Underwriter and
the Fund may approve. Any such qualification may be withheld,
terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 9(b) hereof, the expense of
qualification and maintenance of qualification shall be borne by
the Fund. The Underwriter shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities
upon request by the Underwriter, copies of annual and interim
reports of the Fund.
SECTION 7. Duties of the Underwriter.
(a) The Underwriter shall devote reasonable time and
effort to effect sales of shares of the Fund, but shall not be
obligated to sell any specific number of shares. The services of
the Underwriter to the Fund hereunder are not to be deemed
exclusive and nothing in this Agreement shall prevent the
Underwriter from entering into like arrangements with other
investment companies so long as the performance of its
obligations hereunder is not impaired thereby.
(b) In selling shares of the Fund, the Underwriter
shall use its best efforts in all material respects duly to
conform with the requirements of all federal and state laws
relating to the sale of such securities. Neither the
Underwriter, any selected dealer, any selected agent nor any
other person is authorized by the Fund to give any information or
to make any representations, other than those contained in the
Fund's Registration Statement on Form N-1A (the "Registration
Statement"), as amended from time to time, under the Securities
Act and the Investment Company Act or the Prospectus and
6
<PAGE>
Statement of Additional Information or any sales literature
specifically approved in writing by the Fund.
(c) The Underwriter shall adopt and follow procedures,
as approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD, as such
requirements may from time to time exist.
SECTION 8. Selected Dealer and Agent Agreements.
(a) The Underwriter shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") and selected agent agreements with
depository institutions and other financial intermediaries of its
choice ("selected agents") for the sale of shares and fix therein
the portion of the sales charge that may be allocated to the
selected dealers and selected agents; provided, that the Fund
shall approve the forms of agreements with selected dealers and
selected agents and the selected dealer and selected agent
compensation set forth therein and shall evidence such approval
by filing said forms and amendments thereto as exhibits to its
then currently effective Registration Statement. Shares sold to
selected dealers or through selected agents shall be for resale
by such selected dealers and selected agents only at the public
offering price set forth in the Prospectus and Statement of
Additional Information.
(b) Within the United States, the Underwriter shall
offer and sell shares only to such selected dealers as are
members in good standing of the NASD.
SECTION 9. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the
Fund, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of its
Registration Statement and Prospectus and Statement of Additional
Information, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to shareholders (including but not limited to the
expense of setting in type any such registration statements,
prospectuses, annual or interim reports or proxy materials).
(b) The Fund shall bear the cost of expenses of
qualification of shares for sale, and, if necessary or advisable
in connection therewith, of qualifying the Fund as an issuer or
as a broker or dealer, in such states of the United States or
other jurisdiction as shall be selected by the Fund and the
7
<PAGE>
Underwriter pursuant to Section 6(c) hereof and the cost and
expenses payable to each such state for continuing qualification
therein until the Fund decides to discontinue such qualification
pursuant to Section 6(c) hereof.
SECTION 10. Indemnification.
(a) The Fund agrees to indemnify, defend and hold the
Underwriter, and any person who controls the Underwriter within
the meaning of Section 15 of the Securities Act, free and
harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Underwriter or
any such controlling person may incur, under the Securities Act,
or under common law or otherwise, arising out of or based upon
any alleged untrue statement of a material fact contained in the
Fund's Registration Statement, Prospectus or Statement of
Additional Information in effect from time to time under the
Securities Act or arising out of or based upon any alleged
omission to state a material fact required to be stated in any
one thereof or necessary to make the statements in any one
thereof not misleading; provided, however, that in no event shall
anything herein contained be so construed as to protect the
Underwriter against any liability to the Fund or its security
holders to which the Underwriter would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of the Underwriter's
reckless disregard of its obligations and duties under this
Agreement. The Fund's agreement to indemnify the Underwriter and
any such controlling person as aforesaid is expressly conditioned
upon the Fund's being notified of the commencement of any action
brought against the Underwriter or any such controlling person,
such notification to be given by letter or by telegram addressed
to the Fund at its principal office in New York, New York, and
sent to the Fund by the person against whom such action is
brought within ten days after the summons or other first legal
process shall have been served. The failure to so notify the
Fund of the commencement of any such action shall not relieve the
Fund from any liability which it may have to the person against
whom such action is brought by reason of any such alleged untrue
statement or omission otherwise than on account of the indemnity
agreement contained in this Section 10. The Fund will be
entitled to assume the defense of any suit brought to enforce any
such claim, and to retain counsel of good standing chosen by the
Fund and approved by the Underwriter. In the event the Fund does
not elect to assume the defense of any such suit and retain
counsel of good standing approved by the Underwriter, the
defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but
in case the Fund does not elect to assume the defense of any such
8
<PAGE>
suit, or in case the Underwriter does not approve of counsel
chosen by the Fund, the Fund will reimburse the Underwriter or
the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any counsel
retained by the Underwriter or such persons. The indemnification
agreement contained in this Section 10 shall remain operative and
in full force and effect regardless of any investigation made by
or on behalf of the Underwriter or any controlling person and
shall survive the sale of any of the Fund's shares made pursuant
to subscriptions obtained by the Underwriter. This agreement of
indemnity will inure exclusively to the benefit of the
Underwriter, to the benefit of its successors and assigns, and to
the benefit of any controlling persons and their successors and
assigns. The Fund agrees promptly to notify the Underwriter of
the commencement of any litigation or proceeding against the Fund
in connection with the issue and sale of any of its shares.
(b) The Underwriter agrees to indemnify, defend and
hold the Fund, its several officers and directors, and any person
who controls the Fund within the meaning of Section 15 of the
Securities Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of
investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the
Fund, its officers or directors, or any such controlling person
may incur under the Securities Act or under common law or
otherwise, but only to the extent that such liability, or expense
incurred by the Fund, its officers, directors or such controlling
person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Underwriter
to the Fund for use in its Registration Statement, Prospectus or
Statement of Additional Information in effect from time to time
under the Securities Act, or shall arise out of or be based upon
any alleged omission to state a material fact in connection with
such information required to be stated in the Registration
Statement, Prospectus or Statement of Additional Information or
necessary to make such information not misleading. The
Underwriter's agreement to indemnify the Fund, its officers and
directors, and any such controlling person as aforesaid is
expressly conditioned upon the Underwriter being notified of the
commencement of any action brought against the Fund, its officers
or directors or any such controlling person, such notification to
be given by letter or telegram addressed to the Underwriter at
its principal office in New York, and sent to the Underwriter by
the person against whom such action is brought, within ten days
after the summons or other first legal process shall have been
served. The Underwriter shall have a right to control the
defense of such action, with counsel of its own choosing,
satisfactory to the Fund, if such action is based solely upon
such alleged misstatement or omission on its part, and in any
9
<PAGE>
other event the Underwriter and the Fund, and their officers and
directors or such controlling person, shall each have the right
to participate in the defense or preparation of the defense of
any such action. The failure so to notify the Underwriter of the
commencement of any such action shall not relieve the Underwriter
from any liability which it may have to the Fund, to its officers
and trustees, or to such controlling person by reason of any such
untrue statement or omission on the part of the Underwriter
otherwise than on account of the indemnity agreement contained in
this Section 10.
SECTION 11. Notification by the Fund.
The Fund agrees to advise the Underwriter immediately:
(a) of any request by the Securities and Exchange
Commission for amendments to the Fund's Registration
Statement, Prospectus or Statement of Additional Information
or for additional information,
(b) in the event of the issuance by the Securities
and Exchange Commission of any stop order suspending the
effectiveness of the Fund's Registration Statement,
Prospectus or Statement of Additional Information or the
initiation of any proceeding for that purpose,
(c) of the happening of any material event which
makes untrue any statement made in the Fund's Registration
Statement, Prospectus or Statement of Additional Information
or which requires the making of a change in any one thereof
in order to make the statements therein not misleading, and
(d) of all actions of the Securities and Exchange
Commission with respect to any amendments to the Fund's
Registration Statement, Prospectus or Statement of
Additional Information which may from time to time be filed
with the Securities and Exchange Commission under the
Securities Act.
SECTION 12. Term of Agreement.
(a) This Agreement shall become effective on the
date hereof and shall continue in effect until December 31,
1996, and thereafter for successive twelve-month periods
(computed from each January 1) with respect to each class;
provided, however, 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
voting securities (as defined in the Investment Company Act)
of that class, and, in either case, by a majority of the
Directors of the Fund who are not parties to this Agreement
10
<PAGE>
or interested persons, as defined in the Investment Company
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 Plan or any agreement related thereto;
provided further, however, that if the continuation of this
Agreement is not approved as to a class or a Portfolio, the
Underwriter may continue to render to such class or
Portfolio the services described herein in the manner and to
the extent permitted by the Act and the rules and
regulations thereunder. Upon effectiveness of this
Agreement, it shall supersede all previous agreements
between the parties hereto covering the subject matter
hereof. This Agreement may be terminated (i) by the Fund
with respect to any class or Portfolio at any time, without
the payment of any penalty, by the vote of a majority of the
outstanding voting securities (as so defined) of such class
or Portfolio, or by a vote of a majority of the Directors of
the Fund who are not interested persons, as defined in the
Investment Company Act, of the Fund (other than as directors
of the Fund) and have no direct and indirect financial
interest in the operation of the Plan or any agreement
related thereto, in any such event on sixty days' written
notice to the Underwriter; provided, however, that no such
notice shall be required if such termination is stated by
the Fund to relate only to Sections 5 and 16 hereof (in
which event Sections 5 and 16 shall be deemed to have been
severed herefrom and all other provisions of this Agreement
shall continue in full force and effect), or (ii) by the
Underwriter with respect to any Portfolio on sixty days'
written notice to the Fund.
(b) This Agreement may be amended at any time with
the approval of the Directors of the Fund, provided that (i)
any material amendments of the terms hereof will become
effective only upon approval as provided in the first
proviso of the first sentence of Section 12(a) hereof, and
(ii) any amendment to increase materially the amount to be
expended for distribution services fees pursuant to Section
5(b) hereof will be effective only upon the additional
approval by a vote of a majority of the outstanding voting
securities as defined in the Investment Company Act of the
class or Portfolio affected.
SECTION 13. No Assignment. This Agreement may not
be transferred, assigned, sold or in any manner hypothecated
or pledged by either party hereto and this Agreement shall
terminate automatically in the event of any such transfer,
assignment, sale, hypothecation or pledge. The terms
"transfer", "assignment", and "sale" as used in this
paragraph shall have the meanings ascribed thereto by
governing law and any interpretation thereof contained in
11
<PAGE>
rules or regulations promulgated by the Securities and
Exchange Commission thereunder.
SECTION 14. Notices. Any notice required or
permitted to be given hereunder by either party to the other
shall be deemed sufficiently given if sent by registered
mail, postage prepaid, addressed by the party giving such
notice to the other party at the last address furnished by
such other party to the party given notice, and unless and
until changed pursuant to the foregoing provisions hereof
addressed to the Fund or the Underwriter.
SECTION 15. Governing Law. The provisions of this
Agreement shall be, to the extent applicable, construed and
interpreted in accordance with the laws of the State of New
York.
SECTION 16. Disinterested Directors of the Fund.
While the Agreement is in effect, the selection and
nomination of the Directors who are not "interested persons"
of the Fund (as defined in the Investment Company Act) will
be committed to the discretion of such disinterested
Directors.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement.
ALLIANCE GLOBAL STRATEGIC
INCOME TRUST, INC.
/s/ John D. Carifa
By
ALLIANCE FUND DISTRIBUTORS,
INC.
/s/ Edmund P. Bergan, Jr.
By
Accepted as to
Sections 5, 12 and 16
as of January 2, 1996:
ALLIANCE CAPITAL MANAGEMENT L.P.
By Alliance Capital Management Corporation,
General Partner
/s/ John D. Carifa
By
13
00250223.AD3
<PAGE>
AGREEMENT BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
ALLIANCE GLOBAL STRATEGIC INCOME TRUST, INC.
