<PAGE>
As filed with the Securities and Exchange
Commission on February 28, 2000
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. 11 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 12 X
_______________________________
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 LLP
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
<PAGE>
immediately upon filing pursuant to paragraph (b)
X on March 1, 2000 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>
The Alliance Bond Funds
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income.
Prospectus and Application
March 1, 2000
Investment Grade Funds
> Alliance U.S. Government Portfolio
> Alliance Limited Maturity Government Fund
> Alliance Mortgage Securities Income Fund
> Alliance Quality Bond Portfolio
Corporate Bond Funds
> Alliance Corporate Bond Portfolio
> Alliance High Yield Fund
Multi-Sector Fund
> Alliance Global Strategic Income Trust
Global Bond Funds
> Alliance North American Government Income Trust
> Alliance Global Dollar Government Fund
> Alliance Multi-Market Strategy Trust
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Alliance Capital [LOGO](R)
<PAGE>
Investment Products Offered
- -----------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
- -----------------------------
<PAGE>
- --------------------------------------------------------------------------------
Table Of Contents
- --------------------------------------------------------------------------------
Page
RISK/RETURN SUMMARY ........................................................ 3
Investment Grade Funds ..................................................... 4
Corporate Bond Funds ....................................................... 8
Multi-Sector Fund .......................................................... 10
Global Bond Funds .......................................................... 11
Summary of Principal Risks ................................................. 14
Principal Risks by Fund .................................................... 16
FEES AND EXPENSES OF THE FUNDS ............................................. 17
GLOSSARY ................................................................... 19
DESCRIPTION OF THE FUNDS ................................................... 20
Investment Objectives and Principal Policies ............................... 20
Description of Additional Investment Practices ............................. 27
Additional Risk Considerations ............................................. 37
MANAGEMENT OF THE FUNDS .................................................... 40
PURCHASE AND SALE OF SHARES ................................................ 43
How The Funds Value Their Shares ........................................... 43
How To Buy Shares .......................................................... 43
How To Exchange Shares ..................................................... 43
How To Sell Shares ......................................................... 43
DIVIDENDS, DISTRIBUTIONS AND TAXES ......................................... 44
DISTRIBUTION ARRANGEMENTS .................................................. 45
GENERAL INFORMATION ........................................................ 46
FINANCIAL HIGHLIGHTS ....................................................... 47
APPENDIX A: BOND RATINGS ................................................... 54
APPENDIX B: GENERAL INFORMATION ABOUT
CANADA, MEXICO AND ARGENTINA ............................................. 57
The Funds' investment adviser is Alliance Capital Management L.P., a global
investment manager providing diversified services to institutions and
individuals through a broad line of investments including more than 100 mutual
funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Alliance Bond
Funds. You will find additional information about each Fund, including a
detailed description of the risks of an investment in each Fund, after this
Summary.
The Risk/Return Summary describes the Funds' objectives, principal investment
strategies, principal risks and fees. Each Fund's Summary page includes a short
discussion of some of the principal risks of investing in that Fund. A further
discussion of these and other risks is on pages 14 - 16.
More detailed descriptions of the Funds, including the risks associated with
investing in the Funds, can be found further back in this Prospectus. Please be
sure to read this additional information BEFORE you invest. Each of the Funds
may at times use certain types of investment derivatives such as options,
futures, forwards, and swaps. The use of these techniques involves special risks
that are discussed in this Prospectus.
The Risk/Return Summary includes a table for each Fund showing its average
annual returns and a bar chart showing its annual returns. The table and the bar
chart provide an indication of the historical risk of an investment in each Fund
by showing:
o how the Fund's average annual returns for one, five, and 10 years (or over
the life of the Fund if the Fund is less than 10 years old) compare to
those of a broad based securities market index; and
o changes in the Fund's performance from year to year over 10 years (or over
the life of the Fund if the Fund is less than 10 years old).
A Fund's past performance, of course, does not necessarily indicate how it will
perform in the future. As with all investments, you may lose money by investing
in the Funds.
3
<PAGE>
INVESTMENT GRADE FUNDS
The Investment Grade Funds offer a selection of alternatives to investors
seeking high current income consistent with the preservation of capital through
investments primarily in investment grade (rated Baa or BBB or above)
securities.
Alliance U.S. Government Portfolio
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is a high level of current income that is
consistent with Alliance's determination of prudent investment risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in U.S. Government securities, including
mortgage-related securities, repurchase agreements and forward contracts
relating to U.S. Government securities. The Fund also may invest in non-U.S.
Government mortgage-related and asset-backed securities and in high grade debt
securities secured by mortgages on commercial real estate or residential rental
properties. The average weighted maturity of the Fund's investments varies
between one year or less and 30 years.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund may invest in mortgage-related
and asset-backed securities, it is subject to the risk that mortgage loans or
other obligations will be prepaid when interest rates decline, forcing the Fund
to reinvest in securities with lower interest rates. For this and other reasons,
mortgage-related and asset-backed securities may have significantly greater
price and yield volatility than traditional debt securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A -7.32% 5.03% 5.91%
- --------------------------------------------------------------------------------
Class B -6.52% 5.15% 5.95%
- --------------------------------------------------------------------------------
Class C -4.72% 5.18% 5.69%
- --------------------------------------------------------------------------------
Lehman Brothers
Government
Bond Index -2.23% 7.44% 7.48%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1999 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period.
Performance information for periods prior to the inception of Class B shares
(9/30/91) and Class C shares (5/3/93) is the performance of the Fund's Class A
shares adjusted to reflect the higher expense ratio of Class B and Class C
shares. The average annual total returns for Class B and Class C shares since
their actual inception dates were 4.97% and 3.73%, respectively. Index returns
for the comparable periods (which date from month-end following applicable Class
inception date) were 6.86% and 5.85%, respectively.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 91 92 93 94 95 96 97 98 99
- --------------------------------------------------------------------------------
7.86 15.74 6.03 9.72 -4.38 16.58 0.34 8.55 8.60 -3.21
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 6.12%, 3rd quarter, 1991; and Worst quarter was down -3.41%,
1st quarter, 1994.
4
<PAGE>
Alliance Limited Maturity Government Fund
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is the highest level of current income
consistent with low volatility of net asset value.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in U.S. Government securities, including
mortgage-related securities and repurchase agreements relating to U.S.
Government securities. 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 Alliance's assessment of relative
yields on securities of different maturities and the expected effect of changes
in interest rates on the market value of the Fund's portfolio. At all times,
however, each of the Fund's securities has either a remaining maturity of not
more than 10 years or a duration not exceeding that of a ten-year Treasury note.
The Fund also may invest up to 35% of its total assets in:
o high-quality asset-backed securities, including mortgage-related
securities that are not U.S. Government securities;
o treasury securities issued by private issuers;
o certificates of deposit, bankers' acceptances, and interest-bearing
savings deposits of banks with assets of more than $1 billion;
o higher quality commercial paper or, if unrated, commercial paper issued by
companies that have high-quality debt issues outstanding; and
o high-quality debt securities of corporate issuers.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, leveraging risk, liquidity risk and market risk. Because the Fund
may invest in mortgage-related and asset-backed securities, it is subject to the
risk that mortgage loans or other obligations will be prepaid when interest
rates decline, forcing the Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed securities
may have significantly greater price and yield volatility than traditional debt
securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year 5 Years Inception
- --------------------------------------------------------------------------------
Class A -5.11% 3.82% 3.75%
- --------------------------------------------------------------------------------
Class B -4.57% 3.94% 3.59%
- --------------------------------------------------------------------------------
Class C -2.69% 3.95% 3.60%
- --------------------------------------------------------------------------------
Lehman Brothers
Government
Bond Index -2.23% 7.44% 6.53%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1999 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A and Class B shares (6/1/92). Since Inception index return is from
month-end of inception of Class A and Class B shares.
Performance information for periods prior to the inception of Class C shares
(5/3/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total return for
Class C shares since its actual inception date was 3.29%. The index return for
the comparable period (which dates from month-end following the Class C
inception date) was 5.85%.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 91 92 93 94 95 96 97 98 99
- --------------------------------------------------------------------------------
n/a n/a n/a 6.21 0.26 7.08 4.01 7.03 6.70 -0.93
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 4.21%, 3rd quarter, 1998; and Worst quarter was down -1.06%,
2nd quarter, 1999.
5
<PAGE>
Alliance Mortgage Securities Income Fund
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is a high level of current income to the extent
consistent with prudent investment risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in a diversified portfolio of mortgage-related
securities, including collateralized mortgage obligations or CMOs. The Fund
normally invests all of its assets in securities that are rated at least BBB- by
S&P or, if unrated, are of comparable quality. The average weighted maturity of
the Fund's portfolio of debt securities is expected to vary between two and ten
years.
The Fund also may invest up to 35% of its total assets in:
o U.S. Government securities;
o qualifying bank deposits;
o prime commercial paper or, if unrated, commercial paper issued by
companies that have high-quality debt issues outstanding;
o high-grade debt securities secured by mortgages on commercial real estate
or residential rental properties; and
o high-grade asset-backed securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, leveraging risk, derivatives risk, and market risk. Because the
Fund may invest in mortgage-related securities, it is subject to the risk that
mortgage loans will be prepaid when interest rates decline, forcing the Fund to
reinvest in securities with lower interest rates. For this and other reasons,
mortgage-related securities may have significantly greater price and yield
volatility than traditional debt securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A -3.50% 5.88% 6.62%
- --------------------------------------------------------------------------------
Class B -2.81% 6.01% 6.59%
- --------------------------------------------------------------------------------
Class C -0.81% 6.03% 6.34%
- --------------------------------------------------------------------------------
Lehman Brothers
Mortgage-Backed
Securities Index 1.86% 7.98% 7.78%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1999 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period.
Performance information for periods prior to the inception of Class B shares
(1/30/92) and Class C shares (5/3/93) is the performance of the Fund's Class A
shares adjusted to reflect the higher expense ratio of Class B and Class C
shares. The average annual total returns for Class B and Class C shares since
their actual inception dates were 4.99% and 4.05%, respectively. Index returns
for the comparable periods (which date from month-end following applicable Class
inception date) were 6.69% and 6.16%, respectively.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 91 92 93 94 95 96 97 98 99
- --------------------------------------------------------------------------------
10.95 15.44 7.73 10.14 -6.14 15.35 4.23 8.40 5.82 0.79
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 5.90%, 4th quarter, 1990; and Worst quarter was down -4.30%,
1st quarter, 1994.
6
<PAGE>
Alliance Quality Bond Portfolio
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is high current income consistent with
preservation of capital by investing in investment grade fixed-income
securities.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund invests in readily marketable securities that do not involve undue risk
of capital. The Fund normally invests all of its assets in securities that are
rated at least BBB- by S&P or, if unrated, are of comparable quality. The Fund
has the flexibility to invest in long- and short-term fixed-income securities
depending on Alliance's assessment of prospective cyclical interest rate
changes.
The Fund also may:
o use derivatives strategies;
o invest in convertible debt securities, preferred stock and dividend-paying
stocks;
o invest in U.S. Government obligations; and
o invest in foreign fixed-income securities.
The principal risks of investing in the Fund are interest rate risk, credit
risk, derivatives risk and market risk. To the extent the Fund invests in
foreign securities, it has foreign risk and currency risk.
BAR CHART AND PERFORMANCE TABLE
There is no bar chart or performance table for the Fund because it has not
completed a full calendar year of operations.
7
<PAGE>
CORPORATE BOND FUNDS
The Corporate Bond Funds offer a selection of alternatives to investors seeking
to maximize current income through investments in corporate bonds.
Alliance Corporate Bond Portfolio
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is primarily to maximize income over the long
term to the extent 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.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in corporate bonds. The Fund may invest up to 50% of
its total assets in foreign debt securities, primarily corporate debt securities
and sovereign debt obligations. All of the Fund's investments, whether foreign
or domestic, will be U.S. Dollar denominated. The Fund also may invest in
income-producing equity securities. While the Fund invests primarily (currently
65%) in investment grade debt securities, it also may invest a significant
amount of its total assets in lower-rated debt securities. The average weighted
maturity of the Fund's investments varies between one year or less and 30 years.
The Fund pursues a more aggressive investment strategy than other corporate bond
funds. The Fund's investments tend to have a relatively long average weighted
maturity and duration. The Fund emphasizes both foreign corporate and sovereign
debt obligations, as well as corporate bonds that are expected to benefit from
improvements in their issuers' credit fundamentals.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund emphasizes investments with a
relatively long average maturity and duration, its returns may be more volatile
than other corporate bond funds. To the extent the Fund invests in lower-rated
securities, your investment is subject to more credit risk than an investment in
a fund that invests solely in higher-rated securities. The Fund's investments in
foreign debt obligations have foreign risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A -2.43% 8.96% 9.51%
- --------------------------------------------------------------------------------
Class B -1.56% 9.17% 9.45%
- --------------------------------------------------------------------------------
Class C 0.24% 9.17% 9.23%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond
Index -0.82% 7.73% 7.70%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1999 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period.
Performance information for periods prior to the inception of Class B shares
(1/8/93) and Class C shares (5/3/93) is the performance of the Fund's Class A
shares adjusted to reflect the higher expense ratio of Class B and Class C
shares. The average annual total returns for Class B and Class C shares since
their actual inception dates were 8.34% and 6.91%, respectively. Index returns
for the comparable periods (which date from month-end following applicable class
inception date) were 6.21% and 6.05%, respectively.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 91 92 93 94 95 96 97 98 99
- --------------------------------------------------------------------------------
5.54 18.05 13.07 31.09 -12.75 27.98 10.02 11.81 -0.03 1.94
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 15.61%, 2nd quarter, 1995; and Worst quarter was down
- -8.43%, 1st quarter, 1994.
8
<PAGE>
Alliance High Yield Fund
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is to achieve a high total return by maximizing
current income and, to the extent consistent with that objective, capital
appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund primarily invests in high yield, below investment grade debt
securities, commonly known as "junk bonds." The Fund seeks to maximize current
income by taking advantage of market developments, yield disparities, and
variations in the creditworthiness of issuers.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund invests in lower-rated
securities, it has significantly more risk than other types of bond funds and
its returns will be more volatile. The Fund's investments in foreign securities
have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year Inception
- --------------------------------------------------------------------------------
Class A -5.95% 5.30%
- --------------------------------------------------------------------------------
Class B -6.10% 5.66%
- --------------------------------------------------------------------------------
Class C -3.47% 6.26%
- --------------------------------------------------------------------------------
First Boston
High Yield Index 3.28% 5.13%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1999 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A, Class B and Class C shares (4/22/97). Since Inception index return
is from month-end of inception of Class A, Class B and Class C shares.
BAR CHART
- --------------------------------------------------------------------------------
The annual return in the bar chart is for the Fund's Class A shares and does not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 91 92 93 94 95 96 97 98 99
- --------------------------------------------------------------------------------
n/a n/a n/a n/a n/a n/a n/a n/a -1.96 -1.79
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 6.29%, 1st quarter, 1998; and Worst quarter was down -9.63%,
3rd quarter, 1998.
9
<PAGE>
MULTI-SECTOR FUND
The Multi-Sector Fund offers investors seeking high current income the
alternative of investing in a variety of traditional and non-traditional fixed
income sectors based on Alliance's evaluation of changes in major economic and
credit cycles around the world.
Alliance Global Strategic Income Trust
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is primarily a high level of current income and,
secondarily, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund primarily invests in debt securities of U.S. and non-U.S. companies,
U.S. Government and foreign governments, and supranational entities. The Fund's
foreign investments are generally denominated in foreign currencies. The Fund,
however, generally seeks to hedge currency risk. The Fund normally invests at
least 65% of its total assets in debt securities of companies located in at
least three countries, one of which may be the United States. The Fund limits
its investments in any one foreign country to 25% of its total assets.
The Fund invests at least 65% of its total assets in investment grade
securities, but also may invest up to 35% of its total assets in lower-rated
securities. The average weighted maturity of the Fund's investments varies
between five and 30 years.
The Fund may use significant borrowings and reverse repurchase agreements and
dollar rolls for leverage. The Fund also may:
o use derivatives strategies;
o invest in structured securities;
o invest in Eurodollar instruments and foreign currencies;
o invest in asset-backed and mortgage-related securities;
o enter into repurchase agreements; and
o invest in floating, variable, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, and leveraging risk. The Fund's investments in foreign
issuers have foreign risk and currency risk. To the extent the Fund invests in
lower-rated securities, your investment is subject to more risk than an
investment in a fund that invests primarily in higher-rated securities. The
Fund's use of derivatives strategies has derivatives risk. In addition, the Fund
is "non-diversified," meaning that it invests more of its assets in a smaller
number of issuers than many other funds. Changes in the value of a single
security may have a more significant effect, either negative or positive, on the
Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year Inception
- --------------------------------------------------------------------------------
Class A 3.05% 10.20%
- --------------------------------------------------------------------------------
Class B 3.00% 10.47%
- --------------------------------------------------------------------------------
Class C 5.93% 10.65%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index -0.82% 5.13%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1999 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A shares (1/9/96). Since Inception index return is from month-end of
inception of Class A shares.
Performance information for periods prior to the inception of Class B shares and
Class C shares (3/21/96) is the performance of the Fund's Class A shares
adjusted to reflect the higher expense ratio of Class B and Class C shares. The
average annual total returns for Class B and Class C shares since their actual
inception dates were 10.57% and 10.76%, respectively. The index return for the
comparable period (which date from month-end following applicable Class
inception date) was 6.06%.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 91 92 93 94 95 96 97 98 99
- --------------------------------------------------------------------------------
n/a n/a n/a n/a n/a n/a n/a 14.96 1.99 7.47
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 6.86%, 2nd quarter, 1997; and Worst quarter was down -5.68%,
3rd quarter, 1998.
10
<PAGE>
GLOBAL BOND FUNDS
The Global Bond Funds offer a selection of alternatives to investors seeking a
high level of current income through investments primarily in foreign government
securities.
Alliance North American Government Income Trust
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is 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
governments of the United States, Canada, or Mexico, their political
subdivisions (including Canadian Provinces but excluding states of the United
States), agencies, instrumentalities or authorities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund primarily invests in debt securities issued or guaranteed by: (i) the
federal governments of the United States, Canada, and Mexico; (ii)
government-related entities in the United States, Canada, and Mexico; and (iii)
the provincial governments of Canada and Mexico. The Fund also invests
significantly in debt securities issued by Argentine government entities. The
Fund also may invest in debt securities of other Central and South American
countries. These investments are investment grade securities generally
denominated in each country's currency, but at least 25% of the Fund's assets
are in U.S. Dollar-denominated securities. The average weighted maturity of the
Fund's portfolio is expected to vary between one year or less and 30 years.