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made this 12th day of December, 1995 between
ALLIANCE GLOBAL STRATEGIC INCOME TRUST, INC. (the "Fund") and
Brown Brothers Harriman & Co. (the "Custodian").
WITNESSETH: That in consideration of the mutual
covenants and agreements herein contained, the parties hereto
agree as follows:
1. The Fund hereby employs and appoints the Custodian
as a custodian for the term and subject to the provisions of this
Agreement. The Custodian shall not be under any duty or
obligation to require the Fund to deliver to it any securities or
funds owned by the Fund and shall have no responsibility or
liability for or on account of securities or funds not so
delivered. The Fund will deposit with the Custodian copies of the
Articles of Incorporation and By-Laws (or comparable documents)
of the Fund and all amendments thereto, and copies of such votes
and other proceedings of the Fund as may be necessary for or
convenient to the Custodian in the performance of its duties.
2. Except for securities and funds held by
subcustodians appointed pursuant to the provisions of Section 3
hereof, the Custodian shall have and perform the following powers
and duties:
A. Safekeeping - To keep safely the securities of
the Fund that have been delivered to the Custodian and from time
to time to receive delivery of securities for safekeeping.
2
<PAGE>
B. Manner of Holding Securities - To hold
securities of the Fund (1) by physical possession of the share
certificates or other instruments representing such securities in
registered or bearer form, or (2) in book-entry form by a
Securities System (as said term is defined in Section 2U).
C. Registered Name; Nominee - To hold registered
securities of the Fund (1) in the name or any nominee name of the
Custodian or the Fund, or in the name or any nominee name of any
agent appointed pursuant to Section 6E, or (2) in street
certificate form, so-called, and in any case with or without any
indication of fiduciary capacity.
D. Purchases - Upon receipt of Proper
Instructions, as defined in Section Y on Page 17, insofar as
funds are available for the purpose, to pay for and receive
securities purchased for the account of the Fund, payment being
made only upon receipt of the securities (1) by the Custodian, or
(2) by a clearing corporation of a national securities exchange
of which the Custodian is a member, or (3) by a Securities
System. However, (i) in the case of repurchase agreements entered
into by the Fund, the Custodian (as well as an Agent) may release
funds to a Securities System or to a Subcustodian prior to the
receipt of advice from the Securities System or Subcustodian that
the securities underlying such repurchase agreement have been
transferred by book entry into the Account (as defined in Section
2U) of the Custodian (or such Agent) maintained with such
3
<PAGE>
Securities System or Subcustodian, so long as such payment
instructions to the Securities System or Subcustodian include a
requirement that delivery is only against payment for securities,
(ii) in the case of foreign exchange contracts, options, time
deposits, call account deposits, currency deposits and other
deposits, contracts or options pursuant to Sections 2J, 2L, 2M
and 2N, the Custodian may make payment therefor without receiving
an instrument evidencing said deposit, contract or option so long
as such payment instructions detail specific securities to be
acquired, and (iii) in the case of securities in which payment
for the security and receipt of the instrument evidencing the
security are under generally accepted trade practice or the terms
of the instrument representing the security expected to take
place in different locations or through separate parties, such as
commercial paper which is indexed to foreign currency exchange
rates, derivatives and similar securities, the Custodian may make
payment for such securities prior to delivery thereof in
accordance with such generally accepted trade practice or the
terms of the instrument representing such security.
E. Exchanges - Upon receipt of proper instructions to
exchange securities held by it for the account of the Fund for
other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value,
conversion or other event, and to deposit any such securities in
accordance with the terms of any reorganization or protective
4
<PAGE>
plan. Without such instructions, the Custodian may surrender
securities in temporary form for definitive securities, may
surrender securities for transfer into a name or nominee name as
permitted in Section 2C, and may surrender securities for a
different number of certificates or instruments representing the
same number of shares or same principal amount of indebtedness,
provided the securities to be issued are to be delivered to the
Custodian and further provided custodian shall at the time of .
surrendering securities or instruments receive a receipt or other
evidence of ownership thereof.
F. Sales of Securities - Upon receipt of proper
instructions, to make delivery of securities which have been sold
for the account of the Fund, but only against payment therefor
(1) in cash, by a certified check, bank cashier's check, bank
credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a national
securities exchange of which the Custodian is a member, or (3) by
credit to the account of the Custodian or an Agent of the
Custodian with a Securities System; provided, however, that (i)
in the case of delivery of physical certificates or instruments
representing securities, the Custodian may make delivery to the
broker buying the securities, against receipt therefor, for
examination in accordance with "street delivery" custom, provided
that the payment therefor is to be made to the Custodian (which
payment may be made by a broker's check) or that such securities
5
<PAGE>
are to be returned to the Custodian, and (ii) in the case of
securities referred to in clause (iii) of the last sentence of
Section 2D, the Custodian may make settlement, including with
respect to the form of payment, in accordance with generally
accepted trade practice relating to such securities or the terms
of the instrument representing said security.
G. Depositary Receipts - Upon receipt of proper
instructions, to instruct a subcustodian appointed pursuant-to
Section 3 hereof (a "Subcustodian") or an agent of the Custodian
appointed pursuant to Section 6E hereof (an "Agent") to surrender
securities to the depositary used by an issuer of American
Depositary Receipts or International Depositary Receipts
(hereinafter collectively referred to as "ADRs") for such
securities against a written receipt therefor adequately
describing such securities and written evidence satisfactory to
the Subcustodian or Agent that the depositary has acknowledged
receipt of instructions to issue with respect to such securities
ADRs in the name of the Custodian, or a nominee of the Custodian,
for delivery to the Custodian in Boston, Massachusetts, or at
such other place as the Custodian may from time to time
designate.
Upon receipt of proper instructions, to surrender ADRs
to the issuer thereof against a written receipt therefor
adequately describing the ADRs surrendered and written evidence
satisfactory to the Custodian that the issuer of the ADRs has
6
<PAGE>
acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a Subcustodian or
an Agent.
H. Exercise of Rights; Tender Offers - Upon timely
receipt of proper instructions, to deliver to the issuer or
trustee thereof, or to the agent of either, warrants, puts,
calls, rights or similar securities for the purpose of being
exercised or sold, provided that the new securities and cash, if
any, acquired by such action are to be delivered to the
Custodian, and, upon receipt of proper instructions, to deposit
securities upon invitations for tenders of securities, provided
that the consideration is to be paid or delivered or the tendered
securities are to be returned to the Custodian.
I. Stock Dividends Rights, Etc. - To receive and
collect all stock dividends, rights and other items of like
nature; and to deal with the same pursuant to proper instructions
relative thereto.
J. Options - Upon receipt of proper instructions, to
receive and retain confirmations or other documents evidencing
the purchase of writing of an option on a security or securities
index by the Fund; to deposit and maintain in a segregated
account, either physically or by book-entry in a Securities
System, securities subject to a covered call option written by
the Fund; and to release and/or transfer such securities or other
assets only in accordance with a notice or other communication
7
<PAGE>
evidencing the expiration, termination or exercise of such
covered option furnished by The Options Clearing Corporation, the
securities or options exchange on which such covered option is
traded or such other organization as may be responsible for
handling such options transactions.
K. Borrowings - Upon receipt of proper instructions to
deliver securities of the Fund to lenders or their agents as
collateral for borrowings effected by the Fund, provided that
such borrowed money is payable to or upon the Custodian's order
as Custodian for the Fund.
L. Demand Deposit Bank Accounts - To open and operate
an account or accounts in the name of the Fund on the Custodian's
books subject only to draft or order by the Custodian. All funds
received by the Custodian from or for the account of the Fund
shall be deposited in said account(s). The responsibilities of
the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U. S. bank for a similar
deposit.
If and when authorized by proper instructions, the
Custodian may open and operate an additional account(s) in such
other banks or trust companies as may be designated by the Fund
in such instructions (any such bank or trust company so
designated by the Fund being referred to hereafter as a "Banking
Institution"), provided that such account(s) shall be in the name
of the Custodian for account of the Fund and subject only to the
8
<PAGE>
Custodian's draft or order. Such accounts may be opened with
Banking Institutions in the United States and in other countries
and may be denominated in either U. S. Dollars or other
currencies as the Fund may determine. All such deposits shall be
deemed to be portfolio securities of the Fund and accordingly the
responsibility of the Custodian therefore shall be the same as
and no greater than the Custodian's responsibility in respect of
other portfolio securities of the Fund.
M. Interest Bearing Call or Time Deposits - To place
interest bearing fixed term and call deposits with such banks and
in such amounts as the Fund may authorize pursuant to proper
instructions. Such deposits may be placed with the Custodian or
with Subcustodians or other Banking Institutions as the Fund may
determine. Deposits may be denominated in U. S. Dollars or other
currencies and need not be evidenced by the issuance or delivery
of a certificate to the Custodian, provided that the Custodian
shall include in its records with respect to the assets of the
Fund, appropriate notation as to the amount and currency of each
such deposit, the accepting Banking Institution, and other
appropriate details. Such deposits, other than those placed with
the Custodian, shall be deemed portfolio securities of the Fund
and the responsibilities of the Custodian therefor shall be the
same as those for demand deposit bank accounts placed with other
banks, as described in Section L of this agreement. The
responsibility of the Custodian for such deposits accepted on the
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<PAGE>
Custodian's books shall be that of a U. S. bank for a similar
deposit.
N. Foreign Exchange Transactions and Futures Contracts
Pursuant to proper instructions, to enter into foreign exchange
contracts or options to purchase and sell foreign currencies for
spot and future delivery on behalf and for the account of the
Fund. Such transactions may be undertaken by the Custodian with
such Banking Institutions, including the Custodian and
Subcustodian(s) as principals, as approved and authorized by the
Fund. Foreign exchange contracts and options other than those
executed with the Custodian, shall be deemed to be portfolio
securities of the Fund and the responsibilities of the Custodian
therefor shall be the same as those for demand deposit bank
accounts placed with other banks as described in Section 2-L of
this agreement. Upon receipt of proper instructions, to receive
and retain confirmations evidencing the purchase or sale of a
futures contract or an option on a futures contract by the Fund;
to deposit and maintain in a segregated account, for the benefit
of any futures commission merchant or to pay to such futures
commission merchant, assets designated by the fund as initial,
maintenance or variation "margin" deposits intended to secure the
Fund's performance of its obligations under any futures contracts
purchased or sold or any options on futures contracts written by
the Fund, in accordance with the provisions of any agreement or
agreements among any of the Fund, the Custodian and such futures
10
<PAGE>
commission merchant, designated to comply with the rules of the
Commodity Futures Trading Commission and/or any contract market,
or any similar organization or organizations, regarding such
margin deposits; and to release and/or transfer assets in such
margin accounts only in accordance with any such agreements or
rules.
O. Stock Loans. Upon receipt of proper instructions,
to deliver securities of the Fund, in connection with loans of
securities by the Fund, to the borrower thereof upon the receipt
of the cash collateral, if any, for such borrowing. In the event
U. S. Government securities are to be used as collateral, the
Custodian will not release the securities to be loaned until it
has received confirmation that such collateral has been delivered
to the Custodian. The Custodian and Fund understand that the
timing of receipt of such confirmation will normally require that
the delivery of securities to be loaned will be made one day
after receipt of the U. S. Government collateral.
P. Collections. To collect, receive and deposit in
said account or accounts all income, payments of principal and
other payments with respect to the securities held hereunder, and
in connection therewith to deliver the certificates or other
instruments representing the securities to the issuer thereof or
its agent when securities are called, redeemed, retired or
otherwise become payable; provided, that the payment is to be
made in such form and manner and at such time, which may be after
11
<PAGE>
delivery by the Custodian of the instrument representing the
security, as is in accordance with the terms of the instrument
representing the security, or such proper instructions as the
Custodian may receive, or governmental regulations, the rules of
Securities Systems or other U.S. securities depositories and
clearing agencies or, with respect to securities referred to in
clause (iii) of the last sentence of Section 2D, in accordance
with generally accepted trade practice; (ii) to execute ownership
and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other
payments with respect to securities of the Fund or in connection
with transfer of securities, and (iii) pursuant to proper
instructions to take such other actions with respect to
collection or receipt of funds or transfer of securities which
involve an investment decision.