The Fund may use significant borrowings for leverage. The Fund also may:
o use derivative strategies; and
o invest in variable, floating, and inverse floating rate instruments.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk and leveraging risk. The Fund's investments in debt
securities of Canada, Mexico, and Argentina have foreign risk and currency risk.
Your investment also has the risk that market changes or other events affecting
these countries, including potential instability and unpredictable economic
conditions, may have a more significant effect on the Fund's net asset value. In
addition, the Fund is "non-diversified," meaning that it invests more of its
assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either negative
or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year 5 Years Inception
- --------------------------------------------------------------------------------
Class A 3.23% 15.54% 7.89%
- --------------------------------------------------------------------------------
Class B 4.10% 15.52% 7.60%
- --------------------------------------------------------------------------------
Class C 6.15% 15.56% 7.62%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond
Index -0.82% 7.73% 6.94%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1999 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A and Class B shares (3/27/92). Since Inception index return is from
month-end of inception of Class A and Class B shares.
Performance information for periods prior to the inception of Class C shares
(5/3/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total return for
Class C shares since its inception date was 7.11%. The index return for the
comparable period (which dates from month-end following the Class C inception
date) was 6.05%.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 91 92 93 94 95 96 97 98 99
- --------------------------------------------------------------------------------
n/a n/a n/a 18.64 -30.24 31.01 24.20 14.98 6.530 7.87
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 17.23%, 2nd quarter, 1995; and Worst quarter was down
- -23.19%, 4th quarter, 1994.
11
<PAGE>
Alliance Global Dollar Government Fund
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is a high level of current income and,
secondarily, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in sovereign debt obligations, although it may invest
up to 35% of its total assets in U.S. and non-U.S. corporate debt securities.
The Fund invests substantially all of its assets in lower-rated securities or
unrated securities of equivalent quality. The Fund's investments in sovereign
debt obligations and corporate debt securities are U.S. Dollar-denominated.
The Fund's non-U.S. investments emphasize emerging markets and developing
countries. The Fund limits its investments in the sovereign debt obligations of
any one country to less than 25% of its total assets, although the Fund may
invest up to 30% of its total assets in the sovereign debt obligations of and
corporate fixed-income securities of issuers in each of Argentina, Brazil,
Mexico, Morocco, the Philippines, Russia and Venezuela. The Fund expects that it
will not invest more than 10% of its total assets in any other single foreign
country.
The average weighted maturity of the Fund's investments ranges from nine years
to longer than 25 years, depending upon the type of securities.
The Fund may use significant borrowings and reverse repurchase agreements and
dollar rolls for leverage. The Fund also may use derivatives strategies; invest
in structured securities; invest in fixed and floating rate loans to sovereign
debt issuers; enter into repurchase agreements; and invest in variable,
floating, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, derivatives risk and leveraging risk. Because the Fund
invests in lower-rated securities, it has significantly more risk than other
types of bond funds and its returns will be more volatile. The Fund's
investments in foreign securities have foreign risk and country or geographic
risk. Because the Fund invests in emerging markets and in developing countries,
the Fund's returns will be significantly more volatile and may differ
substantially from returns in the U.S. bond markets generally. Your investment
also has the risk that market changes or other factors affecting emerging
markets and developing countries, including political instability and
unpredictable economic conditions, may have a significant effect on the Fund's
net asset value. In addition, the Fund is "non-diversified," meaning that it
invests more of its assets in a smaller number of issuers than many other funds.
Changes in the value of a single security may have a more significant effect,
either negative or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
instrument in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year 5 Years Inception
- --------------------------------------------------------------------------------
Class A 21.36% 12.52% 7.91%
- --------------------------------------------------------------------------------
Class B 22.78% 12.59% 7.86%
- --------------------------------------------------------------------------------
Class C 24.96% 12.68% 7.91%
- --------------------------------------------------------------------------------
J.P. Morgan
Emerging
Markets Bond
Index 21.56% 16.54% 11.65%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1999 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A, Class B and Class C shares (2/25/94). Since Inception index return
is from month-end of inception of Class A, Class B and Class C shares.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 91 92 93 94 95 96 97 98 99
- --------------------------------------------------------------------------------
n/a n/a n/a n/a n/a 25.47 39.44 9.01 -22.05 26.34
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 26.16%, 2nd quarter, 1995; and Worst quarter was down
- -28.68%, 3rd quarter, 1998.
12
<PAGE>
Alliance Multi-Market Strategy Trust
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is the highest level of current income that is
available, consistent with what Alliance considers to be prudent investment
risk, from a portfolio of high-quality debt securities having remaining
maturities of not more than five years.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests in high-quality debt securities having remaining maturities of
not more than five years, with a high proportion of investments in money market
instruments. The Fund seeks investment opportunities in foreign, as well as
domestic, securities markets. Normally, at least 70% of the Fund's debt
securities will be denominated in foreign currencies. The Fund limits its
investments in a single currency other than the U.S. Dollar to 25% of its net
assets, except for the Euro in which the Fund may invest up to 50% of its net
assets.
The Fund concentrates at least 25% of its total assets in debt instruments
issued by domestic and foreign banking companies. The Fund may use significant
borrowings for leverage. The Fund also may:
o use derivatives strategies;
o invest in prime commercial paper or unrated paper of equivalent quality;
o enter into repurchase agreements; and
o invest in variable, floating, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, and leveraging risk. The Fund's investments in debt
securities denominated in foreign currencies have foreign risk and currency
risk. In addition, the Fund is "non-diversified" meaning that it invests more of
its assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either negative
or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year 5 Years Inception
- --------------------------------------------------------------------------------
Class A -1.74% 6.50% 3.36%
- --------------------------------------------------------------------------------
Class B -1.04% 6.54% 3.08%
- --------------------------------------------------------------------------------
Class C 0.86% 6.55% 3.08%
- --------------------------------------------------------------------------------
Merrill Lynch
1-3 Year
Government
Bond Index 3.12% 6.52% 6.10%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table are for the periods
ended December 31, 1999 and reflect imposition of the maximum front-end or
contingent deferred sales charges and conversion of Class B shares to Class A
shares after the applicable period. Since Inception returns are from inception
of Class A and Class B shares (5/29/91). Since Inception index return is from
month-end of inception of Class A and Class B shares.
Performance information for periods prior to the inception of Class C shares
(5/3/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total return for
Class C shares since its actual inception date was 3.62%. The index return for
the comparable period (which dates from month-end following the Class C
inception date) was 5.44%.
BAR CHART
- --------------------------------------------------------------------------------
The annual returns in the bar chart are for the Fund's Class A shares and do not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 91 92 93 94 95 96 97 98 99
- --------------------------------------------------------------------------------
n/a n/a -2.49 10.91 -12.77 6.00 16.19 6.71 6.17 2.58
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 5.46%, 2nd quarter, 1995; and Worst quarter was down -8.18%,
4th quarter, 1994.
13
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Fund will change with changes in the values of
that Fund's investments. Many factors can affect those values. In this Summary,
we describe the principal risks that may affect a Fund's portfolio as a whole.
These risks and the Funds subject to the risks appear in a chart at the end of
this section. All Funds could be subject to additional principal risks because
the types of investments made by each Fund can change over time. This Prospectus
has additional descriptions of the types of investments that appear in bold type
in the discussions under "Description of Additional Investment Practices" or
"Additional Risk Considerations." These sections also include more information
about the Funds, their investments, and related risks.
INTEREST RATE RISK
This is the risk that changes in interest rates will affect the value of a
Fund's investments in debt securities, such as bonds, notes and asset-backed
securities, or other income-producing securities. Debt securities are
obligations of the issuer to make payments of principal and/or interest on
future dates. All of the Funds have interest rate risk. Increases in interest
rates may cause the value of a Fund's investments to decline.
Even Funds such as the Alliance U.S. Government, Alliance Limited Maturity
Government and Alliance Quality Bond that invest a substantial portion of their
assets in the highest quality debt securities, including U.S. Government
securities, are subject to interest rate risk. Interest rate risk generally is
greater for those Funds that invest a significant portion of their assets in
lower-rated securities or comparable unrated securities such as Alliance
Corporate Bond, Alliance High Yield, Alliance Global Strategic Income and
Alliance Global Dollar Government.
Interest rate risk is generally greater for Funds that invest in debt securities
with longer maturities, such as Alliance Corporate Bond, Alliance Global
Strategic Income, Alliance North American Government Income and Alliance Global
Dollar Government. This risk is compounded for the Funds that invest a
substantial portion of their assets in mortgage-related or other asset-backed
securities, such as Alliance U.S. Government, Alliance Mortgage Securities
Income, and Alliance Quality Bond. The value of these securities is affected
more by changes in interest rates because when interest rates rise, the
maturities of these types of securities tend to lengthen and the value of the
securities decreases more significantly. In addition, these types of securities
are subject to prepayment when interest rates fall, which generally results in
lower returns because the Funds must reinvest their assets in debt securities
with lower interest rates. Increased interest rate risk also is likely for
Alliance Quality Bond, Alliance Corporate Bond, Alliance Global Strategic Income
and Alliance Global Dollar Government, which invest in debt securities paying no
current interest, such as zero coupon, principal-only, and interest-only
securities, or paying non-cash interest in the form of other debt securities
(payment-in-kind securities).
CREDIT RISK
This is the risk that the issuer or the guarantor of a debt security, or the
counterparty to a derivatives contract, will be unable or unwilling to make
timely payments of interest or principal or to otherwise honor its obligations.
The degree of risk for a particular security may be reflected in its credit
rating. Credit risk is greater for Funds such as Alliance Mortgage Securities
Income, Alliance Corporate Bond, Alliance High Yield, Alliance Global Strategic
Income and Alliance Global Dollar Government that invest in lower-rated
securities. These debt securities and similar unrated securities (commonly known
as "junk bonds") have speculative elements or are predominantly speculative
credit risks.
Funds such as Alliance High Yield and Alliance Global Dollar Government may be
subject to greater credit risk because they invest in debt securities issued in
connection with corporate restructurings by highly leveraged issuers and in debt
securities that are not current in the payment of interest or principal or are
in default. Funds such as Alliance Quality Bond, Alliance North American
Government Income, Alliance Global Dollar Government and Alliance Multi-Market
Strategy that invest in foreign securities also are subject to increased credit
risk because of the difficulties of requiring foreign entities, including
issuers of sovereign debt obligations, to honor their contractual commitments,
and because a number of foreign governments and other issuers are already in
default.
MARKET RISK
This is the risk that the value of a Fund's investments will fluctuate as the
bond markets fluctuate and that prices overall will decline over shorter or
longer-term periods. All of the Funds are subject to this risk.
FOREIGN RISK
This is the risk of investments in issuers located in foreign countries. All
Alliance Funds that invest in foreign securities are subject to this risk,
including Alliance Limited Maturity Government, Alliance Quality Bond, Alliance
Corporate Bond, Alliance High Yield, Alliance Global Strategic Income, Alliance
North American Government Income, Alliance Global Dollar Government and Alliance
Multi-Market Strategy. These Funds' investments in foreign securities may
experience more rapid and extreme changes in value than investments in
securities of U.S. companies. The securities markets of many foreign countries
are relatively small, with a limited number of companies representing a small
number of securities. In addition, foreign companies usually are not subject to
the same
14
<PAGE>
degree of regulation as U.S. companies. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases significantly, from U.S.
standards. Nationalization, expropriation or confiscatory taxation, currency
blockage, political changes, or diplomatic developments could adversely affect a
Fund's investments in a foreign country. In the event of a nationalization,
expropriation, or other confiscation, a Fund could lose its entire investment.
Political, social, and economic changes in a particular country could result in
increased risks for Alliance Global Strategic Income and Alliance Global Dollar
Government, which invest a substantial portion of their assets in sovereign debt
obligations, including Brady Bonds. The investments in emerging market countries
of Alliance North American Government Income and Alliance Global Dollar
Government are likely to involve significant risks. These countries, such as
Mexico, Argentina, Brazil, Morocco, the Philippines, Russia, and Venezuela, have
a history of political and economic instability.
COUNTRY OR GEOGRAPHIC RISK
This is the risk of investments in issuers located in a particular country or
geographic region. Market changes or other factors affecting that country or
region, including political instability and unpredictable economic conditions,
may have a particularly significant effect on a Fund's net asset value. The
Funds particularly subject to this risk are Alliance North American Government
Income and Alliance Multi-Market Strategy.
CURRENCY RISK
This is the risk that fluctuations in the exchange rates between the U.S. Dollar
and foreign currencies may negatively affect the value of a Fund's investments.
Funds such as Alliance Limited Maturity Government, Alliance Quality Bond,
Alliance High Yield, Alliance Global Strategic Income, Alliance North American
Government Income and Alliance Multi-Market Strategy that invest in securities
denominated in, and/or companies receiving revenues in, foreign currencies are
subject to currency risk.
DIVERSIFICATION RISK
Most analysts believe that overall risk can be reduced through diversification,
while concentration of investments in a small number of securities increases
risk. Alliance Global Strategic Income, Alliance North American Government
Income, Alliance Global Dollar Government and Alliance Multi-Market Strategy are
not "diversified." This means that they can invest more of their assets in a
relatively small number of issuers with greater concentration of risk. Factors
affecting these issuers can have a more significant effect on the Fund's net
asset value. Similarly, a Fund that concentrates its investments in a particular
industry, such as Alliance Multi-Market Strategy, which invests at least 25% of
its assets in the banking industry, could have increased risks because factors
affecting that industry could have a more significant effect on the value of the
Fund's investments.
LEVERAGING RISK
When a Fund borrows money or otherwise leverages its portfolio, the value of an
investment in that Fund will be more volatile and all other risks will tend to
be compounded. Each Fund may create leverage by using reverse repurchase
agreements, inverse floating rate instruments or derivatives, or by borrowing
money.
DERIVATIVES RISK
All Funds may use derivatives, which are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, reference rate, or
index. Alliance will sometimes use derivatives as part of a strategy designed to
reduce other risks. Generally, however, the Funds use derivatives as direct
investments to earn income, enhance yield and broaden Fund diversification,
which entail greater risk than if used solely for hedging purposes. In addition
to other risks such as the credit risk of the counterparty, derivatives involve
the risk of difficulties in pricing and valuation and the risk that changes in
the value of the derivative may not correlate perfectly with relevant underlying
assets, rates, or indices. Funds that invest in structured securities, such as
Alliance Corporate Bond, Alliance Global Strategic Income and Alliance Global
Dollar Government, could have increased derivatives risk.
LIQUIDITY RISK
Liquidity risk exists when particular investments are difficult to purchase or
sell, possibly preventing a Fund from selling out of these illiquid securities
at an advantageous price. All of the Funds are subject to liquidity risk because
derivatives and securities involving substantial interest rate and credit risk
tend to involve greater liquidity risk. In addition, liquidity risk tends to
increase to the extent a Fund invests in debt securities whose sale may be
restricted by law or by contract.
MANAGEMENT RISK
Each Fund is subject to management risk because it is an actively managed
investment Fund. Alliance will apply its investment techniques and risk analyses
in making investment decisions for the Funds, but there can be no guarantee that
its decisions will produce the desired results. In some cases, derivative and
other investment techniques may be unavailable or Alliance may determine not to
use them, possibly even under market conditions where their use could benefit a
Fund.
15
<PAGE>
PRINCIPAL RISKS BY FUND
The following chart summarizes the Principal Risks of each Fund. Risks not
marked for a particular Fund may, however, still apply to some extent to that
Fund at various times.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Country or Diversi- Lev- Deriva- Liquid-
Interest Credit Market Foreign Geographic Currency fication eraging tives ity Manage-
Fund Rate Risk Risk Risk Risk Risk Risk Risk Risk Risk Risk ment Risk
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance U.S. Government o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Limited
Maturity Government o o o o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Mortgage
Securities Income o o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Quality Bond o o o o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Corporate Bond o o o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance High Yield o o o o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Global
Strategic Income o o o o o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance North American
Government Income o o o o o o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Global
Dollar Government o o o o o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
Alliance Multi-Market
Strategy o o o o o o o o o o o
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
Fees and Expenses of the Funds
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Funds.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
Class A Shares Class B Shares(a) Class B Shares(b) Class C Shares
-------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 4.25% None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) None 3.0%* 4.0%** 1.0%***
Exchange Fee None None None None
</TABLE>
- --------------------------------------------------------------------------------
(a) For all Funds except Alliance High Yield Fund and Alliance Global
Strategic Income Trust.
(b) For Alliance High Yield Fund and Alliance Global Strategic Income Trust.
* Class B shares automatically convert to Class A shares after 6 years. The
CDSC decreases over time. For Class B shares the CDSC decreases 1.00%
annually to 0% after the 3rd year.
** Class B shares automatically convert to Class A shares after 8 years. The
CDSC decreases over time. For Class B shares the CDSC decreases 1.00%
annually to 0% after the 4th year.
*** For Class C shares the CDSC is 0% after the first year.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) and
EXAMPLES
The Examples are to help you compare the cost of investing in a Fund with the
cost of investing in other funds. They assume that you invest $10,000 in a Fund
for the time periods indicated and then redeem all of your shares at the end of
those periods. They also assume that your investment has a 5% return each year,
that the Fund's operating expenses stay the same, and that all dividends and
distributions are reinvested. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Operating Expenses Examples
- ----------------------------------------------------------- -----------------------------------------------------------------------
Alliance U.S. Government
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .56% .56% .56% After 1 Year $ 539 $ 490 $ 190 $ 290 $ 190
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 781 $ 688 $ 588 $ 588 $ 588
Interest Expense .09% .08% .09% After 5 Years $ 1,041 $ 1,011 $ 1,011 $ 1,011 $ 1,011
Other Expenses .22% .23% .22% After 10 Years $ 1,785 $ 1,840 $ 1,840 $ 2,190 $ 2,190
---- ---- ----
Total Fund Operating Expenses 1.17% 1.87% 1.87%
==== ==== ====
<CAPTION>
Alliance Limited Maturity
Government Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .65% .65% .65% After 1 Year $ 665 $ 626 $ 326 $ 424 $ 324
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 1,165 $ 1,095 $ 995 $ 989 $ 989
Interest Expense .86% .89% .88% After 5 Years $ 1,689 $ 1,688 $ 1,688 $ 1,678 $ 1,678
Other Expenses .67% .69% .68% After 10 Years $ 3,121 $ 3,203 $ 3,203 $ 3,512 $ 3,512
---- ---- ----
Total Fund Operating Expenses 2.48% 3.23% 3.21%
==== ==== ====
<CAPTION>
Alliance Mortgage Securities
Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .53% .53% .53% After 1 Year $ 613 $ 562 $ 262 $ 367 $ 267
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 1,005 $ 905 $ 805 $ 820 $ 820
Interest Expense .77% .70% .77% After 5 Years $ 1,423 $ 1,375 $ 1,375 $ 1,400 $ 1,400
Other Expenses .33% .36% .34% After 10 Years $ 2,583 $ 2,617 $ 2,617 $ 2,973 $ 2,973
---- ---- ----
Total Fund Operating Expenses 1.93% 2.59% 2.64%
==== ==== ====
<CAPTION>
Alliance Quality Bond
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .55% .55% .55% After 1 Year $ 521 $ 471 $ 171 $ 271 $ 171
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years@ $ 961 $ 872 $ 772 $ 772 $ 772
Other Expenses 1.30% 1.30% 1.30% After 5 Years@ $ 1,427 $ 1,400 $ 1,400 $ 1,400 $ 1,400
---- ---- ----
Total Fund Operating Expenses 2.15% 2.85% 2.85% After 10 Years@ $ 2,714 $ 2,770 $ 2,770 $ 3,092 $ 3,092
==== ==== ====
Waiver and/or Expense
Reimbursement +++ (1.17)% (1.17)% (1.17)%
---- ---- ----
Net Expenses .98% 1.68% 1.68%
==== ==== ====
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- ----------------------------------------------------------- -----------------------------------------------------------------------
Alliance Corporate Bond
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .55% .55% .55% After 1 Year $ 533 $ 485 $ 185 $ 284 $ 184
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 763 $ 673 $ 573 $ 569 $ 569
Other Expenses .26% .27% .26% After 5 Years $ 1,011 $ 985 $ 985 $ 980 $ 980
---- ---- ----
Total Fund Operating Expenses 1.11% 1.82% 1.81% After 10 Years $ 1,719 $ 1,780 $ 1,780 $ 2,127 $ 2,127
==== ==== ====
<CAPTION>
Alliance High Yield Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .75% .75% .75% After 1 Year $ 553 $ 606 $ 206 $ 305 $ 205
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 823 $ 837 $ 637 $ 634 $ 634
Other Expenses .26% .28% .27% After 5 Years $ 1,113 $ 1,093 $ 1,093 $ 1,088 $ 1,088
---- ---- ----
Total Fund Operating Expenses 1.31% 2.03% 2.02% After 10 Years $ 1,937 $ 2,173 $ 2,173 $ 2,348 $ 2,348
==== ==== ====
<CAPTION>
Alliance Global Strategic
Income Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .75% .75% .75% After 1 Year $ 597 $ 650 $ 250 $ 349 $ 249
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 959 $ 970 $ 770 $ 767 $ 767
Other Expenses .72% .72% .71% After 5 Years $ 1,344 $ 1,316 $ 1,316 $ 1,311 $ 1,311
---- ---- ----
Total Fund Operating Expenses 1.77% 2.47% 2.46% After 10 Years $ 2,420 $ 2,634 $ 2,634 $ 2,796 $ 2,796
==== ==== ====
<CAPTION>
Alliance North American
Government Income Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees++++ .73% .73% .73% After 1 Year $ 628 $ 581 $ 281 $ 381 $ 281
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 1,052 $ 962 $ 862 $ 862 $ 862
Interest Expense .71% .70% .70% After 5 Years $ 1,501 $ 1,469 $ 1,469 $ 1,469 $ 1,469
Other Expenses .35% .35% .35% After 10 Years $ 2,743 $ 2,794 $ 2,794 $ 3,109 $ 3,109
---- ---- ----
Total Fund Operating Expenses 2.09% 2.78% 2.78%
==== ==== ====
<CAPTION>
Alliance Global Dollar
Government Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .75% .75% .75% After 1 Year $ 580 $ 534 $ 234 $ 333 $ 233
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 906 $ 821 $ 721 $ 718 $ 718
Other Expenses .54% .56% .55% After 5 Years $ 1,254 $ 1,235 $ 1,235 $ 1,230 $ 1,230
---- ---- ----
Total Fund Operating Expenses 1.59% 2.31% 2.30% After 10 Years $ 2,234 $ 2,301 $ 2,301 $ 2,636 $ 2,636
==== ==== ====
<CAPTION>
Alliance Multi-Market
Strategy Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
-------- -------- ------- -------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% After 1 Year $ 565 $ 518 $ 218 $ 318 $ 218
Distribution (12b-1) Fees .30% 1.00% 1.00% After 3 Years $ 861 $ 773 $ 673 $ 673 $ 673
Other Expenses .54% .55% .55% After 5 Years $ 1,178 $ 1,154 $ 1,154 $ 1,154 $ 1,154
---- ---- ----
Total Fund Operating Expenses 1.44% 2.15% 2.15% After 10 Years $ 2,076 $ 2,137 $ 2,137 $ 2,483 $ 2,483
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period and, with respect to shares held 10
years, conversion of Class B shares to Class A shares after 6 years, and
for Alliance High Yield Fund and Alliance Global Strategic Income Trust, 8
years.
+++ Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This
waiver extends through the end of the Fund's current fiscal year and may
be extended by Alliance for additional one year terms.
@ These examples assume that Alliance's agreement to waive management fees
and/or bear Fund expenses is not extended beyond its initial term.
++++ Represents .65 of 1% of the Fund's average daily adjusted total net
assets.
18
<PAGE>
- --------------------------------------------------------------------------------
Glossary
- --------------------------------------------------------------------------------
This Prospectus uses the following terms.
TYPES OF SECURITIES
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are bonds, debentures, corporate notes, and preferred
stocks that are convertible into common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
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.
Fixed-income securities are debt securities, convertible securities, and
preferred stocks, including floating rate and variable rate instruments.
Fixed-income securities may be rated (or, if unrated, for purposes of the Funds'
investment policies as may be determined by Alliance to be of equivalent
quality) 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 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.
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.
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, that 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.
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:
o ARMS, which are adjustable-rate mortgage securities;
o SMRS, which are stripped mortgage-related securities;
o CMOs, which are collateralized mortgage obligations;
o GNMA certificates, which are securities issued by the Government
National Mortgage Association or GNMA;
o FNMA certificates, which are securities issued by the Federal
National Mortgage Association or FNMA; and
o FHLMC certificates, which are securities issued by the Federal Home
Loan Mortgage Corporation or FHLMC.
Qualifying bank deposits are certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks that have total assets of more than
$1 billion and are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold under Rule 144A under the
Securities Act.
Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions, and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. 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. U.S. Government securities not backed by
the full faith and credit of the United States include certificates issued by
FNMA and FHLMC.
RATING AGENCIES AND RATED SECURITIES
Duff & Phelps is Duff & Phelps Credit Rating Company.
Fitch is Fitch IBCA, Inc.
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.
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."
Moody's is Moody's Investors Service, Inc.
NRSRO is a nationally recognized statistical rating organization.
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.
S&P is Standard & Poor's Ratings Services.
OTHER
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
19
<PAGE>
Duration is a measure that relates the price volatility of a security to changes
in interest rates. The duration of a debt security is the weighted average term
to maturity, expressed in years, of the present value of all future cash flows,
including coupon payments and principal repayments. Thus, by definition,
duration is always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
LIBOR is the London Interbank Offered Rate.
Securities Act is the Securities Act of 1933, as amended.
World Bank is the commonly used name for the International Bank for
Reconstruction and Development.
- --------------------------------------------------------------------------------
Description Of The Funds
- --------------------------------------------------------------------------------
This section of the Prospectus provides a more complete description of each
Fund's investment objectives and principal strategies and risks. Of course,
there can be no assurance that any Fund will achieve its investment objective.
Please note that:
o Additional discussion of the Funds' investments, including the risks of
the investments, can be found in the discussion under Description of
Additional Investment Practices following this section.
o The description of the principal risks for a Fund may include risks
described in the Summary of Principal Risks above. Additional information
about the risks of investing in a Fund can be found in the discussion
under Additional Risk Considerations.
o Additional descriptions of each Fund's strategies, investments, and risks
can be found in a Fund's Statement of Additional Information or SAI.
o 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.
INVESTMENT OBJECTIVES AND PRINCIPAL POLICIES
INVESTMENT GRADE FUNDS
The Investment Grade Funds offer investors high current income consistent with
preservation of capital by investing primarily in investment grade (rated Baa or
BBB or above) securities.
Alliance U.S. Government Portfolio
Alliance U.S. Government Portfolio seeks a high level of current income that is
consistent with Alliance's determination of prudent investment risk. As a matter
of fundamental policy, the Fund pursues its objective by investing at least 65%
of its total assets in U.S. Government securities, repurchase agreements and
forward contracts relating to U.S. Government securities. The Fund may invest
the remaining 35% of its total assets in non-U.S. Government mortgage-related
and asset-backed securities, including high-grade debt securities secured by
mortgages on commercial real estate or residential rental properties.
The Fund will not invest in any security rated below BBB or Baa. The Fund may
invest in unrated securities of equivalent quality to the rated securities in
which it may invest, as determined by Alliance. The Fund expects, but is not
required, to dispose of securities that are downgraded below BBB and Baa or, if
unrated, that are determined by Alliance to have undergone similar credit
quality deterioration.
The Fund also may:
o enter into reverse repurchase agreements and dollar rolls;
o enter into various hedging transactions, such as interest rate swaps,
caps, and floors;
o enter into forward contracts;
o purchase and sell futures contracts for hedging purposes;
o purchase call and put options on futures contracts or on securities for
hedging purposes; and
o enter into repurchase agreements.
Alliance Limited Maturity Government Fund
Alliance Limited Maturity Government Fund seeks the highest level of current
income, consistent with low volatility of net asset value. As a matter of
fundamental policy, the Fund normally invests at least 65% of its total assets
in U.S. Government securities, including mortgage-related securities and
repurchase agreements relating to U.S. Government securities.
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.
The Fund may invest up to 35% of its total assets in:
o high quality asset-backed securities, including mortgage-related
securities that are not U.S. Government securities;
o treasury securities issued by private corporate issuers;
o qualifying bank deposits;
20
<PAGE>
o higher quality commercial paper or, if unrated, issued by companies that
have high quality debt issues outstanding; and
o high quality debt securities of corporate issuers.
The Fund may invest up to 15% of its total assets in high-quality 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.
The amount of Fund investments in foreign debt securities will vary and may
include those of a number of foreign countries or, depending upon market
conditions, those of a single country.
The Fund also may:
o enter into futures contracts and purchase and write options on futures
contracts;
o enter into forward commitments;
o enter into interest rate swaps, caps, and floors;
o invest in Eurodollar instruments;
o purchase and write put and call options on foreign currencies;
o invest in variable, floating, and inverse floating rate instruments;
o use reverse repurchase agreements and dollar rolls;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
Alliance Mortgage Securities Income Fund
Alliance Mortgage Securities Income Fund seeks a high level of current income to
the extent consistent with prudent investment risk. The Fund maintains at least
65% of its total assets in mortgage-related securities, including CMOs. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between two and ten years.
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 these new types of securities.
The Fund normally invests all of its assets in securities that are rated at
least BBB- by S&P or Baa3 by Moody's or that are of comparable quality. In the
event that the credit rating of a security held by the Fund falls below
investment grade (or, if in the case of unrated securities, Alliance determines
that the quality of a security has deteriorated below investment grade), the
Fund will not be obligated to dispose of that security and may continue to hold
the security if, in the opinion of Alliance, such investment is appropriate in
the circumstances.
The Fund may invest up to 35% of its total assets in:
o U.S. Government securities;
o qualifying bank deposits;
o prime commercial paper or, if unrated, issued by companies that have an
outstanding high quality debt issue; and
o high-grade asset-backed securities.
The Fund also may:
o enter into forward commitments;
o purchase put and call options written by others and write covered put and
call options for hedging purposes;
o purchase high-grade debt securities secured by mortgages on commercial
real estate or residential rental properties;
o enter into interest rate swaps, caps, and floors;
o enter into interest rate futures contracts;
o invest in variable, floating, and inverse floating rate instruments;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
Alliance Quality Bond Portfolio
Alliance Quality Bond Portfolio seeks high current income consistent with
preservation of capital by investing in investment grade fixed-income
securities. In seeking to achieve its investment objective, the Fund invests in
readily marketable securities with relatively attractive yields that do not
involve undue risk of loss of capital. The Fund normally invests all of its
assets in securities that are rated at least BBB- by S&P or Baa3 by Moody's or
that are of comparable quality. The Fund normally maintains an average aggregate
quality rating of its portfolio securities of at least A (S&P and Moody's). The
Fund has the flexibility to invest in long- and short-term fixed-income
securities (including debt securities, convertible debt securities and U.S.
Government obligations) and preferred stocks based on Alliance's assessment of
prospective cyclical interest rate changes.
In the event that the credit rating of a security held by the Fund falls below
investment grade (or, if in the case of unrated securities, Alliance determines
that the quality of a security has deteriorated below investment grade), the
Fund will not be obligated to dispose of that security and may continue to hold
the security if, in the opinion of Alliance, such investment is appropriate in
the circumstances.
The Fund also may:
o purchase and sell interest rate futures contracts and options;
21
<PAGE>
o enter into interest rate swaps, caps and floors for hedging purposes;
o purchase put and call options and write covered put and call options on
securities it may purchase;
o write covered call options for cross-hedging purposes;
o invest in foreign fixed-income securities, but only up to 20% of its total
assets;
o enter into foreign currency futures contracts and related options;
o enter into forward foreign currency exchange contracts and options on
foreign currencies for hedging purposes;
o invest in CMOs;
o invest in zero coupon securities and "pay-in-kind" debentures; and
o make secured loans of portfolio securities of up to 50% of its total
assets.
CORPORATE BOND FUNDS
The Corporate Bond Funds offer a selection of alternatives to investors seeking
to maximize current income through investments in corporate bonds.
Alliance Corporate Bond Portfolio
Alliance Corporate Bond Portfolio seeks primarily to maximize income over the
long term to the extent 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 that
give promise of relatively attractive yields but do not involve substantial risk
of loss of capital. The Fund invests at least 65% of its net assets in debt
securities. Although the Fund invests at least 65% of its total assets in
corporate bonds, it also may invest in securities of non-corporate issuers. The
Fund expects that the average weighted maturity of its portfolio of fixed-income
securities will vary between one year or less and 30 years.
The Fund follows an investment strategy that in certain respects can be regarded
as more aggressive than the strategies of many other funds investing primarily
in corporate bonds. The Fund's investments normally tend to have a relatively
long average maturity and duration. The Fund places 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. In
recent years the Fund frequently has had 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.
The Fund's investments in fixed-income securities have no minimum rating
requirement, except the Fund expects that it will not retain a security that is
downgraded below B, or if unrated, determined to have undergone similar credit
quality deterioration after 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 Fund may invest the remainder of its assets in lower-rated fixed-income
securities. As of June 30, 1999, the Fund's investments were rated (or
equivalent quality):
o A or above 9.64%
o Baa or BBB 47.40%
o Ba or BB 37.26%
o B 1.82%
o CC 3.50%
o C .38%
o Unrated 0%
The Fund may invest up to 50% of its total assets in foreign debt securities,
which will consist primarily of corporate fixed-income securities and sovereign
debt obligations. The Fund invests no more than 15% of its total assets 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 with respect to 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 these limitations, the Fund has complete flexibility as to the types and
relative proportions of securities in which it will invest. 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. Substantially all of the Fund's investments, however, will be income
producing.
The Fund also may:
o invest in structured securities;
o 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;
o for hedging purposes, purchase put and call options written by others and
write covered put and call options;
o for hedging purposes, enter into various hedging transactions, such as
interest rate swaps, caps, and floors;
o invest in variable, floating, and inverse floating rate instruments;
o invest in zero coupon and pay-in-kind securities; and
o invest in CMOs and multi-class pass-through mortgage-related securities.
22
<PAGE>
Alliance High Yield Fund
Alliance High Yield Fund 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 debt securities, known
as "junk bonds." These securities involve greater volatility of price and risk
of principal and income than higher quality debt securities. 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.
The Fund normally invests at least 65% of its total assets in high yield debt
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, if unrated, of equivalent
quality. The Fund may not 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, of equivalent quality, 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, of equivalent quality.
As of August 31, 1999, the Fund's investments were rated (or equivalent
quality):
o A and above 7.70%
o Ba or BB 12.79%
o B 63.04%
o CCC 3.07%
o Unrated 13.30%
The Fund may invest a portion of its assets in foreign securities. 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.
The Fund also may invest in:
o U.S. Government securities;
o certificates of deposit, bankers' acceptances, bank notes, time deposits
and interest bearing savings deposits issued or guaranteed by certain
domestic and foreign banks;
o commercial paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if
unrated, issued by domestic or foreign companies having high quality
outstanding debt securities) and participation interests in loans extended
by banks to these companies;
o 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 by Moody's; and
o floating rate or master demand notes.
The Fund also may:
o invest in mortgage-backed and asset-backed securities;
o invest in loan participations and assignments of loans to corporate,
governmental, or other borrowers originally made by institutional lenders
or lending syndicates;
o enter into forward commitments;
o write covered put and call options on debt securities, securities indices
and foreign currencies and purchase put or call options on debt
securities, securities indices and foreign currencies;
o purchase and sell futures contracts and related options on debt securities
and on indices of debt securities;
o enter into contracts for the purchase or sale of a specific currency for
hedging purposes only;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
MULTI-SECTOR FUND
The Multi-Sector Fund offers investors seeking high current income the
alternative of investing in a variety of traditional and non-traditional fixed
income sectors based on Alliance's evaluation of changes in major economic and
credit cycles around the world.