Q. Dividends, Distributions and Redemptions. Upon
receipt of proper instructions from the Fund, or upon receipt of
instructions from the Fund's shareholder servicing agent or agent
with comparable duties (the "Shareholder Servicing Agent") (given
by such person or persons and in such manner on behalf of the
Shareholder Servicing Agent as the Fund shall have authorized),
the Custodian shall release funds or securities to the
Shareholder Servicing Agent or otherwise apply funds or
securities, insofar as available, for the payment of dividends or
other distributions to Fund shareholders. Upon receipt of proper
12
<PAGE>
instructions from the Fund, or upon receipt of instructions from
the Shareholder Servicing Agent (given by such person or persons
and in such manner on behalf of the Shareholder Servicing Agent
as the Fund shall have authorized), the Custodian shall release
funds or securities, insofar as available, to the Shareholder
Servicing Agent or as such Agent shall otherwise instruct for
payment to Fund shareholders who have delivered to such Agent a
request for repurchase or redemption of their shares of capital
stock of the Fund.
R. Proxies, Notices, Etc. - Promptly to deliver or
mail to the Fund all forms of proxies and all notices of meetings
and any other notices or announcements affecting or relating to
securities owned by the Fund that are received by the Custodian,
and upon receipt of proper instructions, to execute and deliver
or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor its
nominee shall vote upon any of such securities or execute any
proxy to vote thereon or give any consent or take any other
action with respect thereto (except as otherwise herein provided)
unless ordered to do so by proper instructions.
S. Nondiscretionary Details - Without the necessity of
express authorization from the Fund, (1) to attend to all
nondiscretionary details in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with
securities, funds or other-property of the Portfolio held by the
13
<PAGE>
Custodian except as otherwise directed from time to time by the
Directors of the Fund, and (2) to make payments to itself or
others for minor expenses of handling securities or other similar
items relating to the Custodian's duties under this Agreement,
provided that all such payments shall be accounted for to the
Fund.
T. Bills - Upon receipt of proper instructions to pay
or cause to be paid, insofar as funds are available for the
purpose, bills, statements, or other obligations of the Fund.
U. Deposit of Fund Assets in Securities Systems - The
Custodian may deposit and/or maintain securities owned by the
Fund in (i) The Depository Trust Company, (ii) any book-entry
system as provided in Subpart O of Treasury Circular No. 300, 31
CFR 306, Subpart B of 31 CFR Part 350, or the book-entry
regulations of federal agencies substantially in the form of
Subpart O, or (iii) any other domestic clearing agency registered
with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934 which acts as a securities
depository and whose use the Fund has previously approved in
writing (each of the foregoing being referred to in this
Agreement as a "Securities System"). Utilization of a Securities
System shall be in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
14
<PAGE>
1) The Custodian may deposit and/or maintain Fund
securities, either directly or through one or more Agents
appointed by the Custodian (provided that any such agent shall be
qualified to act as a custodian of the Fund pursuant to the
Investment Company Act of 1940 and the rules and regulations
thereunder), in a Securities System provided that such securities
are represented in an account ("Account") of the Custodian or
such Agent in the Securities System which shall not include any
assets of the Custodian or Agent other than assets held as a
fiduciary, custodian, or otherwise for customers;
2) The records of the Custodian with respect to
securities of the Fund which are maintained in a Securities
System shall identify by book-entry those securities belonging to
the Fund;
3) The Custodian shall pay for securities purchased
for the account of the Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall Transfer securities sold
for the account of the Fund upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and payment
for the account of the Fund. Copies of all advices from the
15
<PAGE>
Securities System of transfers of securities for the account of
the Fund shall identify the Fund, be maintained for the Fund by
the Custodian or an Agent as referred to above, and be provided
to the Fund at its request. The Custodian shall furnish the Fund
confirmation of each transfer to or from the account of the Fund
in the form of a written advice or notice and shall furnish to
the Fund copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of the Fund
on the next business day;
4) The Custodian shall provide the Fund with any
report obtained by the Custodian or any Agent as referred to
above on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System; and the Custodian and such
Agents shall send to the Fund such reports on their own systems
of internal accounting control as the Fund may reasonably request
from time to time.
5) At the written request of the Fund, the Custodian
will terminate the use of any such Securities System on behalf of
the Fund as promptly as practicable.
V. Other Transfers - Upon receipt of Proper
Instructions, to deliver securities, funds and other property of
the Fund to a Subcustodian or another custodian of the Fund; and,
upon receipt of proper instructions, to make such other
disposition of securities, funds or other property of the Fund in
16
<PAGE>
a manner other than or for purposes other than as enumerated
elsewhere in this Agreement, provided that the instructions
relating to such disposition shall include a statement of the
purpose for which the delivery is to be made, the amount of
securities to be delivered and the name of the person or persons
to whom delivery is to be made.
W. Investment Limitations - In performing its duties
generally, and more particularly in connection with the purchase,
sale and exchange of securities made by or for the Fund, the
Custodian may assume unless and until notified in writing to the
contrary that proper instructions received by it are not in
conflict with or in any way contrary to any provisions of the
Fund's Articles of Incorporation or By-Laws (or comparable
documents) or votes or proceedings of the shareholders or
Directors of the Fund. The Custodian shall in no event be liable
to the Fund and shall be indemnified by the Fund for any
violation which occurs in the course of carrying out instructions
given by the Fund of any investment limitations to which the Fund
is subject or other limitations with respect to the Fund's powers
to make expenditures, encumber securities, borrow or take similar
actions affecting its portfolio.
X. Restricted Securities - Notwithstanding any other
provision of this Agreement, the Custodian shall not be liable
for failure to take any action in respect of a "restricted
security" (as hereafter defined) if the Custodian has not
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<PAGE>
received Proper Instructions to take such action (including but
not limited to the failure to exercise in a timely manner any
right in respect of any restricted security) unless the
Custodian's responsibility to take such action is set forth in a
writing, agreed upon by the Custodian and the Fund or the
investment adviser of the Fund, which specifies particular
actions the Custodian is to take without Proper Instructions in
respect of specified rights and obligations pertaining to a
particular restricted security. Further, the Custodian shall not
be responsible for transmitting to the Fund information
concerning a restricted security, such as with respect to
exercise periods and expiration dates for rights relating to the
restricted security, except such information which the Custodian
actually receives or which is published in a source which is
publicly distributed and generally recognized as a major source -
of information with respect to corporate actions of securities
similar to the particular restricted security. As used herein,
the term "restricted securities" shall mean securities which are
subject to restrictions on transfer, whether by reason of
contractual restrictions or federal, state or foreign securities
or similar laws, or securities which have special rights or
contractual features which do not apply to publicly traded shares
of, or comparable interests representing, such security.
Y. Proper Instructions - Proper instructions shall
mean a tested telex from the Fund or a written request,
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<PAGE>
direction, instruction or certification signed or initialed on
behalf of the Fund by one or more person or persons as the Board
of Directors of the Fund shall have from time to time authorized,
provided, however, that no such instructions directing the
delivery of securities or the payment of funds to an authorized
signatory of the Fund shall be signed by such person. Those
persons authorized to give proper instructions may be identified
by the Board of Directors by name, title or position and will
include at least one officer empowered by the Board to name other
individuals who are authorized to give proper instructions on
behalf of the Fund. Telephonic or other oral instructions given
by any one of the above persons will be considered proper
instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with
respect to the transaction involved. Oral instructions will be
confirmed by tested telex or in writing in the manner set forth
above but the lack of such confirmation shall in no way affect
any action taken by the Custodian in reliance upon such oral
instructions. The Fund authorizes the Custodian to tape record
any and all telephonic or other oral instructions given to the
Custodian by or on behalf of the Fund (including any of its
officers, Directors, employees or agents) and will deliver to the
Custodian a similar authorization from any investment manager or
adviser or person or entity with similar responsibilities which
is authorized to give proper instructions on behalf of the Fund
19
<PAGE>
to the Custodian. Proper instructions may relate to specific
transactions or to types or classes of transactions, and may be
in the form of standing instructions.
Proper instructions may include communications effected
directly between electro-mechanical or electronic devices or
systems, in addition to tested telex, provided that the Fund and
the Custodian agree to the use of such device or system.
3. Securities, funds and other property of the Fund
may be held by subcustodians appointed pursuant to the provisions
of this Section 3 (a "Subcustodian"). The Custodian may, at any
time and from time to time, appoint any bank or trust company
(meeting the requirements of a custodian or a foreign custodian
under the Investment Company Act of 1940 and the rules and
regulations thereunder) to act as a Subcustodian for the Fund,
provided that the Fund shall have approved in writing (l) any
such bank or trust company and the subcustodian agreement to be
entered into between such bank or trust company and the
Custodian, and (2) if the subcustodian is a bank organized under
the laws of a country other than the United States, the holding
of securities, cash and other property of the Fund in the country
in which it is proposed to utilize the services of such
subcustodian. Upon such approval by the Fund, the Custodian is
authorized on behalf of the Fund to notify each Subcustodian of
its appointment as such. The Custodian may, at any time in its
discretion, remove any bank or trust company that has been
20
<PAGE>
appointed as a Subcustodian but will promptly notify the Fund of
any such action.
Those Subcustodians, their offices or branches which the
Fund has approved to date are set forth on Appendix A hereto.
Such Appendix shall be amended from time to time as
Subcustodians, branches or offices are changed, added or deleted.
The Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be
held at a location not listed on Appendix A, in order that there
shall be sufficient time for the Fund to give the approval
required by the preceding paragraph and for the Custodian to put
the appropriate arrangements in place with such Subcustodian
pursuant to such subcustodian agreement.
Although the Fund does not intend to invest in a country
before the foregoing procedures have been completed, in the event
that an investment is made prior to approval, if practical, such
security shall be removed to an approved location or if not
practical such security shall be held by such agent as the
Custodian may appoint. In such event, the Custodian shall be
liable to the Fund for the actions of such agent if and only to
the extent the Custodian shall have recovered from such agent for
any damages caused the Fund by such agent and provided that the
Custodian shall pursue its rights against such agent.
With respect to the securities and funds held by a
Subcustodian, either directly or indirectly, including demand and
21
<PAGE>
interest bearing deposits, currencies or other deposits and
foreign exchange contracts as referred to in Sections 2K, 2L or
2M, the Custodian shall be liable to the Fund if and only to the
extent that such Subcustodian is liable to the Custodian;
provided, however, that the Custodian shall be liable to the Fund
for losses resulting from the bankruptcy or insolvency of a
Subcustodian if and only to the extent that such Subcustodian is
liable to the Custodian and the Custodian recovers from such
Subcustodian under the applicable subcustodian agreement. The
Custodian shall nevertheless be liable to the Fund for its own
negligence in transmitting any instructions received by it from
the Fund and for its own negligence in connection with the
delivery of any securities or funds held by it to any such
Subcustodian.
In the event that any Subcustodian appointed pursuant to
the provisions of this Section 3 fails to perform any of its
obligations under the terms and conditions of the applicable
subcustodian agreement, the Custodian shall use its best efforts
to cause such Suboustodians to perform such obligations. In the
event that the Custodian is unable to cause such Subcustodian to
perform fully its obligations thereunder, the Custodian shall
forthwith upon the Fund's request terminate such Subcustodian
and, if necessary or desirable, appoint another subcustodian in
accordance with the provisions of this Section 3. At the election
of the Fund, it shall have the right to enforce, to the extent
22
<PAGE>
permitted by the subcustodian agreement and applicable law, the
Custodian's rights against any such Subcustodian for loss or
damage caused the Fund by such Subcustodian.
At the written request of the Fund, the Custodian will
terminate any subcustodian appointed pursuant to the provisions
of this Section 3 in accordance with the termination provisions
under the applicable subcustodian agreement. The Custodian will
not amend any subcustodian agreement or agree to change or permit
any changes thereunder except upon the prior written approval of
the Fund.