Alliance Global Strategic Income Trust
Alliance Global Strategic Income Trust seeks primarily a high level of current
income and secondarily capital appreciation. The Fund invests 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 also may use derivative instruments
to attempt to enhance income. The Fund expects that the average weighted
maturity of its portfolio of fixed-income securities will vary between five
years and 30 years in accordance with Alliance's changing perceptions of the
relative attractiveness of various maturity ranges.
The Fund normally invests at least 65% of its total assets in fixed-income
securities of issuers located in at least three countries, one of which may be
the United States. The Fund limits its investments in the securities of any one
foreign government to 25% of its total assets. The Fund's investments in U.S.
Government securities may include mortgage-related securities and zero coupon
securities. The Fund's investments in fixed-income securities may include
preferred stock, mortgage-related and other asset-backed securities, and zero
coupon securities.
The Fund will maintain at least 65% of its total assets in investment grade
securities and may maintain not more than 35% of its total assets in lower-rated
securities. Unrated securities will be considered for investment by the Fund
when Alliance believes that the financial condition of
23
<PAGE>
the issuers of such obligations and the protection afforded by the terms of the
obligations limit the risk to the Fund to a degree comparable to that of rated
securities that 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.
The Fund also may:
o invest in rights and warrants;
o invest in loan participations and assignments;
o invest in foreign currencies;
o purchase and write put and call options on securities and foreign
currencies;
o purchase or sell forward foreign exchange contracts;
o invest in variable, floating, and inverse floating rate instruments;
o invest in indexed commercial paper;
o invest in structured securities;
o purchase and sell securities on a forward commitment basis;
o enter into standby commitments;
o 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;
o invest in Eurodollar instruments;
o enter into interest rate swaps, caps, and floors; and
o make short sales of securities or maintain a short position;
o enter into reverse repurchase agreements and dollar rolls;
o make loans of portfolio securities; and
o enter into repurchase agreements.
The Fund may borrow in order to purchase securities or make other investments,
although it currently limits its borrowings to 25% of its total assets.
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that 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 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 invests at least 65%, and normally substantially more, of its assets in
Government securities and income-producing securities. 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 maintains borrowings of
approximately one-third of its net assets.
The Fund expects that it will not retain a debt security that is downgraded
below BBB or Baa, or, if unrated, determined by Alliance to have undergone
similar credit quality deterioration. The Fund may conclude, under certain
circumstances, 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, that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer.
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.
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. To the extent that
its assets are not invested in Government securities, however, the Fund may
invest the balance of its total assets in investment grade debt securities
issued by, and denominated in the local currencies of, 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 limits its investments in debt
securities issued by the governmental entities of any
24
<PAGE>
one country, except for Argentine Government securities, to 10% of its total
assets.
The Fund also may:
o enter into futures contracts and purchase and write options on futures
contracts for hedging purposes;
o purchase and write put and call options on foreign currencies;
o purchase or sell forward foreign currency exchange contracts;
o 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;
o enter into interest rate swaps, caps, and floors;
o enter into forward commitments;
o invest in variable, floating, and inverse floating rate instruments;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
Alliance Global Dollar Government Fund
Alliance Global Dollar Government Fund 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 referred to as "Brady Bonds," which are issued as part of debt
restructurings and collateralized in full as to principal due at maturity by
zero coupon U.S. Government securities.
The Fund also may invest up to 35% of its total assets in U.S. and non-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 the average
weighted maturity of the Fund's investments will be approximately:
o for U.S. fixed-income securities, nine to 15 years;
o for non-U.S. fixed-income securities, 15 to 25 years; and
o for sovereign debt obligations, longer than 25 years.
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 equivalent investment
quality. These securities may have extremely poor prospects of ever attaining
any real investment standing and a current identifiable vulnerability to
default, 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
be in default or not current in the payment of interest or principal.
The Fund also may 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, 1999, securities ratings (or equivalent quality) of the Fund's
securities were:
o A and above .37%
o Baa or BBB 4.55%
o Ba or BB 50.00%
o B 29.35%
o CCC 9.43%
o CC 2.64%
o C 1.60%
o Unrated 2.06%
The Fund's investments in sovereign debt obligations and non-U.S. corporate
fixed-income securities emphasize countries that are considered at the time of
purchase to be emerging markets or developing countries by the World Bank. A
substantial part of the Fund's investment focus is in obligations of or
securities of issuers in Argentina, Brazil, Mexico, Morocco, the Philippines,
Russia and Venezuela because these countries are now, or are expected in the
future 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.
The Fund limits its investments in the sovereign debt obligations of any single
foreign country to less than 25% of its total assets, although the Fund may
invest up to 30% of its total assets in the sovereign debt obligations of and
corporate fixed-income securities of issuers in each of Argentina, Brazil,
Mexico, Morocco, the Philippines, Russia and Venezuela. The Fund expects that it
will limit its investments in any other single foreign country to not more than
10% of its total assets.
The Fund also may:
o invest in structured securities;
o 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;
25
<PAGE>
o invest in other investment companies;
o invest in warrants;
o enter into interest rate swaps, caps, and floors;
o enter into forward commitments;
o enter into standby commitment agreements;
o make short sales of securities or maintain a short position;
o 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;
o purchase and sell exchange-traded options on any securities index of the
types of securities in which it may invest;
o invest in variable, floating, and inverse floating rate instruments;
o enter into reverse repurchase agreements and dollar rolls;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
While it does not currently intend to do so, the Fund reserves the right to
borrow an amount not to exceed one-third of the Fund's net assets.
Alliance Multi-Market Strategy Trust
Alliance Multi-Market Strategy Trust is a non-diversified investment company
that offers investors a higher yield than a money market fund and less
fluctuation in net asset value than a longer-term bond fund. The Fund seeks 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 five years. The Fund
invests in a portfolio of debt securities denominated in the U.S. Dollar and
selected foreign currencies. The Fund seeks investment opportunities in foreign,
as well as domestic, securities markets. The Fund normally expects to maintain
at least 70% of its assets in debt securities denominated in foreign currencies.
The Fund limits its investments in a single currency other than the U.S. Dollar
to 25% of its net assets, except for the Euro in which the Fund may invest up to
50% of its net assets.
In pursuing its investment objective, the Fund seeks to minimize credit risk and
fluctuations in net asset value by investing only in short-term debt securities.
Normally, a high proportion of the Fund's portfolio consists of money market
instruments. Alliance actively manages the Fund's portfolio in accordance with a
multi-market investment strategy, allocating the 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 the Fund's exposure to each currency so 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.
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", 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 the Fund's shares resulting from adverse changes in currency exchange
rates. The Fund invests in debt securities denominated in the currencies of
countries whose governments are considered stable by Alliance.
An issuer of debt securities purchased by the Fund may be domiciled in a country
other than the country in whose currency the instrument is denominated. In
addition, the Fund 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.
The Fund seeks to minimize investment risk by limiting its investments to debt
securities of high quality and invests in:
o U.S. Government securities;
o high-quality foreign government securities;
o obligations issued by supranational entities and corporate debt securities
having a high-quality rating;
o 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 $500 million, and
determined by Alliance to be of high quality; and
o prime commercial paper or unrated commercial paper of equivalent quality
and issued by U.S. or foreign companies having outstanding high-quality
debt securities.
As a matter of fundamental policy, the 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. These
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.
26
<PAGE>
The Fund also may:
o invest in indexed commercial paper;
o enter into futures contracts and purchase and write options on futures
contracts;
o purchase and write put and call options on foreign currencies;
o purchase or sell forward foreign currency exchange contracts;
o enter into interest rate swaps, caps, and floors;
o invest in variable, floating, and inverse floating rate instruments;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
This section describes certain investment practices and associated risks that
are common to a number of Funds. There can be no assurance that at any given
time a Fund will engage in any of these derivative or other practices.
Derivatives. The Funds may use derivatives to achieve 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 benefits to
Fund shareholders. A 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. , Alliance High Yield, Alliance Global Strategic Income and Alliance
Multi-Market Strategy 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.
o 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).
o 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.
o 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.
o Swaps -- A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a
27
<PAGE>
series of cash flows at specified intervals (payment dates) based upon or
calculated by reference to changes in specified prices or rates (interest
rates in the case of interest rate swaps, currency exchange rates in the
case of currency swaps) for a specified amount of an underlying asset (the
"notional" principal amount). The payment flows are netted against each
other, with the difference being paid by one party to the other. Except
for currency swaps, the notional principal amount is used solely to
calculate the payment streams but is not exchanged. With respect to
currency swaps, actual principal amounts of currencies may be exchanged by
the counterparties at the initiation, and again upon the termination, of
the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the cash
flows from an underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the securities. These
securities are described below under Mortgage-Related Securities and Other
Asset-Backed Securities.
While the judicious use of derivatives by highly-experienced investment managers
such as Alliance can be quite beneficial, derivatives involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. The following is a general discussion of important risk
factors and issues relating to the use of derivatives that investors should
understand before investing in a Fund.
o Market Risk -- This is the general risk of all investments that the value
of a particular investment will change in a way detrimental to the Fund's
interest based on changes in the bond market generally.
o 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.
o Credit Risk -- This is the risk that a loss may be sustained by a Fund as
a result of the failure of a derivative counterparty to comply with the
terms of the derivative contract. The credit risk for exchange-traded
derivatives is generally less than for privately negotiated derivatives,
since the clearing house, which is the issuer or counterparty to each
exchange-traded derivative, provides a guarantee of performance. This
guarantee is supported by a daily payment system (i.e., margin
requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar
clearing agency guarantee. Therefore, the Funds consider the
creditworthiness of each counterparty to a privately negotiated derivative
in evaluating potential credit risk.
o 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.
o 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.
o 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. In
addition, there is no guarantee that a specific derivative will be
available for a Fund to utilize at any given time.
Derivatives Used by the Funds. The following describes specific derivatives that
one or more of the Funds may use.
Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options 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. Alliance
Limited Maturity Government and
28
<PAGE>
Alliance 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. A Fund purchases or sells forward
foreign currency exchange contracts ("forward contracts") to minimize the risk
from adverse changes in the relationship between the U.S. Dollar and other
currencies. 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").
Futures Contracts and Options on Futures Contracts. A Fund may buy and sell
futures contracts on fixed-income or other securities or foreign currencies, and
contracts based on interest rates or financial indices, including any index of
U.S. Government securities, foreign government securities or corporate debt
securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Fund will be traded on U.S. or foreign exchanges and, except for Alliance Global
Strategic Income, will be used only for hedging purposes.
Alliance U.S. Government, Alliance Limited Maturity Government, Alliance Global
Strategic Income, Alliance North American Government Income and Alliance
Multi-Market Strategy 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. Alliance Mortgage Securities Income will not
write or purchase options on futures contracts. Nor will Alliance U.S.
Government, Alliance Limited Maturity Government, Alliance Mortgage Securities
Income, Alliance Global Strategic Income, Alliance North American Government
Income or Alliance Multi-Market Strategy 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, Alliance Mortgage Securities Income and
Alliance 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.
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, 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.
Alliance Global Strategic Income, Alliance North American Government Income and
Alliance Multi-Market Strategy, may enter into interest rate swaps involving
payments in the same currency or in different currencies. Alliance U.S.
Government, Alliance Limited Maturity Government, Alliance Mortgage Securities
Income, Alliance Quality Bond, Alliance Corporate Bond, Alliance Global
Strategic Income and Alliance Global Dollar Government will not enter into an
interest rate swap, cap, or floor transaction unless the
29
<PAGE>
unsecured senior long- or short-term debt or the claims-paying ability of the
other party is then rated in the highest rating category of at least one NRSRO.
Each of Alliance Global Strategic Income, Alliance North American Government
Income and Alliance Multi-Market Strategy, 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.
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.
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 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 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.
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.
Alliance U.S. Government, Alliance Mortgage Securities Income, Alliance Quality
Bond, Alliance Corporate Bond, Alliance High Yield, Alliance Global Strategic
Income, Alliance North American Government Income and Alliance Global Dollar
Government, 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. 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. Alliance U.S. Government, Alliance Mortgage Securities Income, and
Alliance Corporate Bond will not purchase an option on a security if,
immediately thereafter, the aggregate cost of all outstanding options purchased
by the Fund would exceed 2% of the Fund's total assets. Nor will these Funds
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.
30
<PAGE>
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 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. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a when-issued basis or purchases or sales on a delayed
delivery basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring or approval of a proposed
financing by appropriate authorities (i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are negotiated,
the price, which is generally expressed in yield terms, is fixed at the time the
commitment is made, but payment for and delivery of the securities take place at
a later date. Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to market fluctuation
and no interest or dividends accrues to the purchaser prior to the settlement
date.
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
Alliance Limited Maturity Government, Alliance Global Strategic Income, Alliance
North American Government Income or Alliance Global Dollar Government if, as a
result, the Fund's aggregate forward commitments under such transactions would
be more than 25% of the total assets of Alliance 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.
31
<PAGE>
Illiquid Securities. The Funds will limit their investments in illiquid
securities to 15% of their net assets, except that the limit is 10% for Alliance
Mortgage Securities Income, Alliance North American Government Income and
Alliance Multi-Market Strategy. As a matter of fundamental policy, Alliance
Corporate Bond cannot purchase 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.
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. Alliance
will monitor each Fund's investments in illiquid securities. Rule 144A
securities will not be treated as "illiquid" for the purposes of the limit on
investments so long as the securities meet liquidity guidelines established by
the Board of Directors.
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 indexed
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.
Investment in Other Investment Companies. Alliance Global Dollar Government may
invest in other investment companies whose investment objectives and policies
are consistent with those of the Fund. If the Fund acquires 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).
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 from
the securities. The Fund may invest any cash collateral in portfolio securities
and earn additional income or receive an agreed-upon amount of income from a
borrower who has delivered equivalent collateral. Lending of portfolio
securities is limited to 50% of net assets for Alliance High Yield, 25% of net
assets for Alliance Global Strategic Income, and 20% of net assets for Alliance
Limited Maturity Government, Alliance Mortgage Securities Income, Alliance North
American Government Income, Alliance Global Dollar Government and Alliance
Multi-Market Strategy, and to 50% of total assets for Alliance Quality Bond.
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
Alliance Global Strategic Income and Alliance Global Dollar Government, or
foreign government securities, with respect to Alliance Corporate Bond and
Alliance 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
32
<PAGE>
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.
Alliance Global Strategic Income and Alliance Global Dollar Government may
invest up to 25%, and Alliance Corporate Bond may invest up to 15%, of their
total assets in loan participations and assignments.
Mortgage-Related Securities. The Funds' investments in mortgage-related
securities 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 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. 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. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. 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 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). 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.
SMRS are mortgage-related securities that are usually structured with two
classes of securities collateralized by a pool of mortgages or a pool of
mortgage-backed bonds or
33
<PAGE>
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 or IOs receiving all of the
interest payments from the underlying assets; while the other class of
securities, principal-only securities or 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 also can 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 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. 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. 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.
34
<PAGE>
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 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.
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. Under normal circumstances, Alliance
U.S. Government and Alliance Limited Maturity Government do not expect to engage
in reverse repurchase agreements and dollar rolls with respect to greater than
50% of their total assets. Reverse repurchase agreements and dollar rolls
together with any borrowings by Alliance Global Dollar Government will not
exceed 33% of its total assets less liabilities (other than amounts borrowed).
Alliance 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 Alliance Global Strategic Income
will not exceed 25% of its total assets.
Rights and Warrants. Rights and warrants are option securities permitting their
holders to subscribe for other securities. Alliance Global Dollar Government may
invest in warrants, and Alliance Quality Bond and Alliance 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. Alliance Global Strategic Income may invest up to
20% of its total assets in rights and warrants.
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. Alliance
Global Dollar Government may make short sales only against the box and only for
the purpose of deferring realization of a gain or loss for U.S. federal income
tax purposes. In addition, the Fund may not make a short sale if, as a result,
more than 10% of its net assets (taken at market value) would be held as
collateral for short sales.
Alliance 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
35
<PAGE>
Fund may or may not receive any payments (e.g., dividends or interest) on its
collateral deposited with the broker-dealer.
In order to defer realization of a gain or loss for U.S. federal income tax
purposes, Alliance Global Strategic Income may also make short sales "against
the box" of securities which are eligible for such deferral. 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.
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 Alliance Global Strategic Income, of their 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.
Structured Securities. Structured securities in which Alliance Global Dollar
Government, Alliance Global Strategic Income and Alliance 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 Alliance Global Dollar Government and Alliance
Global Strategic Income, or foreign government securities, with respect to
Alliance 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. Alliance Global Dollar Government may invest up to 25% of its total
assets, and Alliance Global Strategic Income and Alliance Corporate Bond may
invest without limit, in these types of structured 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.
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
36
<PAGE>
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 are
generally held by a bank in a custodial or trust account).
Alliance Quality Bond, Alliance Corporate Bond and Alliance Global Strategic
Income also may 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.
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.
Portfolio Turnover. The portfolio turnover rate for each Fund is included in the
Financial Highlights section. The Funds are actively managed and, in some cases
in response to market conditions, a Fund's portfolio turnover may exceed 100%. A
higher rate of portfolio turnover increases brokerage and other expenses, 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, which,
when distributed, are taxable to shareholders.
Temporary 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. While the Funds are investing for temporary
defensive purposes, they may not meet their investment objectives.
ADDITIONAL RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. Certain of these risks may be heightened when investing in
emerging markets.
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, as described above, which involve certain special
risks.
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. Utilization of
leverage, which is usually considered speculative, involves certain risks to a
Fund's shareholders. These include a higher volatility of the net asset value of
a Fund's shares 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
37
<PAGE>
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 of a Fund's investments. If 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.
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.
Similarly, the effect of leverage in a declining market could be a greater
decrease in net asset value per share. 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 and reduce 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 Alliance Quality
Bond, Alliance Global Strategic Income, Alliance North American Government
Income or Alliance Multi-Market Strategy 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.
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.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes foreign
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude investment in certain securities and may increase the
cost and expenses of 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 also could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. These
factors may affect the liquidity of a Fund's investments in any country 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.
38
<PAGE>
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, or diplomatic
developments could affect adversely the economy of a foreign country. In the
event of nationalization, expropriation or other confiscation, a Fund could lose
its entire investment in securities in the country involved. In addition, laws
in foreign countries governing business organizations, bankruptcy and insolvency
may provide less protection to security holders such as the Fund than that
provided by U.S. laws.
Alliance believes that, except for currency fluctuations between the U.S. Dollar
and the Canadian Dollar, the matters described above are not likely to have a
material adverse effect on Alliance 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.
Investment in the Banking Industry. Due to its investment policies with respect
to investments in the banking industry, Alliance Multi-Market Strategy will have
greater exposure to the risk factors which are characteristic of such
investments. In particular, the value of and investment return on the 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, the 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 Fund will
seek to minimize their exposure to such risks by investing only in debt
securities which are determined to be of high quality.
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.
There can be no assurance, however, 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.
Unrated Securities. Unrated securities will also be considered for investment by
Alliance Quality Bond, Alliance Corporate Bond, Alliance High Yield, Alliance
Global Strategic Income, Alliance North American Government Income and Alliance
Global Dollar Government when Alliance believes that the financial condition of
the issuers of such securities, or the protection afforded by the
39
<PAGE>
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.
Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which Alliance Global Strategic Income and
Alliance Global Dollar Government 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 in, among other things, 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 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 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.
U.S. Corporate Fixed-Income Securities. The U.S. corporate fixed-income
securities in which Alliance High Yield and Alliance Global Dollar Government
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.
- --------------------------------------------------------------------------------
Management Of The Funds
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Each Fund's Adviser is Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York 10105. Alliance is a leading international
investment adviser managing client accounts with assets as of December 31, 1999,
totaling more than $368 billion (of which more than $169 billion represented
assets of investment companies). As of December 31, 1999, Alliance managed
retirement assets for many of the largest public and private employee benefit
plans (including 31 of the nation's FORTUNE 100 companies), for public employee
retirement funds in 31 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 53 registered
investment companies, managed by Alliance, comprising 119 separate investment
portfolios, currently have more than 5 million shareholder accounts.
Alliance provides investment advisory services and order placement facilities
for the Funds. For these advisory
40
<PAGE>
services, the Funds paid Alliance as a percentage of average daily net assets:
Fee as a
percentage of
average daily Fiscal
Fund net assets Year Ending
----------- ---------
Alliance U.S. Government .56 6/30/99
Alliance Limited Maturity
Government .65 11/30/99
Alliance Mortgage Securities
Income .53 12/31/99
Alliance Quality Bond .55* 6/30/00
Alliance Corporate Bond .55 6/30/99
Alliance High Yield .75 8/31/99
Alliance Global Strategic
Income .75 10/31/99
Alliance North American
Government Income .72 11/30/99
Alliance Global Dollar
Government .75 8/31/99
Alliance Multi-Market Strategy .60 10/31/99
- --------------------------------------------------------------------------------
* Prior to any waiver by Alliance. See the "Fee Table" at the beginning of
the Prospectus for more information about fee waivers.
PORTFOLIO MANAGER
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 for the Fund's portfolio, 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*
- --------------------------------------------------------------------------------
U.S. Government Wayne D. Lyski; Associated with
since 1983; Alliance
Executive Vice President
Jeffrey S. Phlegar; Associated with
since 1997; Alliance
Senior Vice President
Limited Maturity Jeffrey S. Phlegar; (see above)
Government since 1997; (see above)
Mortgage Securities Jeffrey S. Phlegar; (see above)
Income since 1997; (see above)
Quality Bond Matthew Bloom; Associated with
since inception; Alliance
Senior Vice President
Corporate Bond Wayne D. Lyski; since (see above)
1987; (see above)
Paul J. DeNoon; Associated with
since January 1992; Alliance
Senior Vice President
High Yield Nelson Jantzen; Associated with
since 1997; Alliance
Senior Vice President
Global Strategic Wayne D. Lyski; since (see above)
Income inception; (see above)
Douglas J. Peebles; Associated with Alliance
since inception;
Senior Vice President
North American Wayne D. Lyski; since (see above)
Government Income inception; (see above)
Global Dollar Wayne D. Lyski; since (see above)
Government inception; (see above)
Multi-Market Strategy Douglas J. Peebles;
since inception;
(see above)
- --------------------------------------------------------------------------------
* Unless indicated otherwise, persons associated with Alliance have been
employed in a portfolio management, research or investment capacity.
PERFORMANCE OF SIMILARLY MANAGED PORTFOLIOS
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
Alliance High Yield. Alliance since July 22, 1993, and prior thereto, Equitable
Capital Management Corporation, whose advisory business Alliance acquired on
that date, have served as investment adviser to the Historical Portfolio since
its inception in 1987. Nelson Jantzen, the person primarily responsible for the
day-to-day management of Alliance High Yield, has supervised the management of
the Historical Portfolio since its inception.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of Alliance High
Yield and the Lipper High Current Yield Mutual Funds Average as a comparative
benchmark. As of December 31, 1999, the assets in the Historical Portfolio
totalled approximately $567 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 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,
41
<PAGE>
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. Rates of return for Alliance High Yield Class A shares assume
the imposition of the maximum 4.25% sales charge. The inception date for the
Historical Portfolio and Lipper data is January 2, 1987 and for Alliance High
Yield is April 22, 1997.
Annualized Rates of Return
Periods Ended December 31, 1999
- --------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
Historical Portfolio -3.35% 2.79% 9.86% 10.23% 9.36%
Lipper High Current
Yield Funds
Average 4.53 5.18 8.84 10.03 8.68
Alliance High Yield -5.95 n/a n/a n/a 5.30
Cumulative Rates of Return
Periods Ending December 31, 1999
- --------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
Historical Portfolio -3.35% 8.62% 60.06% 164.96% 220.01%
Lipper High Current
Yield Funds
Average 4.53 16.54 53.09 161.34 197.11
Alliance High Yield -5.95 n/a n/a n/a 14.91
Alliance is the investment adviser of a portfolio (the "Historical Fund") 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 substantially the same investment strategies and techniques as those of
Alliance Quality Bond. Alliance has served as investment adviser to the
Historical Fund since its inception in 1993. Matthew Bloom, who is primarily
responsible for the day-to-day management of Alliance Quality Bond, has been the
person principally responsible for the day-to-day management of the Historical
Fund since 1995.
The following tables set forth performance results for the Historical Fund since
its inception on October 1, 1993, together with those of the Lipper Corporate
Debt Funds BBB Rated Average and the Lehman Aggregate Bond index as comparative
benchmarks. As of March 31, 1999, the assets in the Historical Fund totalled
approximately $333 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 Fund. In addition, the performance
data do not reflect Alliance Quality Bond's higher expenses, which, if
reflected, would lower the performance of the Historical Fund. The performance
data have not been adjusted for corporate or individual taxes, if any, payable
with respect to the Historical Fund. The rates of return shown for the
Historical Fund are not an estimate or guarantee of future investment
performance of Alliance Quality Bond.
The Lipper Corporate Debt Funds BBB Rated 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 Alliance Quality Bond. Nonetheless, the investment policies
pursued by Funds in the survey may differ from those of Alliance Quality Bond
and the Historical Fund. This survey is published by Lipper, Inc., a firm
recognized for its reporting of performance of actively managed funds. According
to Lipper, Inc., performance data are presented net of investment management
fees, operating expenses and, for funds with Rule 12b-1 plans, asset-based sales
charges. The Lehman Aggregate Bond Index is an Index comprised of investment
grade fixed-income securities, including U.S. Treasury, mortgage-backed,
corporate and "Yankee bonds" (U.S. dollar-denominated bonds issued outside the
United States).
The performance results presented below are based on percent changes in net
asset values of the Historical Fund 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. The inception date for the Historical Fund, the Lipper data and
the Lehman Index date is October 1, 1993.
Annualized Rates of Return
Periods Ended December 31, 1999
- --------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
- --------------------------------------------------------------------------------
Historical Fund -2.00% 5.15% 7.47% 4.96%
Lehman Aggregate
Bond Index -0.82% 5.73% 7.73% 5.65%
Lipper Corporate Debt
Funds BBB Rated
Average -1.73% 4.69% 7.65% 5.39%
Cumulative Rates of Return
Periods Ended December 31, 1999
- --------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
- --------------------------------------------------------------------------------
Historical Fund -2.00% 16.25% 43.34% 35.34%
Lehman Aggregate
Bond Index -0.82% 18.20% 45.12% 40.97%
Lipper Corporate Debt
Funds BBB Rated
Average -1.73% 14.80% 44.85% 39.12%
42
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------
HOW THE FUNDS VALUE THEIR SHARES
The Funds' net asset value or NAV is calculated at 4:00 p.m., Eastern time, each
day the Exchange is open for business. To calculate NAV, a Fund's assets are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Funds' value their
securities at their current market value determined on the basis of market
quotations or, if such quotations are not readily available, such other methods
as the Funds' Directors or Trustees believe accurately reflect fair market
value.
Your order for purchase, sale, or exchange of shares is priced at the next NAV
calculated after your order is received in proper form by the Fund. Your
purchase of Fund shares may be subject to an initial sales charge. Sales of Fund
shares may be subject to a contingent deferred sales charge or CDSC. See the
Distribution Arrangements section of this Prospectus for details.
HOW TO BUY SHARES
You may purchase a Fund's shares through broker-dealers, banks, or other
financial intermediaries. You also may purchase shares directly from the Funds'
principal underwriter, Alliance Fund Distributors, Inc., or AFD.
Minimum investment amounts are:
o Initial $250
o Subsequent $50
o Automatic Investment Program $25
If you are an existing Fund shareholder, you may purchase shares by electronic
funds transfer in amounts not exceeding $500,000 if you have completed the
appropriate section of the Subscription Application or the Shareholder Options
form obtained from AFS. Call 800-221-5672 to arrange a transfer from your bank
account.
A Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number. To avoid this, you
must provide your correct Tax Identification Number (Social Security Number for
most investors) on your account application.
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.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares 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 next-determined NAV, without sales or
service charges. You may request an exchange by mail or telephone. You must call
by 4:00 p.m., Eastern time, to receive that day's NAV. The Funds may change,
suspend, or terminate the exchange service on 60 days' written notice.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares to the Fund) on any day the
Exchange is open, either directly or through your financial intermediary. Your
sales price will be the next-determined NAV, less any applicable CDSC, after the
Fund receives your request in proper form. Normally, proceeds will be sent to
you within seven days. If you recently purchased your shares by check or
electronic funds transfer, your redemption payment may be delayed until the Fund
is reasonably satisfied that the check or electronic funds transfer has been
collected (which may take up to 15 days).
o Selling Shares Through Your Broker
Your broker must receive your request by 4:00 p.m., Eastern time, and submit it
to the Fund by 5:00 p.m., Eastern time, for you to receive that day's NAV, less
any applicable CDSC. Your broker is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
o Selling Shares Directly to a Fund
By Mail
-- Send a signed letter of instruction or stock power form to AFS,
along with certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
-- For your protection, a bank, a member firm of a national stock
exchange or other eligible guarantor institution must guarantee
signatures. 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.
By Telephone
-- You may redeem your shares for which no stock certificates have been
issued by telephone request. Call AFS at 800-221-5672 with
instructions on how you wish to receive your sale proceeds.
-- A telephone redemption request must be made by 4:00 p.m., Eastern
time, for you to receive that day's NAV, less any applicable CDSC
and, except for certain omnibus accounts, may be made only once per
day.
-- If you have selected electronic funds transfer in your Subscription
Application, the redemption proceeds may be sent directly to your
bank. Otherwise, the proceeds will be mailed to you.
43
<PAGE>
-- Redemption requests by electronic funds transfer may not exceed
$100,000 per day and redemption requests by check cannot exceed
$50,000 per day.
-- 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.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
The Funds declare dividends on their shares each Fund business day. For
Saturdays, Sundays, and holidays dividends will be as of the previous business
day. Each Fund pays dividends on its shares after the close of business on the
twentieth day of each month or on the first business day after that day if the
day is not a business day.
Each Fund's income dividends and capital gains distributions, if any, declared
by a Fund on its outstanding shares will, at the election of each shareholder,
be paid in cash or in additional shares of the same class of shares of that
Fund. If paid in additional shares, the shares will have an aggregate net asset
value as of the close of business on the day following the declaration date of
the dividend or distribution equal to the cash amount of the dividend or
distribution. You may make an election to receive dividends and distributions in
cash or in shares at the time you purchase shares. Your election can be changed
at any time prior to a record date for a dividend. There is no sales or other
charge in connection with the reinvestment of dividends or capital gains
distributions. Cash dividends may be paid in check, or at your election,
electronically via the ACH network. There is no sales or other charge on the
reinvestment of Fund dividends and distributions.
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 the 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.
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.
For federal income tax purposes, the Fund's dividend distributions of net income
(or short-term taxable gains) will be taxable to you as ordinary income.
Distributions of long-term capital gains generally will be taxable to you as
long-term capital gains. A Fund's distributions also may be subject to certain
state and local 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 for foreign taxes paid by a Fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not be permitted to
claim all or a portion of a credit or deduction for the amount of such taxes.
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 a capital gain.
If you buy shares just before a Fund deducts a distribution from its NAV, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for Federal income
tax purposes.
Each year shortly after December 31, the Fund will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state, and local tax consequences in your
particular circumstances.
44
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
- --------------------------------------------------------------------------------
Share Classes. The Funds offer three classes of shares.
Class A Shares -- Initial Sales Charge Alternative
You can purchase Class A shares at NAV 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
- ------------------- ------------ ------------- ------------------
Up to $100,000 ................. 4.44% 4.25% 4.00%
$100,000 up to
$250,000...................... 3.36 3.25 3.00
$250,000 up to
$500,000...................... 2.30 2.25 2.00
$500,000 up to
$1,000,000.................... 1.78 1.75 1.50
You pay no initial sales charge on purchases of Class A shares in the amount of
$1,000,000, but may pay a 1% CDSC if you redeem your shares within 1 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 under a Fund's 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 a Fund's SAI for additional information about
these options.
Class B Shares -- Deferred Sales Charge Alternative
You can purchase Class B shares at NAV without an initial sales charge. A Fund
will thus receive the full amount of your purchase. Your investment, however,
will be subject to a CDSC if you redeem shares within three years (four years in
the case of Alliance Global Strategic Income and Alliance High Yield) after
purchase. The CDSC varies depending on the number of years you hold the shares.
The CDSC amounts are:
Alliance Global Strategic Income and Alliance High Yield:
Years Since Purchase CDSC
--------------------- --------
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
All Other Funds:
Years Since Purchase CDSC
--------------------- --------
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
If you exchange your shares for the Class B shares of another Alliance Mutual
Fund, the CDSC also will apply to those Class B shares. The CDSC period begins
with the date of your original purchase, not the date of exchange for the other
Class B shares.
The Fund's Class B shares purchased for cash automatically convert to Class A
shares six years after the end of the month of your purchase (except for Class B
shares of Alliance High Yield Fund and Alliance Global Strategic Income Trust,
which automatically convert to Class A shares eight years after the end of the
month of purchase). If you purchase shares by exchange for the Class B shares of
another Alliance Mutual Fund, the conversion period runs from the date of your
original purchase.
Class C Shares -- Asset-Based Sales Charge Alternative
You can purchase Class C shares at NAV without any initial sales charge. A Fund
will thus receive the full amount of your purchase. Your investment, however,
will be subject to a 1% CDSC if you redeem your shares within 1 year. If you
exchange your shares for the Class C shares of another Alliance Mutual Fund, the
1% CDSC also will apply to those Class C shares. The 1-year period for the CDSC
begins with the date of your original purchase, not the date of the exchange for
the other Class C shares.
Class C shares do not convert to any other class of shares of the Fund.
Asset-based Sales Charge or Rule 12b-1 Fees. Each Fund has adopted a plan under
Commission Rule 12b-1 that allows the Fund to pay asset-based sales charges or
distribution and service fees for the distribution and sale of its shares. The
amount of these fees for each class of the Fund's shares is:
Rule 12b-1 Fee (as a percent of
aggregate average daily net assets)
-----------------------------------------
Class A .30%*
Class B 1.00%
Class C 1.00%
- ----------
* The Rule 12b-1 plan for Class A shares of Alliance Short-Term U.S. Government
Fund provides for payments of up to .50% of aggregate average daily net assets,
although the Fund's Trustees currently limit such payments to .30% of such
assets.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales fees. Class B and Class C shares are subject to
higher distribution fees than Class A shares (Class B shares are subject to
these higher fees for a period of six years, after which they convert to Class A
shares except for Alliance High Yield Fund and Alliance Global Strategic Income
Trust's Class B shares which convert to Class A shares after eight years). The
higher fees mean a higher expense ratio, so Class B and Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
Choosing a Class of Shares. The decision as to which class of shares is more
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
45
<PAGE>
charge, you might consider purchasing Class A shares. If you are making a
smaller investment, you might consider purchasing 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 no CDSC as long as the shares are held for one year or more. 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.
You should consult your financial agent to assist in choosing a class of Fund
shares.
Application of the CDSC. The CDSC is applied to the lesser of the original cost
of shares being redeemed or NAV at the time of redemption (or, as to Fund shares
acquired through an exchange, the cost of the Alliance Fund shares originally
purchased for cash). Shares obtained from dividend or distribution reinvestment
are not subject to the CDSC. The Fund may waive the CDSC on redemptions of
shares following the death or disability of a shareholder, to meet the
requirements of certain qualified retirement plans, or under a monthly,
bi-monthly, or quarterly systematic withdrawal plan. See the Fund's SAI for
further information about CDSC waivers.
Other. 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 your financial representative. The financial
intermediaries also may impose requirements on 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.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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 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.
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 also may 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.
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 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, Class B or Class 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.
46
<PAGE>
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 related to the Fund's hedging practices, the Fund's
investments in certain mortgage-backed securities, and the risk and objectives
of the Fund as described in the Fund's marketing materials. The Amended
Complaint made similar requests for class certification and damages as made in
the Complaint. On July 15, 1997, the District Court denied plaintiffs' motion
for leave to file the Amended Complaint and dismissed the case ("Second
Decision").
On November 17, 1997, plaintiffs filed a notice of appeal of the Second Decision
to the Court of Appeals. On October 15, 1998, the Court of Appeals affirmed in
part and reversed in part the Second Decision. The Court of Appeals affirmed the
District Court's denial of plaintiffs' motion for leave to file the Amended
Complaint insofar as the Amended Complaint alleged that defendants had made
misrepresentations and omissions relating to the Funds' investments in certain
mortgage-backed securities and in the Fund's marketing materials. The Court of
Appeals reversed the District Court's decision to deny plaintiffs' motions for
leave to file the Amended Complaint insofar as the Amended Complaint alleged
that defendants had made actionable misrepresentations and omissions relating to
the Fund's hedging practices. On December 1, 1999, after the completion of
discovery, the Court granted defendants' motion for summary judgment on all
claims against all defendants. On December 14 and 15, 1999, plaintiffs filed
motions for reconsideration of the Court's ruling. These motions are currently
pending with the Court. 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.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
share of each Fund. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). Except as otherwise indicated,
this information has been audited by Ernst & Young LLP, the independent auditors
for the Funds, whose reports, along with each Fund's financial statements, are
included in the SAI, which is avaliable upon request.