In the event the Custodian receives a claim from a
Subcustodian under the indemnification provisions of any
subcustodian agreement, the Custodian shall promptly give written
notice to the Fund of such claim. No more than thirty days after
written notice to the Fund of the Custodian's intention to make
such payment, the Fund will reimburse the Custodian the amount of
such payment except in respect of any negligence or misconduct of
the Custodian.
4. The Custodian may assist generally in the
preparation of reports to Fund shareholders and others, audits of
accounts, and other ministerial matters of like nature.
5. The Fund hereby also appoints the Custodian as its
financial agent. With respect to the appointment as financial
agent, the Custodian shall have and perform the following powers
and duties:
23
<PAGE>
A. Records - To create, maintain and retain such
records relating to its activities and obligations under this
Agreement as are required under the Investment Company Act of
1940 and the rules and regulations thereunder (including Section
31 thereof and Rules 31a-1 and 31a-2 thereunder) and under
applicable Federal and State tax laws. All such records will be
the property of the Fund and in the event of termination of this
Agreement shall be delivered to the successor custodian, and the
Custodian agrees to cooperate with the Fund in execution of
documents and other action necessary or desirable in order to
substitute the successor custodian for the custodian under their
agreement.
B. Accounts - To keep books of account and render
statements, including interim monthly and complete quarterly
financial statements, or copies thereof, from time to time as
reasonably requested by proper instructions.
C. Access to Records - Subject to security
requirements of the Custodian applicable to its own employees
having access to similar records within the Custodian and such
regulations as may be reasonably imposed by the Custodian, the
books and records maintained by the Custodian pursuant to
Sections 5A and 5B shall be open to inspection and audit at
reasonable times by officers of attorneys for and auditors
employed by, the Fund.
24
<PAGE>
D. Calculation of Net Asset Value - To compute and
determine the net asset value per share of capital stock of the
Fund as of the close of business on the New York Stock Exchange
on each day on which such Exchange is open, unless otherwise
directed by proper instructions. Such computation and
determination shall be made in accordance with (1) the provisions
of the Fund's Articles of Incorporation or By Laws of the Fund,
as they may from time to time be amended and delivered to the
Custodian, (2) the votes of the Board of Directors of the Fund at
the time in force and applicable, as they may from time to time
be delivered to the Custodian, and (3) proper instructions from
such officers of the Fund or other persons as are from time to
time authorized by the Board of Directors of the Fund to give
instructions with respect to computation and determination of the
net asset value. On each day that the Custodian shall compute the
net asset value per share of the Fund, the Custodian shall
provide the Fund with written reports which permit the Fund to
verify that portfolio transactions have been recorded in
accordance with the Fund's instructions.
In computing the net asset value, the Custodian may rely
upon any information furnished by proper instructions, including
without limitation any information (1) as to accrual of
liabilities of the Fund and as to liabilities of the Fund not
appearing on the books of account kept by the custodian, (2) as
to the existence, status and proper treatment of reserves, if
25
<PAGE>
any, authorized by the fund, (3) as to the sources of quotations
to be used in computing the net asset value, including those
listed in Appendix B, (4) as to the fair value to be assigned to
any securities or other property for which price quotations are
not readily available, and (5) as to the sources of information
with respect to "corporate actions" affecting portfolio
securities of the fund, including those listed in Appendix B.
(Information as to "corporate actions" shall include information
as to dividends, distributions, stock splits, stock dividends,
rights offerings, conversions, exchanges, recapitalizations,
mergers, redemptions, calls, maturity dates and similar
transactions, including the ex and record dates and the amounts
or other terms thereof.)
In like manner, the Custodian shall compute and
determine the net asset value as of such other times as the Board
of Directors of the Fund from time to time may reasonably
request.
Notwithstanding any other provisions of this Agreement,
including Section 6C, the following provisions shall apply with
respect to the Custodian's foregoing responsibilities in this
Section 5D: The Custodian shall be held to the exercise of
reasonable care in computing and determining net asset value as
provided in this Section 5D, but shall not be held accountable or
liable for any losses, damages or expenses the Fund or any
shareholder or former shareholder of the Fund may suffer or incur
26
<PAGE>
arising from or based upon errors or delays in the determination
of such net asset value unless such error or delay was due to the
Custodian's negligence, gross negligence or reckless or willful
misconduct in determination of such net asset value. (The parties
hereto acknowledge, however, that the Custodian's causing an
error or delay in the determination of net asset value may, but
does not in and of itself, constitute negligence, gross
negligence or reckless or willful misconduct.) In no event shall
the Custodian be liable or responsible to the Fund, any present
or former shareholder of the fund or any other party for any
error or delay which continued or was undetected after the date
of an audit performed by the certified public accountants
employed by the Fund if, in the exercise of reasonable care in
accordance with generally accepted accounting standards, such
accountants should have become aware of such error or delay in
the course of performing such audit. The Custodian's liability
for any such negligence, gross negligence or reckless or willful
misconduct which results in an error in determination of such net
asset value shall be limited to the direct, out of pocket loss
the Fund, shareholder or former shareholder shall actually incur,
measured by the difference between the actual and the erroneously
computed net asset value, and any expenses the fund shall incur
in connection with correcting the records of the Fund affected by
such error (including charges made by the Fund's registrar and
transfer agent for making such corrections) or communicating with
27
<PAGE>
shareholders or former shareholders of the Fund affected by such
error.
Without limiting the foregoing, the Custodian shall not
be held accountable or liable to the Fund, any shareholder or
former shareholder thereof or any other person for any delays or
losses, damages or expenses any of them may suffer or incur
resulting from (1) the Custodian's failure to receive timely and
suitable notification concerning quotations or corporate actions
relating to or affecting portfolio securities of the fund or (2)
any errors in the computation of the net asset value based upon
or arising out of quotations or information as to corporate
actions if received by the Custodian either (i) from a source
which the Custodian was authorized pursuant to the second
paragraph of this Section 5D to rely upon, or (ii) from a source
which in the Custodian's reasonable judgment was as reliable a
source for such quotations or information as the sources
authorized pursuant to that paragraph. Nevertheless, the
Custodian will use its best judgment in determining whether to
verify through other sources any information it has received as
to quotations or corporate actions if the Custodian has reason to
believe that any such information might be incorrect.
In the event of any error or delay in the determination
of such net asset value for which the Custodian may be liable,
the Fund and the Custodian will consult and make good faith
efforts to reach agreement on what actions should be taken in
28
<PAGE>
order to mitigate any loss suffered by the Fund or its present or
former shareholders, in order that the custodian's exposure to
liability shall be reduced to the extent possible after taking
into account all relevant factors and alternatives. Such actions
might include the Fund or the custodian taking reasonable steps
to collect from any shareholder or former shareholder who has
received any overpayment upon redemption of shares such overpaid
amount or to collect from any shareholder who has underpaid upon
a purchase of shares the amount of such underpayment or to reduce
the number of shares issued to such shareholder. It is understood
that in attempting to reach agreement on the actions to be taken
or the amount of the loss which should appropriately be borne by
the Custodian, the Fund and the Custodian will consider such
relevant factors as the amount of the loss involved, the Fund's
desire to avoid loss of shareholder good will, the fact that
other persons or entitles could have been reasonably expected to
have detected the error sooner than the time it was actually
discovered, the appropriateness of limiting or eliminating the
benefit which shareholders or former shareholders might have
obtained by reason of the error, and the possibility that other
parties providing services to the Fund might be induced to absorb
a portion of the loss incurred.
E. Disbursements - Upon receipt of proper
instructions, to pay or cause to be paid, insofar as funds are
available for the purpose, bills, statements and other
29
<PAGE>
obligations of the Fund (including but not limited to interest
charges, taxes, management fees, compensation to Fund officers
and employees, and other operating expenses of the Fund).
6. A. The Custodian shall not be liable for any
action taken or omitted in reliance upon proper instructions
believed by it to be genuine or upon any other written notice,
request, direction, instruction, certificate or other instrument
believed by it to be genuine and signed by the proper party or
parties.
The Secretary or Assistant Secretary of the Fund shall
certify to the Custodian the names, signatures and scope of
authority of all persons authorized to give proper instructions
or any other such notice, request, direction, instruction,
certificate or instrument on behalf of the Fund, the names and
signatures of the officers of the Fund, the name and address of
the Shareholder Servicing Agent, and any resolutions, votes,
instructions or directions of the Fund's Board of Directors or
shareholders. Such certificate may be accepted and relied upon by
the Custodian as conclusive evidence of the facts set forth
therein and may be considered in full force and effect until
receipt of a similar certificate to the contrary.
So long as and to the extent that it is in the exercise
of reasonable care, the Custodian shall not be responsible for
the title, validity or genuineness of any property or evidence of
30
<PAGE>
title thereto received by it or delivered by it pursuant to this
Agreement.
The Custodian shall be entitled, at the expense of the
Fund, to receive and act upon advice of counsel (who may be
counsel for the Fund) on all matters, and the Custodian shall be
without liability for any action reasonably taken or omitted
pursuant to such advice.
B. With respect to the portfolio securities, cash and
other property of the Fund held by a Securities System, the
Custodian shall be liable to the Fund only for any loss or damage
to the Fund resulting from use of the Securities System if caused
by any negligence, misfeasance or misconduct of the Custodian or
any of its agents or of any of its or their employees or from any
failure of the Custodian or any such agent to enforce effectively
such rights as it may have against the Securities System.
C. Except as may otherwise be set forth in this
Agreement with respect to particular matters, the Custodian shall
be held only to the exercise of reasonable care and diligence in
carrying out the provisions of this Agreement, provided that the
Custodian shall not thereby be required to take any action which
is in contravention of any applicable law. However, nothing
herein shall exempt the Custodian from liability due to its own
negligence or willful misconduct. The Fund agrees to indemnify
and hold harmless the Custodian and its nominees from all claims
and liabilities (including counsel fees) incurred or assessed
31
<PAGE>
against it or its nominees in connection with the performance of
this Agreement, except such as may arise from its or its
nominee's breach of the relevant standard of conduct set forth in
this Agreement. Without limiting the foregoing indemnification
obligation of the Fund, the Fund agrees to indemnify the
Custodian and its nominees against any liability the Custodian or
such nominee may incur by reason of taxes assessed to the
Custodian or such nominee or other costs, liability or expense
incurred by the Custodian or such nominee resulting directly or
indirectly from the fact that portfolio securities or other
property of the Fund is registered in the name of the Custodian
or such nominee.
In order that the indemnification provisions contained
in this Paragraph 6-C shall apply, however, it is understood that
if in any case the Fund may be asked to indemnify or hold the
Custodian harmless, the Fund shall be fully and promptly advised
of all pertinent facts concerning the situation in question, and
it is further understood that the Custodian will use all
reasonable care to identify and notify the Fund promptly
concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification
against the Fund. The Fund shall have the option to defend the
Custodian against any claim which may be the subject of this
indemnification, and in the event that the Fund so elects it will
so notify the Custodian, and thereupon the Fund shall take over
32
<PAGE>
complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which
it shall seek indemnification under this Paragraph 6-C. The
Custodian shall in no case confess any claim or make any
compromise in any case in which the Fund will be asked to
indemnify the Custodian except with the Fund's prior written
consent.
It is also understood that the Custodian shall not be
liable for any loss involving any securities, currencies,
deposits or other property of the Fund, whether maintained by it,
a Subcustodian, an agent of the Custodian or a Subcustodian, a
Securities System, or a Banking Institution, or a loss arising
from a foreign currency transaction or contract, resulting from a
Sovereign Risk. A "Sovereign Risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental
authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of
currency restrictions, exchange controls, taxes, levies or other
charges affecting the Fund's property; or acts of war, terrorism,
insurrection or revolution; or any other similar act or event
beyond the Custodian's control.
D. The Custodian shall be entitled to receive
reimbursement from the Fund on demand, in the manner provided in
Section 7, for its cash disbursements, expenses and charges
33
<PAGE>
(including the fees and expenses of any Subcustodian or any
Agent) in connection with this Agreement, but excluding salaries
and usual overhead expenses.
E. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company as its agent (an "Agent") to carry out such of the
provisions of this Agreement as the Custodian may from time to
time direct, provided, however, that the appointment of such
Agent (other than an Agent appointed pursuant to the third
paragraph of Section 3) shall not relieve the Custodian of any of
its responsibilities under this agreement.
F. Upon request, the Fund shall deliver to the
Custodian such proxies, powers of attorney or other instruments
as may be reasonable and necessary or desirable in connection
with the performance by the Custodian or any Subcustodian of
their respective obligations under this Agreement or any
applicable subcustodian agreement.
7. The Fund shall pay the Custodian a custody fee
based on such fee schedule as may from time to time be agreed
upon in writing by the Custodian and the Fund. Such fee, together
with all amounts for which the Custodian is to be reimbursed in
accordance with Section 6D, shall be billed to the Fund in such a
manner as to permit payment by a direct cash payment to the
Custodian.
34
<PAGE>
8. This Agreement shall continue in full force and
effect until terminated by either party by an instrument in
writing delivered or mailed, postage prepaid, to the other party,
such termination to take effect not sooner than seventy five (75)
days after the date of such delivery or mailing. In the event of
termination the Custodian shall be entitled to receive prior to
delivery of the securities, funds and other property held by it
and all accrued fees and unreimbursed expenses, the payment of
which is contemplated by Sections 6D and 7, upon receipt by the
Fund of a statement setting forth such fees and expenses.
In the event of the appointment of a successor
custodian, it is agreed that the funds and securities owned by
the Fund and held by the Custodian or any Subcustodian shall be
delivered to the successor custodian, and the Custodian agrees to
cooperate with the Fund in execution of documents and performance
of other actions necessary or desirable in order to substitute
the successor custodian for the Custodian under this Agreement.
9. This Agreement constitutes the entire understanding
and agreement of the parties hereto with respect to the subject
matter hereof. No provision of this Agreement may be amended or
terminated except by a statement in writing signed by the party
against which enforcement of the amendment or termination is
sought.
In connection with the operation of this Agreement, the
Custodian and the Fund may agree in writing from time to time on
35
<PAGE>
such provisions interpretative of or in addition to the
provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this
Agreement.
10. This instrument is executed and delivered in The
Commonwealth of Massachusetts and shall be governed by and
construed according to the laws of said Commonwealth.
11. Notices and other writings delivered or mailed
postage prepaid to the Fund addressed to the Fund at 500 Plaza
Drive 3rd Floor, Secaucus, NJ 07094 or to such other address as
the Fund may have designated to the Custodian in writing, or to
the Custodian at 40 Water Street, Boston, Massachusetts 02109,
Attention: Manager, Securities Department, or to such other
address as the Custodian may have designated to the Fund in
writing, shall be deemed to have been properly delivered or given
hereunder to the respective addressee.
12. This Agreement shall be binding on and shall inure
to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that neither party hereto may
assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of the other party.
13. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original. This
36
<PAGE>
Agreement shall become effective when one or more counterparts
have been signed and delivered by each of the parties.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed in its name and behalf on the day and
year first above written.
ALLIANCE GLOBAL STRATEGIC BROWN BROTHERS HARRIMAN & CO.
INCOME TRUST, INC.
/s/ John D.Carifa /s/ Robert G. Bergman
By__________________________ per pro______________________
37
<PAGE>
APPENDIX B
ALLIANCE GLOBAL STRATEGIC INCOME TRUST. INC.
THE FOLLOWING AUTHORIZED SOURCES ARE TO BE USED FOR PRICING AND
FOREIGN EXCHANGE QUOTATIONS, CORPORATE ACTIONS, DIVIDENDS AND
RIGHTS OFFERINGS:
AUTHORIZED SOURCES
QUOTRON
REUTERS
INTERACTIVE DATA CORPORATION
VALORINFORM (GENEVA)
TELEKURS
SUBSCRIPTION BANKS
FUND MANAGERS
EXTEL (LONDON)
REPUTABLE FOREIGN BROKERS
APPROVED: ______________________________
DATE
38
00250223.AE4
<PAGE>
ALLIANCE GLOBAL STRATEGIC INCOME TRUST, INC.
TRANSFER AGENCY AGREEMENT
AGREEMENT, dated as of December 12, 1995, between
Alliance Global Strategic Income Trust, Inc., a Maryland
Corporation and an open-end investment company registered with
the Securities and Exchange Commission (the "SEC") under the
Investment Company Act of 1940 (the "Investment Company Act"),
having its principal place of business at 1345 Avenue of
Americas, New York, New York 10105 (the "Fund"), and ALLIANCE
FUND SERVICES, INC., a Delaware corporation registered with the
SEC as a transfer agent under the Securities Exchange Act of
1934, having its principal place of business at 500 Plaza Drive,
Secaucus, New Jersey 07094 ("Fund Services"), provides as
follows:
WHEREAS, Fund Services has agreed to act as transfer
agent to the Fund for the purpose of recording the transfer,
issuance and redemption of shares of each series of the shares of
beneficial interest of the Fund ("Shares" or "Shares of a
Series"), transferring the Shares, disbursing dividends and other
distributions to shareholders of the Fund, and performing such
other services as may be agreed to pursuant hereto;
NOW THEREFORE, for and in consideration of the mutual
covenants and agreements contained herein, the parties do hereby
agree as follows:
<PAGE>
SECTION 1. The Fund hereby appoints Fund Services as
its transfer agent, dividend disbursing agent and shareholder
servicing agent for the Shares, and Fund Services agrees to act
in such capacities upon the terms set forth in this Agreement.
Capitalized terms used in this Agreement and not otherwise
defined shall have the meanings assigned to them in SECTION 30.
SECTION 2.
(a) The Fund shall provide Fund Services with copies of
the following documents:
(1) Specimens of all forms of certificates for Shares;
(2) Specimens of all account application forms and
other documents relating to Shareholders' accounts;
(3) Copies of each Prospectus;
(4) Specimens of all documents relating to withdrawal
plans instituted by the Fund, as described in SECTION 16; and
(5) Specimens of all amendments to any of the foregoing
documents.
(b) The Fund shall furnish to Fund Services a supply of
blank Share Certificates for the Shares and, from time to time,
will renew such supply upon Fund Services' request. Blank Share
Certificates shall be signed manually or by facsimile signatures
of officers of the Fund authorized to sign by law or pursuant to
the by-laws of the Fund and, if required by Fund Services, shall
bear the Fund's seal or a facsimile thereof.
2
<PAGE>
SECTION 3. Fund Services shall make original issues of
Shares in accordance with SECTIONS 13 and 14 and the Prospectus
upon receipt of (i) Written Instructions requesting the issuance,
(ii) a certified copy of a resolution of the Fund's Directors
authorizing the issuance, (iii) necessary funds for the payment
of any original issue tax applicable to such Shares, and (iv) an
opinion of the Fund's counsel as to the legality and validity of
the issuance, which opinion may provide that it is contingent
upon the filing by the Fund of an appropriate notice with the
SEC, as required by Rule 24f-2 of the Investment Company Act, as
amended from time to time.
SECTION 4. Transfers of Shares shall be registered and,
subject to the provisions of SECTION 10 in the case of Shares
evidenced by Share Certificates, new Share Certificates shall be
issued by Fund Services upon surrender of outstanding Share
Certificates in the form deemed by Fund Services to be properly
endorsed for transfer, which form shall include (i) all necessary
endorsers' signatures guaranteed by a member firm of a national
securities exchange or a domestic commercial bank or through
other procedures mutually agreed to between the Fund and Fund
Services, (ii) such assurances as Fund Services may deem
necessary to evidence the genuineness and effectiveness of each
endorsement and (iii) satisfactory evidence of compliance with
all applicable laws relating to the payment or collection of
taxes.
3
<PAGE>
SECTION 5. Fund Services shall forward Share
Certificates in "non-negotiable" form by first-class or
registered mail, or by whatever means Fund Services deems equally
reliable and expeditious. While in transit to the addressee, all
deliveries of Share Certificates shall be insured by Fund
Services as it deems appropriate. Fund Services shall not mail
Share Certificates in "negotiable" form, unless requested in
writing by the Fund and fully indemnified by the Fund to Fund
Services' satisfaction.
SECTION 6. In registering transfers of Shares, Fund
Services may rely upon the Uniform Commercial Code as in effect
from time to time in the State in which the Fund is incorporated
or organized or, if appropriate, in the State of New Jersey;
provided, that Fund Services may rely in addition or
alternatively on any other statutes in effect in the State of New
Jersey or in the state under the laws of which the Fund is
incorporated or organized that, in the opinion of Fund Services'
counsel, protect Fund Services and the Fund from liability
arising from (i) not requiring complete documentation in
connection with an issuance or transfer, (ii) registering a
transfer without an adverse claim inquiry, (iii) delaying
registration for purposes of an adverse claim inquiry or
(iv) refusing registration in connection with an adverse claim.
SECTION 7. Fund Services may issue new Share
Certificates in place of those lost, destroyed or stolen, upon
4
<PAGE>
receiving indemnity satisfactory to Fund Services; and may issue
new Share Certificates in exchange for, and upon surrender of,
mutilated Share Certificates as Fund Services deems appropriate.
SECTION 8. Unless otherwise directed by the Fund, Fund
Services may issue or register Share Certificates reflecting the
signature, or facsimile thereof, of an officer who has
died,resigned or been removed by the Fund. The Fund shall file
promptly with Fund Services' approval, adoption or ratification
of such action as may be required by law or by Fund Services.
SECTION 9. Fund Services shall maintain customary stock
registry records for Shares of each Series noting the issuance,
transfer or redemption of Shares and the issuance and transfer of
Share Certificates. Fund Services may also maintain for Shares
of each Series an account entitled "Unissued Certificate
Account," in which Fund Services will record the Shares, and
fractions thereof, issued and outstanding from time to time for
which issuance of Share Certificates has not been requested.
Fund Services is authorized to keep records for Shares of each
Series containing the names and addresses of record of
Shareholders, and the number of Shares, and fractions thereof,
from time to time owned by them for which no Share Certificates
are outstanding. Each Shareholder will be assigned a single
account number for Shares of each Series, even though Shares for
which Certificates have been issued will be accounted for
separately.
5
<PAGE>
SECTION 10. Fund Services shall issue Share
Certificates for Shares only upon receipt of a written request
from a Shareholder and as authorized by the Fund. If Shares are
purchased or transferred without a request for the issuance of a
Share Certificate, Fund Services shall merely note on its stock
registry records the issuance or transfer of the Shares and
fractions thereof and credit or debit, as appropriate, the
Unissued Certificate Account and the respective Shareholders'
accounts with the Shares. Whenever Shares, and fractions
thereof, owned by Shareholders are surrendered for redemption,
Fund Services may process the transactions by making appropriate
entries in the stock transfer records, and debiting the Unissued
Certificate Account and the record of issued Shares outstanding;
it shall be unnecessary for Fund Services to reissue Share
Certificates in the name of the Fund.
SECTION 11. Fund Services shall also perform the usual
duties and function required of a stock transfer agent for a
corporation, including but not limited to (i) issuing Share
Certificates as treasury Shares, as directed by Written
Instructions, and (ii) transferring Share Certificates from one
Shareholder to another in the usual manner. Fund Services may
rely conclusively and act without further investigation upon any
list, instruction, certification, authorization, Share
Certificate or other instrument or paper reasonably believed by
it in good faith to be genuine and unaltered, and to have been
6
<PAGE>
signed, countersigned or executed or authorized by a duly-
authorized person or persons, or by the Fund, or upon the advice
of counsel for the Fund or for Fund Services. Fund Services may
record any transfer of Share Certificates which it reasonably
believes in good faith to have been duly authorized, or may
refuse to record any transfer of Share Certificates if, in good
faith, it reasonably deems such refusal necessary in order to
avoid any liability on the part of either the Fund or Fund
Services.