47
<PAGE>
<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>
U.S. Government
Class A
Year Ended 6/30/99...... $ 7.57 $ .52(f) $ (.37) $ .15 $ (.52) $ 0.00
Year Ended 6/30/98...... 7.41 .54(f) .18 .72 (.54) 0.00
Year Ended 6/30/97...... 7.52 .57(f) (.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
Class B
Year Ended 6/30/99...... $ 7.57 $ .46(f) $ (.36) $ .10 $ (.46) $ 0.00
Year Ended 6/30/98...... 7.41 .48(f) .18 .66 (.48) 0.00
Year Ended 6/30/97...... 7.52 .52(f) (.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
Class C
Year Ended 6/30/99...... $ 7.57 $ .46(f) $ (.36) $ .10 $ (.46) $ 0.00
Year Ended 6/30/98...... 7.41 .48(f) .18 .66 (.48) 0.00
Year Ended 6/30/97...... 7.52 .52(f) (.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
Limited Maturity Government
Class A
Year Ended 11/30/99..... $ 9.54 $ .43(f) $ (.45) $ (.02) $ (.43) $ 0.00
Year Ended 11/30/98..... 9.44 .47(f) .17 .64 (.47) 0.00
Year Ended 11/30/97..... 9.45 .51(f) .02 .53 (.52) 0.00
Year Ended 11/30/96..... 9.52 .51(f) (.04) .47 (.51) 0.00
Year Ended 11/30/95..... 9.51 .52(f) .02 .54 (.50) 0.00
Class B
Year Ended 11/30/99..... $ 9.55 $ .37(f) $ (.47) $ (.10) $ (.37) $ 0.00
Year Ended 11/30/98..... 9.44 .39(f) .19 .58 (.39) 0.00
Year Ended 11/30/97..... 9.45 .45(f) .01 .46 (.45) 0.00
Year Ended 11/30/96..... 9.52 .44(f) (.04) .40 (.44) 0.00
Year Ended 11/30/95..... 9.52 .46(f) .01 .47 (.44) 0.00
Class C
Year Ended 11/30/99..... $ 9.55 $ .38(f) $ (.49) $ (.11) $ (.38) $ 0.00
Year Ended 11/30/98..... 9.44 .39(f) .19 .58 (.39) 0.00
Year Ended 11/30/97..... 9.45 .45(f) .01 .46 (.45) 0.00
Year Ended 11/30/96..... 9.52 .45(f) (.05) .40 (.45) 0.00
Year Ended 11/30/95..... 9.52 .46(f) .01 .47 (.44) 0.00
Mortgage Securities Income
Class A
Year Ended 12/31/99..... $ 8.56 $ .55(f) $ (.49) $ .06 $ (.54) $ 0.00
Year Ended 12/31/98..... 8.63 .52(f) (.03) .49 (.52) 0.00
Year Ended 12/31/97..... 8.51 .54(f) .15 .69 (.54) 0.00
Year Ended 12/31/96..... 8.75 .54(f) (.19) .35 (.51) 0.00
Year Ended 12/31/95..... 8.13 .57(f) .64 1.21 (.57) 0.00
Class B
Year Ended 12/31/99..... $ 8.56 $ .46(f) $ (.46) $ 0.00 $ (.48) $ 0.00
Year Ended 12/31/98..... 8.63 .45(f) (.02) .43 (.45) 0.00
Year Ended 12/31/97..... 8.51 .48(f) .15 .63 (.48) 0.00
Year Ended 12/31/96..... 8.75 .48(f) (.19) .29 (.46) 0.00
Year Ended 12/31/95..... 8.13 .51(f) .64 1.15 (.51) 0.00
Class C
Year Ended 12/31/99..... $ 8.56 $ .48(f) $ (.47) $ .01 $ (.48) $ 0.00
Year Ended 12/31/98..... 8.63 .46(f) (.03) .43 (.46) 0.00
Year Ended 12/31/97..... 8.51 .48(f) .15 .63 (.48) 0.00
Year Ended 12/31/96..... 8.75 .48(f) (.19) .29 (.46) 0.00
Year Ended 12/31/95..... 8.13 .51(f) .64 1.15 (.51) 0.00
Corporate Bond
Class A
Year Ended 6/30/99...... $ 14.19 $ 1.06(f) $ (1.64) $ (.58) $ (1.07) $ 0.00
Year Ended 6/30/98...... 14.19 1.08(f) .12 1.20 (1.08) 0.00
Year Ended 6/30/97...... 13.29 1.15(f) .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
Class B
Year Ended 6/30/99...... $ 14.19 $ .97(f) $ (1.64) $ (.67) $ (.98) $ 0.00
Year Ended 6/30/98...... 14.19 .98(f) .13 1.11 (.98) 0.00
Year Ended 6/30/97...... 13.29 1.05(f) .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
Class C
Year Ended 6/30/99...... $ 14.19 $ .97(f) $ (1.64) $ (.67) $ (.98) $ 0.00
Year Ended 6/30/98...... 14.19 .99(f) .12 1.11 (.99) 0.00
Year Ended 6/30/97...... 13.29 1.04(f) .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
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 52 & 53.
48
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets
in Excess Total Investment At End Of Ratio
of Net Return Dividends Net Asset Return Period of Expenses
Investment of and Value End Based on Net (000's To Average
Fiscal Year or Period Income Capital Distributions of Period Asset Value (a) omitted) Net Assets
--------------------- ------------- ------- ------------- --------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Class A
Year Ended 6/30/99...... $ (.01) $ 0.00 $ (.53) $ 7.19 1.83% $ 426,167 1.17%(b)
Year Ended 6/30/98...... 0.00 (.02) (.56) 7.57 10.02 352,749 1.06
Year Ended 6/30/97...... 0.00 (.01) (.58) 7.41 6.49 354,782 1.02
Year Ended 6/30/96...... 0.00 0.00 (.58) 7.52 1.74 397,894 1.01
Year Ended 6/30/95...... 0.00 0.00 (.65) 7.96 10.37 463,660 1.01
Class B
Year Ended 6/30/99...... $ (.01) $ 0.00 $ (.47) $ 7.20 1.22% $ 338,310 1.87%(b)
Year Ended 6/30/98...... 0.00 (.02) (.50) 7.57 9.20 390,523 1.76
Year Ended 6/30/97...... 0.00 (.01) (.53) 7.41 5.69 471,889 1.73
Year Ended 6/30/96...... 0.00 0.00 (.52) 7.52 1.01 628,628 1.72
Year Ended 6/30/95...... 0.00 0.00 (.59) 7.96 9.52 774,097 1.72
Class C
Year Ended 6/30/99...... $ (.01) $ 0.00 $ (.47) $ 7.20 1.22% $ 144,145 1.87%(b)
Year Ended 6/30/98...... 0.00 (.02) (.50) 7.57 9.21 114,392 1.76
Year Ended 6/30/97...... 0.00 (.01) (.53) 7.41 5.69 115,607 1.72
Year Ended 6/30/96...... 0.00 0.00 (.52) 7.52 1.01 166,075 1.71
Year Ended 6/30/95...... 0.00 0.00 (.59) 7.96 9.67 181,948 1.71
Limited Maturity Government
Class A
Year Ended 11/30/99..... $ 0.00 $ (.07) $ (.50) $ 9.02 (.22)% $ 27,272 2.48%(b)
Year Ended 11/30/98..... (.07) 0.00 (.54) 9.54 6.94 41,493 3.27(b)
Year Ended 11/30/97..... 0.00 (.02) (.54) 9.44 5.79 16,197 2.41(b)
Year Ended 11/30/96..... 0.00 (.03) (.54) 9.45 5.11 16,248 2.22(b)
Year Ended 11/30/95..... 0.00 (.03) (.53) 9.52 5.91 27,887 2.14(b)
Class B
Year Ended 11/30/99..... $ 0.00 $ (.06) $ (.43) $ 9.02 (1.04)% $ 25,910 3.23%(b)
Year Ended 11/30/98..... (.08) 0.00 (.47) 9.55 6.30 33,591 3.84(b)
Year Ended 11/30/97..... 0.00 (.02) (.47) 9.44 5.04 33,613 3.14(b)
Year Ended 11/30/96..... 0.00 (.03) (.47) 9.45 4.36 50,386 2.94(b)
Year Ended 11/30/95..... 0.00 (.03) (.47) 9.52 5.05 84,362 2.85(b)
Class C
Year Ended 11/30/99..... $ 0.00 $ (.05) $ (.43) $ 9.01 (1.15)% $ 24,805 3.21%(b)
Year Ended 11/30/98..... (.08) 0.00 (.47) 9.55 6.30 28,562 3.84(b)
Year Ended 11/30/97..... 0.00 (.02) (.47) 9.44 5.05 28,738 3.13(b)
Year Ended 11/30/96..... 0.00 (.02) (.47) 9.45 4.38 43,457 2.92(b)
Year Ended 11/30/95..... 0.00 (.03) (.47) 9.52 5.06 68,459 2.85(b)
Mortgage Securities Income
Class A
Year Ended 12/31/99..... $ 0.00 $ 0.00 $ (.54) $ 8.08 .79% $ 429,627 1.93%(b)
Year Ended 12/31/98..... (.04) 0.00 (.56) 8.56 5.82 469,750 1.99(b)
Year Ended 12/31/97..... (.03) 0.00 (.57) 8.63 8.40 372,494 1.41(b)
Year Ended 12/31/96..... 0.00 (.08) (.59) 8.51 4.23 412,899 1.68(b)
Year Ended 12/31/95..... 0.00 (.02) (.59) 8.75 15.34 502,390 1.66(b)
Class B
Year Ended 12/31/99..... $ 0.00 $ 0.00 $ (.48) $ 8.08 .02% $ 44,410 2.59%(b)
Year Ended 12/31/98..... (.05) 0.00 (.50) 8.56 5.04 126,879 2.68(b)
Year Ended 12/31/97..... (.03) 0.00 (.51) 8.63 7.60 323,916 2.14(b)
Year Ended 12/31/96..... 0.00 (.07) (.53) 8.51 3.46 477,196 2.37(b)
Year Ended 12/31/95..... 0.00 (.02) (.53) 8.75 14.48 737,593 2.37(b)
Class C
Year Ended 12/31/99..... $ 0.00 $ 0.00 $ (.48) $ 8.09 .14% $ 19,219 2.64%(b)
Year Ended 12/31/98..... (.04) 0.00 (.50) 8.56 5.04 23,728 2.69(b)
Year Ended 12/31/97..... (.03) 0.00 (.51) 8.63 7.60 27,859 2.12(b)
Year Ended 12/31/96..... 0.00 (.07) (.53) 8.51 3.46 35,355 2.38(b)
Year Ended 12/31/95..... 0.00 (.02) (.53) 8.75 14.46 45,558 2.35(b)
Corporate Bond
Class A
Year Ended 6/30/99...... $ (.01) $ (.04) $ (1.12) $ 12.49 (4.08)% $ 476,141 1.11%
Year Ended 6/30/98...... (.12) 0.00 (1.20) 14.19 8.66 510,397 1.05
Year Ended 6/30/97...... 0.00 0.00 (1.22) 14.19 16.59 370,845 1.12
Year Ended 6/30/96...... 0.00 0.00 (1.16) 13.29 12.14 277,369 1.20
Year Ended 6/30/95...... 0.00 0.00 (1.14) 12.92 13.26 230,750 1.24
Class B
Year Ended 6/30/99...... $ (.01) $ (.04) $ (1.03) $ 12.49 (4.77)% $ 630,631 1.82%
Year Ended 6/30/98...... (.13) 0.00 (1.11) 14.19 7.95 672,374 1.75
Year Ended 6/30/97...... 0.00 0.00 (1.13) 14.19 15.80 480,326 1.82
Year Ended 6/30/96...... 0.00 0.00 (1.07) 13.29 11.38 338,152 1.90
Year Ended 6/30/95...... 0.00 0.00 (1.05) 12.92 12.54 241,393 1.99
Class C
Year Ended 6/30/99...... $ (.01) $ (.04) $ (1.03) $ 12.49 (4.77)% $ 204,271 1.81%
Year Ended 6/30/98...... (.12) 0.00 (1.11) 14.19 7.95 254,530 1.75
Year Ended 6/30/97...... 0.00 0.00 (1.13) 14.19 15.80 174,762 1.82
Year Ended 6/30/96...... 0.00 0.00 (1.07) 13.29 11.30 83,095 1.90
Year Ended 6/30/95...... 0.00 0.00 (1.05) 12.93 12.62 51,028 1.84
<CAPTION>
Ratio of Net
Investment
Income (Loss) Portfolio
To Average Turnover
Fiscal Year or Period Net Assets Rate
--------------------- ------------- ---------
<S> <C> <C>
U.S. Government
Class A
Year Ended 6/30/99...... 6.86% 320%
Year Ended 6/30/98...... 7.08 153
Year Ended 6/30/97...... 7.66 330
Year Ended 6/30/96...... 7.38 334
Year Ended 6/30/95...... 8.27 190
Class B
Year Ended 6/30/99...... 6.13% 320%
Year Ended 6/30/98...... 6.37 153
Year Ended 6/30/97...... 6.95 330
Year Ended 6/30/96...... 6.67 334
Year Ended 6/30/95...... 7.57 190
Class C
Year Ended 6/30/99...... 6.13% 320%
Year Ended 6/30/98...... 6.38 153
Year Ended 6/30/97...... 6.96 330
Year Ended 6/30/96...... 6.68 334
Year Ended 6/30/95...... 7.59 190
Limited Maturity Government
Class A
Year Ended 11/30/99..... 4.75% 374%
Year Ended 11/30/98..... 4.74 500
Year Ended 11/30/97..... 5.52 249
Year Ended 11/30/96..... 5.44 159
Year Ended 11/30/95..... 5.53 293
Class B
Year Ended 11/30/99..... 4.06% 374%
Year Ended 11/30/98..... 4.10 500
Year Ended 11/30/97..... 4.80 249
Year Ended 11/30/96..... 4.73 159
Year Ended 11/30/95..... 4.83 293
Class C
Year Ended 11/30/99..... 4.06% 374%
Year Ended 11/30/98..... 4.11 500
Year Ended 11/30/97..... 4.82 249
Year Ended 11/30/96..... 4.75 159
Year Ended 11/30/95..... 4.84 293
Mortgage Securities Income
Class A
Year Ended 12/31/99..... 6.54% 229%
Year Ended 12/31/98..... 6.06 202
Year Ended 12/31/97..... 6.30 184
Year Ended 12/31/96..... 6.38 208
Year Ended 12/31/95..... 6.77 285
Class B
Year Ended 12/31/99..... 5.68% 229%
Year Ended 12/31/98..... 5.33 202
Year Ended 12/31/97..... 5.60 184
Year Ended 12/31/96..... 5.66 208
Year Ended 12/31/95..... 6.06 285
Class C
Year Ended 12/31/99..... 5.80% 229%
Year Ended 12/31/98..... 5.35 202
Year Ended 12/31/97..... 5.61 184
Year Ended 12/31/96..... 5.67 208
Year Ended 12/31/95..... 6.07 285
Corporate Bond
Class A
Year Ended 6/30/99...... 8.13% 281%
Year Ended 6/30/98...... 7.52 244
Year Ended 6/30/97...... 8.34 307
Year Ended 6/30/96...... 9.46 389
Year Ended 6/30/95...... 9.70 387
Class B
Year Ended 6/30/99...... 7.41% 281%
Year Ended 6/30/98...... 6.80 244
Year Ended 6/30/97...... 7.62 307
Year Ended 6/30/96...... 8.75 389
Year Ended 6/30/95...... 9.07 387
Class C
Year Ended 6/30/99...... 7.37% 281%
Year Ended 6/30/98...... 6.83 244
Year Ended 6/30/97...... 7.61 307
Year Ended 6/30/96...... 8.74 389
Year Ended 6/30/95...... 8.95 387
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 52 & 53.