SECTION 12. Fund Services shall notify the Fund of any
request or demand for the inspection of the Fund's share records.
Fund Services shall abide by the Fund's instructions for granting
or denying the inspection; provided, however, Fund Services may
grant the inspection without such instructions if it is advised
by its counsel that failure to do so will result in liability to
Fund Services.
SECTION 13. Fund Services shall observe the following
procedures in handling funds received:
(a) Upon receipt at the office designated by the Fund
of any check or other order drawn or endorsed to the Fund or
otherwise identified as being for the account of the Fund, and,
in the case of a new account, accompanied by a new account
application or sufficient information to establish an account as
provided in the Prospectus, Fund Services shall stamp the
transmittal document accompanying such check or other order with
7
<PAGE>
the name of the Fund and the time and date of receipt and shall
forthwith deposit the proceeds thereof in the custodial account
of the Fund.
(b) In the event that any check or other order for the
purchase of Shares is returned unpaid for any reason, Fund
Services shall, in the absence of other instructions from the
Fund, advise the Fund of the returned check and prepare such
documents and information as may be necessary to cancel promptly
any Shares purchased on the basis of such returned check and any
accumulated income dividends and capital gains distributions paid
on such Shares.
(c) As soon as possible after 4:00 p.m., Eastern time
or at such other times as the Fund may specify in Written or Oral
Instructions for any Series (the "Valuation Time") on each
Business Day Fund Services shall obtain from the Fund's Adviser a
quotation (on which it may conclusively rely) of the net asset
value, determined as of the Valuation Time on that day. On each
Business Day Fund Services shall use the net asset value(s)
determined by the Fund's Adviser to compute the number of Shares
and fractional Shares to be purchased and the aggregate purchase
proceeds to be deposited with the Custodian. As necessary but no
more frequently than daily (unless a more frequent basis is
agreed to by Fund Services), Fund Services shall place a purchase
order with the Custodian for the proper number of Shares and
fractional Shares to be purchased and promptly thereafter shall
8
<PAGE>
send written confirmation of such purchase to the Custodian and
the Fund.
SECTION 14. Having made the calculations required by
SECTION 13, Fund Services shall thereupon pay the Custodian the
aggregate net asset value of the Shares purchased. The aggregate
number of Shares and fractional Shares purchased shall then be
issued daily and credited by Fund Services to the Unissued
Certificate Account. Fund Services shall also credit each
Shareholder's separate account with the number of Shares
purchased by such Shareholder. Fund Services shall mail written
confirmation of the purchase to each Shareholder or the
Shareholder's representative and to the Fund if requested. Each
confirmation shall indicate the prior Share balance, the new
Share balance, the Shares for which Stock Certificates are
outstanding (if any), the amount invested and the price paid for
the newly-purchased Shares.
SECTION 15. Prior to the Valuation Time on each
Business Day, as specified in accordance with SECTION 13, Fund
Services shall process all requests to redeem Shares and, with
respect to each Series, shall advise the Custodian of (i) the
total number of Shares available for redemption and (ii) the
number of Shares and fractional Shares requested to be redeemed.
Upon confirmation of the net asset value by the Fund's Adviser,
Fund Services shall notify the Fund and the Custodian of the
redemption, apply the redemption proceeds in accordance with
9
<PAGE>
SECTION 16 and the Prospectus, record the redemption in the stock
registry books, and debit the redeemed Shares from the Unissued
Certificates Account and the individual account of the
Shareholder.
In lieu of carrying out the redemption procedures
described in the preceding paragraph, Fund Services may, at the
request of the Fund, sell Shares to the Fund as repurchases from
Shareholders, provided that the sale price is not less than the
applicable redemption price. The redemption procedures shall
then be appropriately modified.
SECTION 16. Fund Services will carry out the following
procedures with respect to Share redemptions:
(a) As to each request received by the Fund from or on
behalf of a Shareholder for the redemption of Shares, and unless
the right of redemption has been suspended as contemplated by the
Prospectus, Fund Services shall, within seven days after receipt
of such redemption request, either (i) mail a check in the amount
of the proceeds of such redemption to the person designated by
the Shareholder or other person to receive such proceeds or,
(ii) in the event redemption proceeds are to be wired through the
Federal Reserve Wire System or by bank wire pursuant to
procedures described in the Prospectus, cause such proceeds to be
wired in Federal funds to the bank or trust company account
designated by the Shareholder to receive such proceeds. Funds
Services shall also prepare and send a confirmation of such
10
<PAGE>
redemption to the Shareholder. Redemptions in kind shall be made
only in accordance with such Written Instructions as Fund
Services may receive from the Fund. The requirements as to
instruments of transfer and other documentation, the
determination of the appropriate redemption price and the time of
payment shall be as provided in the Prospectus, subject to such
additional requirements consistent therewith as may be
established by mutual agreement between the Fund and Fund
Services. In the case of a request for redemption that does not
comply in all respects with the requirements for redemption, Fund
Services shall promptly so notify the Shareholder and shall
effect such redemption at the price in effect at the time of
receipt of documents complying with such requirements. Fund
Services shall notify the Fund's Custodian and the Fund on each
Business Day of the amount of cash required to meet payments made
pursuant to the provisions of this paragraph and thereupon the
Fund shall instruct the Custodian to make available to Fund
Services in timely fashion sufficient funds therefor.
(b) Procedures and standards for effecting and
accepting redemption orders from Shareholders by telephone or by
such check writing service as the Fund may institute may be
established by mutual agreement between Fund Services and the
Fund consistent with the Prospectus.
(c) For purposes of redemption of Shares that have been
purchased by check within fifteen (15) days prior to receipt of
11
<PAGE>
the redemption request, the Fund shall provide Fund Services with
Written Instructions concerning the time within which such
requests may be honored.
(d) Fund Services shall process withdrawal orders duly
executed by Shareholders in accordance with the terms of any
withdrawal plan instituted by the Fund and described in the
Prospectus. Payments upon such withdrawal orders and redemptions
of Shares held in withdrawal plan accounts in connection with
such payments shall be made at such times as the Fund may
determine in accordance with the Prospectus.
(e) The authority of Fund Services to perform its
responsibilities under SECTIONS 15 and 16 with respect to the
Shares of any Series shall be suspended if Fund Services receives
notice of the suspension of the determination of the net asset
value of the Series.
SECTION 17. Upon the declaration of each dividend and
each capital gains distribution by the Fund's Directors, the Fund
shall notify Fund Services of the date of such declaration, the
amount payable per Share, the record date for determining the
Shareholders entitled to payment, the payment and the
reinvestment date price.
SECTION 18. Upon being advised by the Fund of the
declaration of any income dividend or capital gains distribution
on account of its Shares, Fund Services shall compute and prepare
for the Fund records crediting such distributions to
12
<PAGE>
Shareholders. Fund Services shall, on or before the payment date
of any dividend or distribution, notify the Fund and the
Custodian of the estimated amount required to pay any portion of
a dividend or distribution which is payable in cash, and
thereupon the Fund shall, on or before the payment date of such
dividend or distribution, instruct the Custodian to make
available to Fund Services sufficient funds for the payment of
such cash amount. Fund Services will, on the designated payment
date, reinvest all dividends in additional shares and promptly
mail to each Shareholder at his address of record a statement
showing the number of full and fractional Shares (rounded to
three decimal places) then owned by the Shareholder and the net
asset value of such Shares; provided, however, that if a
Shareholder elects to receive dividends in cash, Fund Services
shall prepare a check in the appropriate amount and mail it to
the Shareholder at his address of record within five (5) business
days after the designated payment date, or transmit the
appropriate amount in Federal funds in accordance with the
Shareholder's agreement with the Fund.
SECTION 19. Fund Services shall prepare and maintain
for the Fund records showing for each Shareholder's account the
following:
A. The name, address and tax identification number of
the Shareholder;
13
<PAGE>
B. The number of Shares of each Series held by the
Shareholder;
C. Historical information including dividends paid and
date and price for all transactions;
D. Any stop or restraining order placed against such
account;
E. Information with respect to the withholding of any
portion of income dividends or capital gains distributions as are
required to be withheld under applicable law;
F. Any dividend or distribution reinvestment election,
withdrawal plan application, and correspondence relating to the
current maintenance of the account;
G. The certificate numbers and denominations of any
Share Certificates issued to the Shareholder; and
H. Any additional information required by Fund
Services to perform the services contemplated by this Agreement.
Fund Services agrees to make available upon request by
the Fund or the Fund's Adviser and to preserve for the periods
prescribed in Rule 31a-2 of the Investment Company Act any
records related to services provided under this Agreement and
required to be maintained by Rule 31a-1 of that Act, including:
(i) Copies of the daily transaction register for each
Business Day of the Fund;
(ii) Copies of all dividend, distribution and
reinvestment blotters;
14
<PAGE>
(iii) Schedules of the quantities of Shares of each
Series distributed in each state for purposes of any state's laws
or regulations as specified in Oral or Written Instructions given
to Fund Services from time to time by the Fund or its agents; and
(iv) Such other information, including Shareholder
lists, and statistical information as may be agreed upon from
time to time by the Fund and Fund Services.
SECTION 20. Fund Services shall maintain those records
necessary to enable the Fund to file, in a timely manner, form
N-SAR (Semi-Annual Report) or any successor report required by
the Investment Company Act or rules and regulations thereunder.
SECTION 21. Fund Services shall cooperate with the
Fund's independent public accountants and shall take reasonable
action to make all necessary information available to such
accountants for the performance of their duties.
SECTION 22. In addition to the services described
above, Fund Services will perform other services for the Fund as
may be mutually agreed upon in writing from time to time, which
may include preparing and filing Federal tax forms with the
Internal Revenue Service, and, subject to supervisory oversight
by the Fund's Adviser, mailing Federal tax information to
Shareholders, mailing semi-annual Shareholder reports, preparing
the annual list of Shareholders, mailing notices of Shareholders'
meetings, proxies and proxy statements and tabulating proxies.
Fund Services shall answer the inquiries of certain Shareholders
15
<PAGE>
related to their share accounts and other correspondence
requiring an answer from the Fund. Fund Services shall maintain
dated copies of written communications from Shareholders, and
replies thereto.
SECTION 23. Nothing contained in this Agreement is
intended to or shall require Fund Services, in any capacity
hereunder, to perform any functions or duties on any day other
than a Business Day. Functions or duties normally scheduled to
be performed on any day which is not a Business Day shall be
performed on, and as of, the next Business Day, unless otherwise
required by law.
SECTION 24. For the services rendered by Fund Services
as described above, the Fund shall pay to Fund Services an
annualized fee at a rate to be mutually agreed upon from time to
time. Such fee shall be prorated for the months in which this
Agreement becomes effective or is terminated. In addition, the
Fund shall pay, or Fund Services shall be reimbursed for, all
out-of-pocket expenses incurred in the performance of this
Agreement, including but not limited to the cost of stationery,
forms, supplies, blank checks, stock certificates, proxies and
proxy solicitation and tabulation costs, all forms and statements
used by Fund Services in communicating with Shareholders of the
Fund or especially prepared for use in connection with its
services hereunder, specific software enhancements as requested
by the Fund, costs associated with maintaining withholding
16
<PAGE>
accounts (including non-resident alien, Federal government and
state), postage, telephone, telegraph (or similar electronic
media) used in communicating with Shareholders or their
representatives, outside mailing services, microfiche/microfilm,
freight charges and off-site record storage. It is agreed in
this regard that Fund Services, prior to ordering any form in
such supply as it estimates will be adequate for more than two
years' use, shall obtain the written consent of the Fund. All
forms for which Fund Services has received reimbursement from the
Fund shall be the property of the Fund.
SECTION 25. Fund Services shall not be liable for any
taxes, assessments or governmental charges that may be levied or
assessed on any basis whatsoever in connection with the Fund or
any Shareholder, excluding taxes assessed against Fund Services
for compensation received by it hereunder.