49
<PAGE>
<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>
High Yield
Class A
Year Ended 8/31/99........... $ 10.76 $ 1.02(f) $ (1.08) $ (.06) $ (1.02) $ (.15)
Year Ended 8/31/98........... 11.17 1.03(f) (.27) .76 (1.02) (.14)
4/22/97+ to 8/31/97.......... 10.00 .37(f) 1.15 1.52 (.35) 0.00
Class B
Year Ended 8/31/99........... $ 10.75 $ .95(f) $ (1.08) $ (.13) $ (.95) $ (.15)
Year Ended 8/31/98........... 11.17 .96(f) (.28) .68 (.95) (.14)
4/22/97+ to 8/31/97.......... 10.00 .31(f) 1.19 1.50 (.33) 0.00
Class C
Year Ended 8/31/99........... $ 10.75 $ .95(f) $ (1.07) $ (.12) $ (.95) $ (.15)
Year Ended 8/31/98........... 11.17 .96(f) (.28) .68 (.95) (.14)
4/22/97+ to 8/31/97.......... 10.00 .32(f) 1.18 1.50 (.33) 0.00
Global Strategic Income
Class A
Year Ended 10/31/99.......... $ 10.18 $ .94(f) $ (.22) $ .72 $ (.94) $ 0.00
Year Ended 10/31/98.......... 11.46 .78(f) (.64) .14 (.78) (.36)
Year Ended 10/31/97.......... 10.83 .74(f) 1.02 1.76 (.75) (.10)
1/9/96+ to 10/31/96.......... 10.00 .69(f) .95 1.64 (.81) 0.00
Class B
Year Ended 10/31/99.......... $ 10.17 $ .87(f) $ (.22) $ .65 $ (.87) $ 0.00
Year Ended 10/31/98.......... 11.46 .69(f) (.63) .06 (.69) (.36)
Year Ended 10/31/97.......... 10.83 .66(f) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96........ 9.97 .41(f) 1.01 1.42 (.56) 0.00
Class C
Year Ended 10/31/99.......... $ 10.17 $ .88(f) $ (.23) $ .65 $ (.88) $ 0.00
Year Ended 10/31/98.......... 11.46 .68(f) (.62) .06 (.68) (.36)
Year Ended 10/31/97.......... 10.83 .66(f) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96........ 9.97 .39(f) 1.03 1.42 (.56) 0.00
North American Government Income
Class A
Year Ended 11/30/99.......... $ 7.59 $ .87(f) $ (.25) $ .62 $ (.64) $ 0.00
Year Ended 11/30/98.......... 8.02 .87(f) (.33) .54 (.87) 0.00
Year Ended 11/30/97.......... 8.01 1.03(f) (.05) .98 (.97) 0.00
Year Ended 11/30/96.......... 6.75 1.09(f) 1.14 2.23 (.75) 0.00
Year Ended 11/30/95.......... 8.13 1.18(f) (1.59) (.41) 0.00 0.00
Class B
Year Ended 11/30/99.......... $ 7.61 $ .81(f) $ (.25) $ .56 $ (.59) $ 0.00
Year Ended 11/30/98.......... 8.02 .81(f) (.32) .49 (.81) 0.00
Year Ended 11/30/97.......... 8.01 .98(f) (.07) .91 (.90) 0.00
Year Ended 11/30/96.......... 6.75 1.04(f) 1.12 2.16 (.69) 0.00
Year Ended 11/30/95.......... 8.13 1.13(f) (1.61) (.48) 0.00 0.00
Class C
Year Ended 11/30/99.......... $ 7.61 $ .81(f) $ (.25) $ .56 $ (.59) $ 0.00
Year Ended 11/30/98.......... 8.02 .82(f) (.33) .49 (.82) 0.00
Year Ended 11/30/97.......... 8.01 .98(f) (.07) .91 (.90) 0.00
Year Ended 11/30/96.......... 6.75 1.05(f) 1.11 2.16 (.69) 0.00
Year Ended 11/30/95.......... 8.13 1.13(f) (1.61) (.48) 0.00 0.00
Global Dollar Government
Class A
Year Ended 8/31/99........... $ 5.05 $ .71(f) $ .74 $ 1.45 $ (.74) $ 0.00
Year Ended 8/31/98........... 10.64 .73(f) (4.03) (3.30) (.73) (1.37)
Year Ended 8/31/97........... 10.01 .88(f) 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
Class B
Year Ended 8/31/99........... $ 5.05 $ .67(f) $ .76 $ 1.43 $ (.68) $ 0.00
Year Ended 8/31/98........... 10.64 .67(f) (4.05) (3.38) (.67) (1.36)
Year Ended 8/31/97........... 10.01 .81(f) 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
Class C
Year Ended 8/31/99........... $ 5.05 $ .67(f) $ .76 $ 1.43 $ (.68) $ 0.00
Year Ended 8/31/98........... 10.64 .67(f) (4.05) (3.38) (.67) (1.36)
Year Ended 8/31/97........... 10.01 .82(f) 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
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 52 & 53.
50
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets
in Excess Total Investment At End Of Ratio
of Net Return Dividends Net Asset Return Period of Expenses
Investment of and Value End Based on Net (000's To Average
Fiscal Year or Period Income Capital Distributions of Period Asset Value (a) omitted) Net Assets
--------------------- ------------- ------- ------------- --------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield
Class A
Year Ended 8/31/99...... $ (.05) $ (.01) $ (1.23) $ 9.47 (.58)% $ 102,400 1.31%
Year Ended 8/31/98...... (.01) 0.00 (1.17) 10.76 6.42 43,960 1.43(c)
4/22/97+ to 8/31/97..... 0.00 0.00 (.35) 11.17 15.33 5,889 1.70*(c)
Class B
Year Ended 8/31/99...... $ (.05) $ (.01) $ (1.16) $ 9.46 (1.26)% $ 527,337 2.03%
Year Ended 8/31/98...... (.01) 0.00 (1.10) 10.75 5.69 269,426 2.13(c)
4/22/97+ to 8/31/97..... 0.00 0.00 (.33) 11.17 15.07 43,297 2.40*(c)
Class C
Year Ended 8/31/99...... $ (.05) $ (.01) $ (1.16) $ 9.47 (1.16)% $ 99,927 2.02%
Year Ended 8/31/98...... (.01) 0.00 (1.10) 10.75 5.69 48,337 2.13(c)
4/22/97+ to 8/31/97..... 0.00 0.00 (.33) 11.17 15.07 7,575 2.40*(c)
Global Strategic Income
Class A
Year Ended 10/31/99..... $ (.05) $ 0.00 $ (.99) $ 9.91 7.17% $ 33,813 1.77%
Year Ended 10/31/98..... (.28) 0.00 (1.42) 10.18 1.00 24,576 1.89(c)
Year Ended 10/31/97..... (.28) 0.00 (1.13) 11.46 16.83 12,954 1.90(c)
1/9/96+ to 10/31/96..... 0.00 0.00 (.81) 10.83 17.31 2,295 1.90*(c)
Class B
Year Ended 10/31/99..... $ (.05) $ 0.00 $ (.92) $ 9.90 6.44% $ 79,085 2.47%
Year Ended 10/31/98..... (.30) 0.00 (1.35) 10.17 .27 58,058 2.58(c)
Year Ended 10/31/97..... (.29) 0.00 (1.06) 11.46 16.12 18,855 2.60(c)
3/25/96++ to 10/31/96... 0.00 0.00 (.56) 10.83 14.47 800 2.60*(c)
Class C
Year Ended 10/31/99..... $ (.04) $ 0.00 $ (.92) $ 9.90 6.44% $ 22,598 2.46%
Year Ended 10/31/98..... (.31) 0.00 (1.35) 10.17 .27 16,067 2.58(c)
Year Ended 10/31/97..... (.29) 0.00 (1.06) 11.46 16.12 4,388 2.60(c)
3/25/96++ to 10/31/96... 0.00 0.00 (.56) 10.83 14.47 750 2.60*(c)
North American Government
Income
Class A
Year Ended 11/30/99..... $ (.11) $ (.18) $ (.93) $ 7.28 8.56% $ 730,468 2.09%(d)
Year Ended 11/30/98..... (.07) (.03) (.97) 7.59 7.14 740,066 2.04(d)
Year Ended 11/30/97..... 0.00 0.00 (.97) 8.02 12.85 511,749 2.15(d)
Year Ended 11/30/96..... 0.00 (.22) (.97) 8.01 35.22 385,784 2.34(d)
Year Ended 11/30/95..... 0.00 (.97) (.97) 6.75 (3.59) 252,608 2.62(d)
Class B
Year Ended 11/30/99..... $ (.10) $ (.17) $ (.86) $ 7.31 7.79% $ 1,011,395 2.78%(d)
Year Ended 11/30/98..... (.06) (.03) (.90) 7.61 6.46 1,300,519 2.75(d)
Year Ended 11/30/97..... 0.00 0.00 (.90) 8.02 11.88 1,378,407 2.86(d)
Year Ended 11/30/96..... 0.00 (.21) (.90) 8.01 33.96 1,329,719 3.05(d)
Year Ended 11/30/95..... 0.00 (.90) (.90) 6.75 (4.63) 1,123,074 3.33(d)
Class C
Year Ended 11/30/99..... $ (.10) $ (.17) $ (.86) $ 7.31 7.79% $ 258,696 2.78%(d)
Year Ended 11/30/98..... (.05) (.03) (.90) 7.61 6.46 276,073 2.74(d)
Year Ended 11/30/97.. 0.00 0.00 (.90) 8.02 11.88 283,483 2.85(d)
Year Ended 11/30/96..... 0.00 (.21) (.90) 8.01 33.96 250,676 3.04(d)
Year Ended 11/30/95..... 0.00 (.90) (.90) 6.75 (4.63) 219,009 3.33(d)
Global Dollar Government
Class A
Year Ended 8/31/99...... $ (.04) $ (.03) $ (.81) $ 5.69 29.40% $ 50,540 1.59%
Year Ended 8/31/98...... (.04) (.15) (2.29) 5.05 (38.56) 32,365 1.48
Year Ended 8/31/97...... 0.00 0.00 (2.10) 10.64 30.04 37,416 1.55
Year Ended 8/31/96...... 0.00 0.00 (.95) 10.01 38.47 23,253 1.65
Year Ended 8/31/95...... 0.00 0.00 (.88) 8.02 (1.48) 12,020 1.93
Class B
Year Ended 8/31/99...... $ (.03) $ (.03) $ (.74) $ 5.74 28.85% $ 110,003 2.31%
Year Ended 8/31/98...... (.04) (.14) (2.21) 5.05 (39.11) 79,660 2.22
Year Ended 8/31/97...... 0.00 0.00 (2.02) 10.64 29.14 93,377 2.26
Year Ended 8/31/96...... 0.00 0.00 (.87) 10.01 37.36 84,295 2.37
Year Ended 8/31/95...... 0.00 0.00 (.81) 8.02 (2.40) 62,406 2.64
Class C
Year Ended 8/31/99...... $ (.03) $ (.03) $ (.74) $ 5.74 28.85% $ 39,024 2.30%
Year Ended 8/31/98...... (.04) (.14) (2.21) 5.05 (39.09) 23,711 2.19
Year Ended 8/31/97...... 0.00 0.00 (2.03) 10.64 29.17 25,130 2.25
Year Ended 8/31/96...... 0.00 0.00 (.88) 10.01 37.40 14,511 2.35
Year Ended 8/31/95...... 0.00 0.00 (.81) 8.02 (2.36) 9,330 2.63
<CAPTION>
Ratio of Net
Investment
Income (Loss) Portfolio
To Average Turnover
Fiscal Year or Period Net Assets Rate
--------------------- ------------- ---------
<S> <C> <C>
High Yield
Class A
Year Ended 8/31/99...... 10.21% 182%
Year Ended 8/31/98...... 8.89 311
4/22/97+ to 8/31/97..... 8.04* 73
Class B
Year Ended 8/31/99...... 9.52% 182%
Year Ended 8/31/98...... 8.18 311
4/22/97+ to 8/31/97..... 7.19* 73
Class C
Year Ended 8/31/99...... 9.54% 182%
Year Ended 8/31/98...... 8.17 311
4/22/97+ to 8/31/97..... 7.24* 73
Global Strategic Income
Class A
Year Ended 10/31/99..... 9.34% 254%
Year Ended 10/31/98..... 7.08 183
Year Ended 10/31/97..... 6.56 417
1/9/96+ to 10/31/96..... 8.36* 282
Class B
Year Ended 10/31/99..... 8.54% 254%
Year Ended 10/31/98..... 6.41 183
Year Ended 10/31/97..... 5.86 417
3/25/96++ to 10/31/96... 7.26* 282
Class C
Year Ended 10/31/99..... 8.52% 254%
Year Ended 10/31/98..... 6.43 183
Year Ended 10/31/97..... 5.86 417
3/25/96++ to 10/31/96... 7.03* 282
North American Government
Income
Class A
Year Ended 11/30/99..... 11.72% 158%
Year Ended 11/30/98..... 11.17 175
Year Ended 11/30/97..... 12.78 118
Year Ended 11/30/96..... 14.82 166
Year Ended 11/30/95..... 18.09 180
Class B
Year Ended 11/30/99..... 10.97% 158%
Year Ended 11/30/98..... 10.44 175
Year Ended 11/30/97..... 12.15 118
Year Ended 11/30/96..... 14.20 166
Year Ended 11/30/95..... 17.31 180
Class C
Year Ended 11/30/99..... 10.98% 158%
Year Ended 11/30/98..... 10.45 175
Year Ended 11/30/97..... 12.14 118
Year Ended 11/30/96..... 14.22 166
Year Ended 11/30/95..... 17.32 180
Global Dollar Government
Class A
Year Ended 8/31/99...... 12.34% 179%
Year Ended 8/31/98...... 8.51 188
Year Ended 8/31/97...... 8.49 314
Year Ended 8/31/96...... 9.23 315
Year Ended 8/31/95...... 11.25 301
Class B
Year Ended 8/31/99...... 11.59% 179%
Year Ended 8/31/98...... 7.78 188
Year Ended 8/31/97...... 7.81 314
Year Ended 8/31/96...... 8.57 315
Year Ended 8/31/95...... 10.52 301
Class C
Year Ended 8/31/99...... 11.56% 179%
Year Ended 8/31/98...... 7.75 188
Year Ended 8/31/97...... 7.82 314
Year Ended 8/31/96...... 8.52 315
Year Ended 8/31/95...... 10.46 301
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 52 & 53.
51
<PAGE>
<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>
Multi-Market Strategy
Class A
Year Ended 10/31/99.... $ 6.64 $ .42(f) $ (.22) $ .20 $ (.42) $ 0.00
Year Ended 10/31/98.... 7.11 .44(f) .02 .46 (.44) 0.00
Year Ended 10/31/97.... 7.23 .47(f) .08 .55 (.47) 0.00
Year Ended 10/31/96.... 6.83 .59(f) .48 1.07 (.67) 0.00
Year Ended 10/31/95.... 8.04 .77(f) (1.31) (.54) 0.00 0.00
Class B
Year Ended 10/31/99.... $ 6.66 $ .36(f) $ (.22) $ .14 $ (.36) $ 0.00
Year Ended 10/31/98.... 7.11 .36(f) .05 .41 (.36) 0.00
Year Ended 10/31/97.... 7.23 .42(f) .06 .48 (.42) 0.00
Year Ended 10/31/96.... 6.83 .53(f) .47 1.00 (.60) 0.00
Year Ended 10/31/95.... 8.04 .44(f) (1.05) (.61) 0.00 0.00
Class C
Year Ended 10/31/99.... $ 6.65 $ .36(f) $ (.22) $ .14 $ (.36) $ 0.00
Year Ended 10/31/98.... 7.11 .25(f) .16 .41 (.41) 0.00
Year Ended 10/31/97.... 7.23 .42(f) .07 .49 (.42) 0.00
Year Ended 10/31/96.... 6.83 .54(f) .47 1.01 (.61) 0.00
Year Ended 10/31/95.... 8.04 .44(f) (1.04) (.60) 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
+ Commencement of operations.
++ Commencement of distribution.
* Annualized.
(a) 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.
(b) If Alliance U.S. Government Fund had not borne interest expense, the ratio
of expenses to average net assets would have been 1.08% with respect to
Class A shares, 1.79% with respect to Class B shares, 1.78% with respect
to Class C shares. If Alliance 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, 1.41% for 1995, 1.58% for 1996, 1.65%
for 1997, 1.68% for 1998 and 1.62% for 1999; with respect to Class B
shares, 2.11% for 1995, 2.30% for 1996, 2.39% for 1997, 2.39% for 1998 and
2.34% for 1999; with respect to Class C shares, 2.10% for 1995, 2.29% for
1996, 2.37% for 1997, 2.38% for 1998 and 2.33% for 1999. If Alliance
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 .1.03% for 1995, 1.03% for 1996, 1.07% for 1997, 1.14% for 1998 and
1.16% for 1999; with respect to Class B shares, 1.74% for 1995, 1.74% for
1996, 1.78% for 1997, 1.85% for 1998, and 1.89% for 1999; with respect to
Class C shares 1.73% for 1995, 1.73% for 1996, 1.77% for 1997, 1.84% for
1998, and 1.87% for 1999.
52
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets
in Excess Total Investment At End Of Ratio
of Net Return Dividends Net Asset Return Period of Expenses
Investment of and Value End Based on Net (000's To Average
Fiscal Year or Period Income Capital Distributions of Period Asset Value (a) omitted) Net Assets
--------------------- ------------- ------- ------------- --------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Multi-Market Strategy
Class A
Year Ended 10/31/99.... $ (.02) $ (.11) $ (.55) $ 6.29 2.95% $ 396,867 1.44%(e)
Year Ended 10/31/98.... (.42) (.07) (.93) 6.64 6.90 95,568 1.74(e)
Year Ended 10/31/97.... (.20) 0.00 (.67) 7.11 7.82 96,133 1.58(e)
Year Ended 10/31/96.... 0.00 0.00 (.67) 7.23 16.37 68,776 1.64(d)
Year Ended 10/31/95.... 0.00 (.67) (.67) 6.83 (6.47) 76,837 1.60(d)
Class B
Year Ended 10/31/99.... $ (.02) $ (.10) $ (.48) $ 6.32 2.13% $ 18,129 2.15%(e)
Year Ended 10/31/98.... (.43) (.07) (.86) 6.66 6.24 7,217 2.41(e)
Year Ended 10/31/97.... (.18) 0.00 (.60) 7.11 6.90 29,949 2.29(e)
Year Ended 10/31/96.... 0.00 0.00 (.60) 7.23 15.35 88,427 2.35(d)
Year Ended 10/31/95.... 0.00 (.60) (.60) 6.83 (7.31) 116,551 2.29(d)
Class C
Year Ended 10/31/99.... $ (.02) $ (.10) $ (.48) $ 6.31 2.13% $ 19,076 2.15%(e)
Year Ended 10/31/98.... (.42) (.04) (.87) 6.65 6.10 16,518 2.61(e)
Year Ended 10/31/97.... (.19) 0.00 (.61) 7.11 6.92 1,203 2.28(e)
Year Ended 10/31/96.... 0.00 0.00 (.61) 7.23 15.36 1,076 2.34(d)
Year Ended 10/31/95.... 0.00 (.61) (.61) 6.83 (7.29) 786 2.29(d)
<CAPTION>
Ratio of Net
Investment
Income (Loss) Portfolio
To Average Turnover
Fiscal Year or Period Net Assets Rate
--------------------- -------------- ---------
<S> <C> <C>
Multi-Market Strategy
Class A
Year Ended 10/31/99.... 6.23% 124%
Year Ended 10/31/98.... 6.46 240
Year Ended 10/31/97.... 6.50 173
Year Ended 10/31/96.... 8.40 215
Year Ended 10/31/95.... 8.56 400
Class B
Year Ended 10/31/99.... 5.46% 124%
Year Ended 10/31/98.... 5.64 240
Year Ended 10/31/97.... 5.79 173
Year Ended 10/31/96.... 7.69 215
Year Ended 10/31/95.... 7.53 400
Class C
Year Ended 10/31/99.... 5.50% 124%
Year Ended 10/31/98.... 5.28 240
Year Ended 10/31/97.... 5.80 173
Year Ended 10/31/96.... 7.62 215
Year Ended 10/31/95.... 7.55 400
</TABLE>
- --------------------------------------------------------------------------------
(c) Net of expenses assumed and/or waived/reimbursed. If Alliance High Yield
had borne all expenses for the respective periods April 22, 1997 to August
31, 1997 and the fiscal year ended August 31, 1998, the expense ratios
would have been with respect to Class A shares, 3.11% (annualized) and
1.46%, respectively; with respect to Class B shares, 3.85% (annualized)
and 2.16%, respectively; and with respect to Class C shares, 3.84%
(annualized) and 2.16%, respectively. If Alliance Global Strategic Income
had borne all expenses for the respective periods January 9, 1996 to
October 31, 1996, its fiscal year ended 1997, its fiscal year ended in
1998, the expense ratio would have been with respect to Class A shares,
19.20% (annualized), 4.06%, and 2.08%, respectively; with respect to Class
B shares, 19.57% (annualized), 4.76%, and 2.76% respectively; and with
respect to Class C shares, 19.49% (annualized), 4.77%, and 2.77%
respectively.