SECTION 26.
(a) Fund Services shall at all times act in good faith
and with reasonable care in performing the services to be
provided by it under this Agreement, but shall not be liable for
any loss or damage unless such loss or damage is caused by the
negligence, bad faith or willful misconduct of Fund Services or
its employees or agents.
(b) The Fund shall indemnify and hold Fund Services
harmless from all loss, cost, damage and expense, including
reasonable expenses for counsel, incurred by it resulting from
17
<PAGE>
any claim, demand, action or suit in connection with the
performance of its duties hereunder, or as a result of acting
upon any instruction reasonably believed by it to have been
properly given by a duly authorized officer of the Fund, or upon
any information, data, records or documents provided to Fund
Services or its agents by computer tape, telex, CRT data entry or
other similar means authorized by the Fund; provided that this
indemnification shall not apply to actions or omissions of Fund
Services in cases of its own bad faith, willful misconduct or
negligence, and provided further that if in any case the Fund may
be asked to indemnify or hold Fund Services harmless pursuant to
this Section, the Fund shall have been fully and promptly advised
by Fund Services of all material facts concerning the situation
in question. The Fund shall have the option to defend Fund
Services against any claim which may be the subject of this
indemnification, and in the event that the Fund so elects it will
so notify Fund Services, and thereupon the Fund shall retain
competent counsel to undertake defense of the claim, and Fund
Services shall in such situations incur no further legal or other
expenses for which it may seek indemnification under this
paragraph. Fund Services shall in no case confess any claim or
make any compromise in any case in which the Fund may be asked to
indemnify Fund Services except with the Fund's prior written
consent.
18
<PAGE>
Without limiting the foregoing:
(i) Fund Services may rely upon the advice of the Fund
or counsel to the Fund or Fund Services, and upon statements of
accountants, brokers and other persons believed by Fund Services
in good faith to be expert in the matters upon which they are
consulted. Fund Services shall not be liable for any action
taken in good faith reliance upon such advice or statements;
(ii) Fund Services shall not be liable for any action
reasonably taken in good faith reliance upon any Written
Instructions or certified copy of any resolution of the Fund's
Directors, including a Written Instruction authorizing Fund
Services to make payment upon redemption of Shares without a
signature guarantee; provided, however, that upon receipt of a
Written Instruction countermanding a prior Instruction that has
not been fully executed by Fund Services, Fund Services shall
verify the content of the second Instruction and honor it, to the
extent possible. Fund Services may rely upon the genuineness of
any such document, or copy thereof, reasonably believed by Fund
Services in good faith to have been validly executed;
(iii) Fund Services may rely, and shall be protected by
the Fund in acting, upon any signature, instruction, request,
letter of transmittal, certificate, opinion of counsel,
statement, instrument, report, notice, consent, order, or other
paper or document reasonably believed by it in good faith to be
19
<PAGE>
genuine and to have been signed or presented by the purchaser,
the Fund or other proper party or parties; and
(d) Fund Services may, with the consent of the Fund,
subcontract the performance of any portion of any service to be
provided hereunder, including with respect to any Shareholder or
group of Shareholders, to any agent of Fund Services and may
reimburse the agent for the services it performs at such rates as
Fund Services may determine; provided that no such reimbursement
will increase the amount payable by the Fund pursuant to this
Agreement; and provided further, that Fund Services shall remain
ultimately responsible as transfer agent to the Fund.
SECTION 27. The Fund shall deliver or cause
to be delivered over to Fund Services (i) an accurate list of
Shareholders, showing each Shareholder's address of record,
number of Shares of each Series owned and whether such Shares are
represented by outstanding Share Certificates or by non-
certificated Share accounts and (ii) all Shareholder records,
files, and other materials necessary or appropriate for proper
performance of the functions assumed by Fund Services under this
Agreement (collectively referred to as the "Materials"). The
Fund shall indemnify Fund Services and hold it harmless from any
and all expenses, damages, claims, suits, liabilities, actions,
demands and losses arising out of or in connection with any
error, omission, inaccuracy or other deficiency of such
Materials, or out of the failure of the Fund to provide any
20
<PAGE>
portion of the Materials or to provide any information in the
Fund's possession needed by Fund Services to knowledgeably
perform its functions; provided the Fund shall have no obligation
to indemnify Fund Services or hold it harmless with respect to
any expenses, damages, claims, suits, liabilities, actions,
demands or losses caused directly or indirectly by acts or
omissions of Fund Services or the Fund's Adviser.
SECTION 28. This Agreement may be amended from time to
time by a written supplemental agreement executed by the Fund and
Fund Services and without notice to or approval of the
Shareholders; provided this Agreement may not be amended in any
manner which would substantially increase the Fund's obligations
hereunder unless the amendment is first approved by the Fund's
Directors, including a majority of the Directors who are not a
party to this Agreement or interested persons of any such party,
at a meeting called for such purpose, and thereafter is approved
by the Fund's Shareholders if such approval is required under the
Investment Company Act or the rules and regulations thereunder.
The parties hereto may adopt procedures as may be appropriate or
practical under the circumstances, and Fund Services may
conclusively rely on the determination of the Fund that any
procedure that has been approved by the Fund does not conflict
with or violate any requirement of its Articles of Incorporation
or Declaration of Trust, By-Laws or Prospectus, or any rule,
regulation or requirement of any regulatory body.
21
<PAGE>
SECTION 29. The Fund shall file with Fund Services a
certified copy of each operative resolution of its Directors
authorizing the execution of Written Instructions or the
transmittal of Oral Instructions and setting forth authentic
signatures of all signatories authorized to sign on behalf of the
Fund and specifying the person or persons authorized to give Oral
Instructions on behalf of the Fund. Such resolution shall
constitute conclusive evidence of the authority of the person or
persons designated therein to act and shall be considered in full
force and effect, with Fund Services fully protected in acting in
reliance therein, until Fund Services receives a certified copy
of a replacement resolution adding or deleting a person or
persons authorized to give Written or Oral Instructions. If the
officer certifying the resolution is authorized to give Oral
Instructions, the certification shall also be signed by a second
officer of the Fund.
SECTION 30. The terms, as defined in this Section,
whenever used in this Agreement or in any amendment or supplement
hereto, shall have the meanings specified below, insofar as the
context will allow.
(a) Business Day: Any day on which the Fund is open
for business as described in the Prospectus.
(b) Custodian: The term Custodian shall mean the
Fund's current custodian or any successor custodian acting as
such for the Fund.
22
<PAGE>
(c) Fund's Adviser: The term Fund's Adviser shall mean
Alliance Capital Management L.P. or any successor thereto who
acts as the investment adviser or manager of the Fund.
(d) Oral Instructions: The term Oral Instructions
shall mean an authorization, instruction, approval, item or set
of data, or information of any kind transmitted to Fund Services
in person or by telephone, vocal telegram or other electronic
means, by a person or persons reasonably believed in good faith
by Fund Services to be a person or persons authorized by a
resolution of the Directors of the Fund to give Oral Instructions
on behalf of the Fund. Each Oral Instruction shall specify
whether it is applicable to the entire Fund or a specific Series
of the Fund.
(e) Prospectus: The term Prospectus shall mean a
prospectus and related statement of additional information
forming part of a currently effective registration statement
under the Investment Company Act and, as used with the respect to
Shares or Shares of a Series, shall mean the prospectuses and
related statements of additional information covering the Shares
or Shares of the Series.
(f) Securities: The term Securities shall mean bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and
other securities and investments from time to time owned by the
Fund.
23
<PAGE>
(g) Series: The term Series shall mean any series of
Shares of the common stock of the Fund that the Fund may
establish from time to time.
(h) Share Certificates: The term Share Certificates
shall mean the stock certificates for the Shares.
(i) Shareholders: The term Shareholders shall mean the
registered owners from time to time of the Shares, as reflected
on the stock registry records of the Fund.
(j) Written Instructions: The term Written
Instructions shall mean an authorization, instruction, approval,
item or set of data, or information of any kind transmitted to
Fund Services in original writing containing original signatures,
or a copy of such document transmitted by telecopy, including
transmission of such signature, or other mechanical or
documentary means, at the request of a person or persons
reasonably believed in good faith by Fund Services to be a person
or persons authorized by a resolution of the Directors of the
Fund to give Written Instruction shall specify whether it is
applicable to the entire Fund or a specific Series of the Fund.
SECTION 31. Fund Services shall not be liable for the
loss of all or part of any record maintained or preserved by it
pursuant to this Agreement or for any delays or errors occurring
by reason of circumstances beyond its control, including but not
limited to acts of civil or military authorities, national
emergencies, fire, flood or catastrophe, acts of God,
24
<PAGE>
insurrection, war, riot, or failure of transportation,
communication or power supply, except to the extent that Fund
Services shall have failed to use its best efforts to minimize
the likelihood of occurrence of such circumstances or to mitigate
any loss or damage to the Fund caused by such circumstances.
SECTION 32. The Fund may give Fund Services sixty (60)
days and Fund Services may give the Fund (90) days written notice
of the termination of this Agreement, such termination to take
effect at the time specified in the notice. Upon notice of
termination, the Fund shall use its best efforts to obtain a
successor transfer agent. If a successor transfer agent is not
appointed within ninety (90) days after the date of the notice of
termination, the Directors of the Fund shall, by resolution,
designate the Fund as its own transfer agent. Upon receipt of
written notice from the Fund of the appointment of the successor
transfer agent and upon receipt of Oral or Written Instructions
Fund Services shall, upon request of the Fund and the successor
transfer agent and upon payment of Fund Services reasonable
charges and disbursements, promptly transfer to the successor
transfer agent the original or copies of all books and records
maintained by Fund Services hereunder and cooperate with, and
provide reasonable assistance to, the successor transfer agent in
the establishment of the books and records necessary to carry out
its responsibilities hereunder.
25
<PAGE>
SECTION 33. Any notice or other communication required
by or permitted to be given in connection with this Agreement
shall be in writing, and shall be delivered in person or sent by
first-class mail, postage prepaid, to the respective parties.
Notice to the Fund shall be given as follows until
further notice:
Alliance Global Strategic Income Trust, Inc.
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
Notice to Fund Services shall be given as follows until
further notice:
Alliance Fund Services, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094
SECTION 34. The Fund represents and warrants to Fund
Services that the execution and delivery of this Agreement by the
undersigned officer of the Fund has been duly and validly
authorized by resolution of the Fund's Directors. Fund Services
represents and warrants to the Fund that the execution and
delivery of this Agreement by the undersigned officer of Fund
Services has also been duly and validly authorized.
SECTION 35. This Agreement may be executed in more than
one counterpart, each of which shall be deemed to be an original,
and shall become effective on the last date of signature below
unless otherwise agreed by the parties. Unless sooner terminated
pursuant to SECTION 32, this Agreement will continue until
December 31, 1996 and will continue in effect thereafter for
26
<PAGE>
successive 12 month periods only if such continuance is
specifically approved at least annually by the Directors or by a
vote of the stockholders of the Fund and in either case by a
majority of the Directors who are not parties to this Agreement
or interested persons of any such party, at a meeting called for
the purpose of voting on this Agreement.
SECTION 36. This Agreement shall extend to and shall
bind the parties hereto and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of Fund
Services or by Fund Services without the written consent of the
Fund, authorized or approved by a resolution of the Fund's
Directors. Notwithstanding the foregoing, either party may
assign this Agreement without the consent of the other party so
long as the assignee is an affiliate, parent or subsidiary of the
assigning party and is qualified to act under the Investment
Company Act, as amended from time to time.
27
<PAGE>
SECTION 38. This Agreement shall be governed by the
laws of the State of New Jersey.
WITNESS the following signatures:
ALLIANCE GLOBAL STRATEGIC
INCOME TRUST, INC.
/s/ John D. Carifa
BY:___________________________
TITLE: President
ALLIANCE FUND SERVICES, INC.
/s/ George Hrabovsky
BY:___________________________
TITLE: President
28
00250223.AE2
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights," "Shareholder Services - Statements and
Reports" and "General Information - Independent Auditors" and to
the use of our report dated December 10, 1997 included in this
Registration Statement (Form N-1A Nos. 33-63797 and 811-07391) of
Alliance Global Stategic Income Trust, Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
February 26, 1998
00250223.AS9
<PAGE>
[ARTICLE] 06
[CIK] 0001002718
[NAME] Alliance Global Strategic Income Trust Inc.
[SERIES]
[NUMBER] 001
[NAME] Class A
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] Year
[FISCAL-YEAR-END] Oct-31-1997
[PERIOD-START] Nov-1-1996
[PERIOD-END] Oct-31-1997
[INVESTMENTS-AT-COST] 35,837,408
[INVESTMENTS-AT-VALUE] 35,424,050
[RECEIVABLES] 3,824,296
[ASSETS-OTHER] 1,633,226
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 40,881,572
[PAYABLE-FOR-SECURITIES] 3,671,482
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,012,898
[TOTAL-LIABILITIES] 4,684,380
[SENIOR-EQUITY] 3,159
[PAID-IN-CAPITAL-COMMON] 35,555,331
[SHARES-COMMON-STOCK] 1,130,634
[SHARES-COMMON-PRIOR] 211,946
[ACCUMULATED-NII-CURRENT] 70,179
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 1,230,367
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (661,844)
[NET-ASSETS] 36,197,192
[DIVIDEND-INCOME] 12,595
[INTEREST-INCOME] 1,537,572
[OTHER-INCOME] 0
[EXPENSES-NET] 438,241
[NET-INVESTMENT-INCOME] 1,111,926
[REALIZED-GAINS-CURRENT] 1,785,344
[APPREC-INCREASE-CURRENT] (827,989)
[NET-CHANGE-FROM-OPS] 2,069,281
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (525,335)
[DISTRIBUTIONS-OF-GAINS] (22,494)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 11,897,442
[NUMBER-OF-SHARES-REDEEMED] (1,591,569)
[SHARES-REINVESTED] 268,816
[NET-CHANGE-IN-ASSETS] 32,353,004
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 55,128
<PAGE>
[OVERDISTRIB-NII-PRIOR] (22,498)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 138,196
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 836,212
[AVERAGE-NET-ASSETS] 18,426,060
[PER-SHARE-NAV-BEGIN] 10.83
[PER-SHARE-NII] .74
[PER-SHARE-GAIN-APPREC] 1.02
[PER-SHARE-DIVIDEND] (1.03)
[PER-SHARE-DISTRIBUTIONS] (.10)
[RETURNS-OF-CAPITAL] .00
[PER-SHARE-NAV-END] 11.46
[EXPENSE-RATIO] 1.90
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
00250223.AT0
2
</TABLE>
<PAGE>
[ARTICLE] 06
[CIK] 0000873067
[NAME] Alliance Global Strategic Income Trust Inc.
[SERIES]
[NUMBER] 001
[NAME] Class B
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] Year
[FISCAL-YEAR-END] Oct-31-1997
[PERIOD-START] Nov-1-1996
[PERIOD-END] Oct-31-1997
[INVESTMENTS-AT-COST] 35,837,408
[INVESTMENTS-AT-VALUE] 35,424,050
[RECEIVABLES] 3,824,296
[ASSETS-OTHER] 1,633,226
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 40,881,572
[PAYABLE-FOR-SECURITIES] 3,671,482
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,012,898
[TOTAL-LIABILITIES] 4,684,380
[SENIOR-EQUITY] 3,159
[PAID-IN-CAPITAL-COMMON] 35,555,331
[SHARES-COMMON-STOCK] 1,645,592
[SHARES-COMMON-PRIOR] 73,879
[ACCUMULATED-NII-CURRENT] 70,179
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 1,230,367
<OVERDISTRIBUTION-GAINS 0
[ACCUM-APPREC-OR-DEPREC] (661,844)
[NET-ASSETS] 36,197,192
[DIVIDEND-INCOME] 12,595
[INTEREST-INCOME] 1,537,572
[OTHER-INCOME] 0
[EXPENSES-NET] 438,241
[NET-INVESTMENT-INCOME] 1,111,926
<REALIZED-GAINS-CURRENT 1,785,344
[APPREC-INCREASE-CURRENT] (827,989)
[NET-CHANGE-FROM-OPS] 2,069,281
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (835,381)
[DISTRIBUTIONS-OF-GAINS] (23,190)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 21,544,554
[NUMBER-OF-SHARES-REDEEMED] (4,050,902)
[SHARES-REINVESTED] 304,645
[NET-CHANGE-IN-ASSETS] 32,353,004
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 55,128
<PAGE>
[OVERDISTRIB-NII-PRIOR] (22,498)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 138,196
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 836,212
[AVERAGE-NET-ASSETS] 18,426,060
[PER-SHARE-NAV-BEGIN] 10.83
[PER-SHARE-NII] .66
[PER-SHARE-GAIN-APPREC] 1.03
[PER-SHARE-DIVIDEND] (.96)
[PER-SHARE-DISTRIBUTIONS] (.10)
[RETURNS-OF-CAPITAL] .00
[PER-SHARE-NAV-END] 11.46
[EXPENSE-RATIO] 2.60
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
00250223.AT1
2
</TABLE>
<PAGE>
[ARTICLE] 06
[CIK] 0000873067
[NAME] Alliance Global Strategic Income Trust Inc.
[SERIES]
[NUMBER] 001
[NAME] Class C
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] Year
[FISCAL-YEAR-END] Oct-31-1997
[PERIOD-START] Nov-1-1996
[PERIOD-END] Oct-31-1997
[INVESTMENTS-AT-COST] 35,837,408
[INVESTMENTS-AT-VALUE] 35,424,050
[RECEIVABLES] 3,824,296
[ASSETS-OTHER] 1,633,226
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 40,881,572
[PAYABLE-FOR-SECURITIES] 3,671,482
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,012,898
[TOTAL-LIABILITIES] 4,684,380
[SENIOR-EQUITY] 3,159
[PAID-IN-CAPITAL-COMMON] 35,555,331
[SHARES-COMMON-STOCK] 382,968
[SHARES-COMMON-PRIOR] 69,263
[ACCUMULATED-NII-CURRENT] 70,179
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 1,230,367
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (661,844)
[NET-ASSETS] 36,197,192
[DIVIDEND-INCOME] 12,595
[INTEREST-INCOME] 1,537,572
[OTHER-INCOME] 0
[EXPENSES-NET] 438,241
[NET-INVESTMENT-INCOME] 1,111,926
[REALIZED-GAINS-CURRENT] 1,785,344
[APPREC-INCREASE-CURRENT] (827,989)
[NET-CHANGE-FROM-OPS] 2,069,281
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (212,434)
[DISTRIBUTIONS-OF-GAINS] (10,520)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4,822,709
[NUMBER-OF-SHARES-REDEEMED] (1,342,757)
[SHARES-REINVESTED] 60,139
[NET-CHANGE-IN-ASSETS] 32,353,004
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 55,128
<PAGE>
[OVERDISTRIB-NII-PRIOR] (22,498)
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 138,196
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 836,212
[AVERAGE-NET-ASSETS] 18,426,060
[PER-SHARE-NAV-BEGIN] 10.83
[PER-SHARE-NII] .66
[PER-SHARE-GAIN-APPREC] 1.03
[PER-SHARE-DIVIDEND] (.96)
[PER-SHARE-DISTRIBUTIONS] (.10)
[RETURNS-OF-CAPITAL] .00
[PER-SHARE-NAV-END] 11.46
[EXPENSE-RATIO] 2.60
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
00250223.AT2
2
</TABLE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Developing Markets Fund, Inc. Alliance
Global Dollar Government Fund, Inc., Alliance Global
Environment Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Global Strategic Income Trust, Inc., Alliance
Government Reserves, Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance Municipal Trust, Alliance
New Europe Fund, Inc., Alliance North American Government
Income Trust, Inc., Alliance Premier Growth Fund, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance World
Income Trust, Inc., Alliance Worldwide Privatization Fund,
Inc., Fiduciary Management Associates, The Alliance Fund,
Inc., The Alliance Portfolios, and The Hudson River Trust,
and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
/s/ John D. Carifa
___________________________
John D. Carifa
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc. and The Alliance Portfolios, and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Ruth Block
___________________________
Ruth Block
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Developing
Markets Fund, Inc. Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates
and The Alliance Fund, Inc. and filing the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/ David H. Dievler
___________________________
David H. Dievler
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Growth and Income Fund, Inc.,
Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance International Fund, Alliance Limited
Maturity Government Fund, Inc., Alliance Mortgage Securites
Incoem Fund, Inc., Alliance Multi-Market Strategy Trust,
Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance New Europe Fund, Inc.,
Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc., and filing the same, with exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ John H. Dobkin
___________________________
John H. Dobkin
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Capital Reserves, Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China 97
Fund, Inc., Alliance Growth and Income Fund, Inc., Alliance
High Yield Fund, Inc., Alliance Income Builder Fund, Inc.,
Alliance Limited Maturity Government Fund, Inc., Alliance
Money Market Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance Municipal Trust, Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc., The Alliance Portfolios and the
Hudson River Trust, and filing the same, with exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ William H. Foulk, Jr.
___________________________
William H. Foulk, Jr.
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese, Andrew L. Gangolf and Emilie D. Wrapp and
each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the
undersigned in any and all capacities, solely for the purpose of
signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of ACM Institutional Reserves,
Inc., AFD Exchange Reserves, Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Global Dollar Government Fund,
Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income Fund,
Inc., Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance Limited Maturity Government Fund, Inc.,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance Utility
Income Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates and The
Alliance Fund, Inc., and filing the same, with exhibits thereto,
and other documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Dr. James M. Hester
___________________________
Dr. James M. Hester
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese, Andrew L. Gangolf and Emilie D. Wrapp and
each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the
undersigned in any and all capacities, solely for the purpose of
signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of ACM Institutional Reserves,
Inc., AFD Exchange Reserves, Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Global Dollar Government Fund,
Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income Fund,
Inc., Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance Limited Maturity Government Fund, Inc.,
Alliance Money Market Fund, Alliance Mortgage Securities Income
Fund, Inc., Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund II,
Alliance North American Government Income Trust, Inc., Alliance
Premier Growth Fund, Inc., Alliance Quasar Fund, Inc., Alliance
Real Estate Investment Fund, Inc., Alliance/Regent Sector
Opportunity Fund, Inc., Alliance Short-Term Multi-Market Trust,
Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., Fiduciary Management
Associates, The Alliance Fund, Inc. and The Hudson River Trust,
and filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may do or
cause to be done by virtue hereof.
/s/ Clifford L. Michel
___________________________
Clifford L. Michel
Dated: September 9, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior powers
granted by the undersigned to the extent inconsistent herewith
and constitutes and appoints John D. Carifa, Edmund P. Bergan,
Jr., Domenick Pugliese, Andrew L. Gangolf and Emilie D. Wrapp and
each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the
undersigned in any and all capacities, solely for the purpose of
signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of ACM Institutional Reserves,
Inc., AFD Exchange Reserves, Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Capital Reserves, Alliance
Global Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Growth and Income Fund,
Inc., Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance Limited Maturity Government Fund, Inc.,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund, Inc.,
Alliance Real Estate Investment Fund, Inc., Alliance/Regent
Sector Opportunity Fund, Inc., Alliance Short-Term Multi-Market
Trust, Inc., Alliance Utility Income Fund, Inc., Alliance
Variable Products Series Fund, Inc., Alliance World Income Trust,
Inc., Alliance Worldwide Privatization Fund, Inc., Fiduciary
Management Associates, The Alliance Fund, Inc., The Alliance
Portfolios and The Hudson River Trust, and filing the same, with
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute
or substitutes, may do or cause to be done by virtue hereof.
/s/ Donald J. Robinson
___________________________
Donald J. Robinson
Dated: September 9, 1997
00250223.AT6