(d) Includes interest expenses.If Alliance 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, 1.51% for 1995, 1.41% for 1996, 1.38% for 1997, 1.36% for 1998 and
1.38% for 1999; with respect to Class B shares, 2.22% for 1995, 2.12% for
1996, 2.09% for 1997, 2.07% for 1998 and 2.08% for 1999; and with respect
to Class C shares, 2.21% for 1995, 2.12% for 1996, 2.08% for 1997, 2.06%
for 1998 and 2.08% for 1999. If Alliance 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, 1.55% for 1995, and
1.60% for 1996; with respect to Class B shares, 2.22% for 1995, and 2.31%
for 1996; with respect to Class C shares, 2.24% for 1995, and 2.30% for
1996.
(e) 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, for Alliance Multi-Market
Strategy would have been with respect to Class A shares 1.57% for 1997,
1.73% for 1998 and 1.42% for 1999, with respect to Class B shares 2.28%
for 1997, 2.40% for 1998 and 2.14% for 1999 and with respect to Class C
shares 2.27% for 1997, 2.60% for 1998 and 2.14% for 1999.
(f) Based on average shares outstanding.
53
<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
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
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
54
<PAGE>
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.
55
<PAGE>
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.
56
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
ABOUT CANADA, MEXICO
- --------------------------------------------------------------------------------
AND ARGENTINA
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and three 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 Canadian Dollar-U.S. Dollar exchange rate generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Since 1991, Canada generally has experienced a weakening of
its currency. The Canadian Dollar reached an all-time low of 1.5770 Canadian
Dollars per U.S. Dollar on August 27, 1998. On February 15, 2000, the Canadian
Dollar-U.S. Dollar exchange rate was 1.4553:1. 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 growth in gross domestic product and
a substantial reduction in the rate of inflation and in the public sector
financial deficit. Much of the past improvement in the Mexican economy was due
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 launched 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 the
government and the business and labor sectors of the economy entered into a new
accord 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 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 has been
57
<PAGE>
sustained, resulting in increases of 5.2%, 6.8%, 4.8% and 3.7% in 1996, 1997,
1998 and 1999, respectively. In addition, inflation dropped from a 52% annual
rate in 1995 to a 12.3% annual rate in 1999. 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.
Under economic policy initiatives implemented on and after 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 freely 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, from 1997 through 1999 the Peso-Dollar exchange rate decreased
approximately 20%.
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.
Shortly after taking office in 1989, the country's then President adopted
market-oriented and reformist policies, including an aggressive 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, inflation was brought under control and gross domestic
product has increased each year between 1991 and 1998, with the exception of
1995. During the first two quarters of 1999, however, gross domestic product
contracted by an estimated 3.0% and 4.9%, respectively. The recent slowdown of
economic activity, which has been attributed to external economic conditions as
well as internal political uncertainties and is not expected to persist, has
fostered a deflationary process, evidenced by the 1.8% decrease in the consumer
price index during the 12 months ended November 30, 1999. 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. There is no assurance
that Argentina's economic policy initiatives will be successful or that the
current President, who took office on December 10, 1999, and 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 Argentine 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 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.
58
<PAGE>
For more information about the Funds, the following documents are available upon
request:
Annual/Semi-Annual Reports to Shareholders
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected a Fund's performance during its last fiscal year.
Statement of Additional Information (SAI)
Each Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Funds' SAIs are
incorporated by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
or make inquiries concerning the Funds, by contacting your broker or other
financial intermediary, or by contacting Alliance:
By mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
o Call the Commision at 1-202-942-8090 for information on the operation of
the Public Reference Room.
o Reports and other information about the Fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov
o Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at [email protected], or by writing the
Commission's Public Reference Section, Wash. DC 20549-0102
You also may find more information about Alliance and the Funds on the Internet
at: www.Alliancecapital.com.
Fund SEC File No.
U.S. Government 811-02383
Limited Maturity Government 811-06627
Mortgage Securities Income 811-03829
Quality Bond 811-02383
Corporate Bond 811-02383
High Yield 811-9160
Global Strategic Income 811-07391
North American Government Income 811-06554
Global Dollar Government 811-08188
Multi-Market Strategy 811-06251
59
<PAGE>
================================================================================
ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
================================================================================
U.S. Government Portfolio
Limited Maturity Government Fund
Mortgage Securities Income Fund
Quality Bond Portfolio
Corporate Bond Portfolio
High Yield Fund
Global Strategic Income Trust
North American Government Income Trust
Global Dollar Government Fund
Multi-Market Strategy Trust
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:
o Indicate your name(s) exactly as it appears on your social
security card.
> Transfer on Death:
o Ensure that your state participates
> Trust/Other:
o 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:
o 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). AE Check off a distribution option for your dividends. 0 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
Or Visit Our Website At: www.alliancecapital.com
================================================================================
For Literature Call: (800) 227-4618
================================================================================
<PAGE>
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
o For TOD accounts, please check
Individuals or Joint Account and attach additional sheet of paper if necessary
|_||_||_||_||_||_||_||_||_||_| |_| |_||_||_||_||_||_||_||_||_||_|
Owner or Custodian (First Name) (MI) (Last Name)
|_||_||_||_||_||_||_||_||_||_| |_| |_||_||_||_||_||_||_||_||_||_|
(First Name) Joint Owner*, (MI) (Last Name)
Transfer On Death Beneficiary
or Minor
|_||_||_| - |_||_| - |_||_||_||_| If Uniform Gift/Transfer to
Social Security Number of Owner Minor Account:
or Minor (required to open 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 (MI) (Last Name)
(First 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
----------------------------------------
----------------------------------------
e-mail address
91330TABFAPP-P1
1
<PAGE>
================================================================================
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 Alliance Special Equity Institutional Fund
and elect distribution options as indicated.
Dividend and Capital Gain Distribution
Options:
R Reinvest distributions into my fund
account.
- --------------------------------------
Broker/Dealer Use Only: Wire Confirm # 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.
- ----------- -------------- ---------------------- --------------------------
Distributions Options
*Check One*
Indicate three --------------------------
digit Fund --------- --------------
number located Indicate Dollar Amount Dividends Capital Gains
Make all below R C D R C D
checks* -------------- ---------------------- --------- --------------
payable to: |_||_||_| $_____________________ |R||C||D| |R||C||D|
Alliance |_||_||_| $_____________________ |R||C||D| |R||C||D|
Funds |_||_||_| $_____________________ |R||C||D| |R||C||D|
$_____________________ |R||C||D| |R||C||D|
Cash and
Money
Orders are
not accepted
- -----------
- -------------------------
Total Investment $_____________________
- -------------------------
================================================================================
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 and High Yield Fund. 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 Contingent Deferred Asset-Based
Sales Charge Sales Charge Sales Charge
A B C
------------ ------------------- ------------
<S> <C> <C> <C> <C>
- -------------------
U.S. Government Portfolio 46 76 346
----------------------------------------------------------------------------------------
U.S. Goverment Limited Maturity Government Fund 88 89 388
----------------------------------------------------------------------------------------
Funds Mortgage Securities Income Fund 52 63 352
- -------------------
- -----------------------------------------------------------------------------------------------------------
Quality Bond Fund Quality Bond Portfolio 104 204 304
- -----------------------------------------------------------------------------------------------------------
- -------------------
Mortgage Fund Corporate Bond Portfolio 95 295 395
----------------------------------------------------------------------------------------
- -------------------
Multi-Market Fund High Yield Fund 103 203 303
- -------------------
- -------------------
----------------------------------------------------------------------------------------
Global Strategic Income Trust 124 224 324
----------------------------------------------------------------------------------------
Global Bond North American Government Income Trust 55 56 355
----------------------------------------------------------------------------------------
Funds Global Dollar Government Fund 166 266 366
- -------------------
- -------------------
----------------------------------------------------------------------------------------
Corporate Bond Multi-Market Strategy Trust 22 23 322
----------------------------------------------------------------------------------------
Funds
- -------------------
</TABLE>
91330TABFAPP-P2
2
<PAGE>
================================================================================
4. Your Shareholder Options
================================================================================
A. Automatic Investment Plans (AIP) - Periodic Purchases
|_| Withdraw From My Bank Account Via EFT*
I authorize Alliance to draw on my bank account for investment in my
Fund account 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 Class 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 stock 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.
================================================================================
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 15 calendar days after the purchase date.
================================================================================
91330TABFAPP-P3
3
<PAGE>
================================================================================
4. Your Shareholder Options (CONTINUED)
================================================================================
C. Systematic Withdrawal Plans (SWP) - Periodic Redemptions
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)
|_| The Payee and address specified in section 4E (via check) (Medallion
Signature Guarantee required)
|_| 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
D. Bank Information This bank account information will be used for:
|_| Distributions (Section 3) |_| Telephone Transactions
(Section 4B)
|_| Automatic Investments |_| Withdrawals (Section 4C)
(Section 4A)
================================================================================
Please Tape a Pre-printed Voided Check Here*
================================================================================
[GRAPHIC OF VOIDED CHECK OMITTED]
* 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.
|_||_||_||_||_||_||_||_||_| |_||_||_||_||_||_||_||_||_||_||_||_||_|
Your Bank's ABA Routing Number Your Bank Account Number
|_| Checking Account |_| Savings Account
91330TABFAPP-P4
4
<PAGE>
================================================================================
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
91330TABFAPP-P5
5
<PAGE>
================================================================================
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.
|_| 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
Alliance Capital [LOGO](R)
The Investment Professional's Choice
91330TABFAPP-P6
6
<PAGE>
================================================================================
Signature Card
================================================================================
Alliance Capital [LOGO](R)
The Investment Professional's Choice
Medallion Signature Guarantee (see reverse)
----------------
Dealer/Bank Name:...................................... *Information
Necessary to
Fund Acct. No.:*....................................... Complete Request
----------------
Fund Name:*............................................
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
<PAGE>
Alliance Global Advisor Class Prospectus and Application
Strategic Income
Trust March 1, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
AllianceCapital [LOGO](R)
<PAGE>
Investment Products Offered
- -------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
- -------------------------
2
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page
----
RISK/RETURN SUMMARY ....................................................... 3
FEES AND EXPENSES OF THE FUND ............................................. 5
GLOSSARY .................................................................. 6
DESCRIPTION OF THE FUND ................................................... 7
Investment Objective and Principal Policies and
Risks ................................................................... 7
Description of Additional Investment Practices ............................ 9
Additional Risk Considerations ............................................ 18
MANAGEMENT OF THE FUND .................................................... 20
PURCHASE AND SALE OF SHARES ............................................... 20
How The Fund Values Its Shares ............................................ 20
How To Buy Shares ......................................................... 20
How To Exchange Shares .................................................... 21
How To Sell Shares ........................................................ 21
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 22
CONVERSION FEATURE ........................................................ 22
GENERAL INFORMATION ....................................................... 23
FINANCIAL HIGHLIGHTS ...................................................... 25
APPENDIX A: BOND RATINGS .................................................. 29
- --------------------------------------------------------------------------------
Alliance Global Strategic Income Trust's investment adviser is Alliance Capital
Management L.P., a global investment manager providing diversified services to
institutions and individuals through a broad line of investments including more
than 100 mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about Alliance Global
Strategic Income Trust. You will find additional information about the Fund,
including a detailed description of the risks of an investment in the Fund,
after this Summary. Please be sure to read the more complete description of the
Fund following this summary, including the risks associated with investing in
the Fund, BEFORE you invest. The Fund may at times use certain types of
investment derivatives such as options, futures, forwards and swaps. The use of
these techniques includes special risks that are discussed in this Prospectus.
3
<PAGE>
Alliance Global Strategic Income Trust
- --------------------------------------------------------------------------------
OBJECTIVE:
The Fund's investment objective is primarily a high level of current income and,
secondarily, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund primarily invests in debt securities of U.S. and non-U.S. companies,
U.S. Government and foreign governments, and supranational entities. The Fund's
foreign investments are generally denominated in foreign currencies. The Fund,
however, generally seeks to hedge currency risk. The Fund normally invests at
least 65% of its total assets in debt securities of companies located in at
least three countries, one of which may be the United States. The Fund limits
its investments in any one foreign country to 25% of its total assets.
The Fund invests at least 65% of its total assets in investment grade
securities, but also may invest up to 35% of its total assets in lower-rated
securities. The average weighted maturity of the Fund's investments varies
between five and 30 years.
The Fund may use significant borrowings and reverse repurchase agreements and
dollar rolls for leverage. The Fund also may:
o use derivatives strategies;
o invest in structured securities;
o invest in Eurodollar instruments and foreign currencies;
o invest in asset-backed and mortgage-related securities;
o enter into repurchase agreements; and
o invest in floating, variable, and inverse floating rate securities.
PRINCIPAL RISKS:
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk and leveraging risk. The Fund's investments in foreign
issuers have foreign risk and currency risk. To the extent the Fund invests in
lower-rated securities, your investment is subject to more risk than a fund that
invests primarily in higher-rated securities. The Fund's use of derivatives
strategies has derivatives risk. In addition, the Fund is "non-diversified"
meaning that it invests more of its assets in a smaller number of issuers than
many other funds. Changes in the value of a single security may have a more
significant effect, either negative or positive, on the Fund's net asset value.
As with all investments, you may lose money by investing in the Fund.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund by showing how the Fund's average annual returns compare
to a broad-based securities market index and by showing the Fund's performance
for the most recent year. The Fund's past performance, of course, does not
necessarily indicate how it will perform in the future.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year Inception
- --------------------------------------------------------------------------------
Advisor Class 7.84% 5.33%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index -0.82% 3.82%
- --------------------------------------------------------------------------------
Index returns and average annual total returns in the performance table are for
the periods ended 12/31/99. Advisor Class shares inception date is 12/18/97.
Since inception index return is from 12/31/97.
BAR CHART
- --------------------------------------------------------------------------------
[The following table was depicted as a bar chart in the printed material.]
Calendar Year End
90 n/a
91 n/a
92 n/a
93 n/a
94 n/a
95 n/a
96 n/a
97 n/a
98 2.37
99 7.84
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 5.46%, 1st quarter, 1998; and Worst quarter was down -5.52%,
3rd quarter, 1998.
4
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
Advisor Class Shares
--------------------
Maximum Front-end or Deferred Sales Charge (Load) None
(as a percentage of original purchase
price or redemption proceeds,
whichever is lower)
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
The Example is to help you compare the cost of investing in the Fund with the
cost of investing in other funds. It assumes that you invest $10,000 in the Fund
for the time periods indicated and then redeem all your shares at the end of
those periods. It also assumes that your investment has a 5% return each year,
that the Fund's operating expenses stay the same and that all dividends and
distributions are reinvested. Your actual costs may be higher or lower.
EXAMPLE
Operating Expenses Example
-------------------------------------- -------------------------------
Alliance Global Strategic
Income Trust
Management fees .75% After 1 year $ 148
12b-1 fees none After 3 years $ 459
Other expenses .70% After 5 years $ 792
-----
Total Fund operating expenses 1.45% After 10 years $ 1,735
-----
5
<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
This Prospectus uses the following terms.
TYPES OF SECURITIES
Bonds are fixed, floating, and variable rate debt obligations.
Convertible securities are bonds, debentures, corporate notes, and preferred
stocks that are convertible into common and preferred stock.
Debt securities are bonds, debentures, notes, and bills.
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.
Fixed-income securities are debt securities, convertible securities, and
preferred stocks, including 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 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.
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.
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, that 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.
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:
o ARMS, which are adjustable-rate mortgage securities;
o SMRS, which are stripped mortgage-related securities;
o CMOs, which are collateralized mortgage obligations;
o GNMA certificates, which are securities issued by the Government National
Mortgage Association or GNMA;
o FNMA certificates, which are securities issued by the Federal National
Mortgage Association or FNMA; and
o FHLMC certificates, which are securities issued by the Federal Home Loan
Mortgage Corporation or FHLMC.
Qualifying bank deposits are certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks that have total assets of more than
$1 billion and are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold under Rule 144A under the
Securities Act.
Sovereign debt obligations are foreign government debt securities, loan
participations between foreign governments and financial institutions, and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
U.S. Government securities are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. 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. U.S. Government securities not backed by
the full faith and credit of the United States include certificates issued by
FNMA and FHLMC.
RATING AGENCIES AND RATED SECURITIES
Duff & Phelps is Duff & Phelps Credit Rating Company.
Fitch is Fitch IBCA, Inc.
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.
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."
Moody's is Moody's Investors Service, Inc.
NRSRO is a nationally recognized statistical rating organization.
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.
S&P is Standard & Poor's Ratings Services.
Other
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Duration is a measure that relates the price volatility of a security to changes
in interest rates. The duration of a debt security is the weighted average term
to maturity, expressed in years, of the present value of all future cash flows,
including
6
<PAGE>
coupon payments and principal repayments. Thus, by definition, duration is
always less than or equal to full maturity.
Exchange is the New York Stock Exchange.
LIBOR is the London Interbank Offered Rate.
Securities Act is the Securities Act of 1933, as amended.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE FUND
- --------------------------------------------------------------------------------
This section of the Prospectus provides a more complete description of the
investment objective and principal strategies and risks of the Fund. Of course,
there can be no assurance that the Fund will achieve its investment objective.
Please note that:
o Additional discussions of the Fund's investments, including the risks of
the investments, can be found in the discussions under Description of
Additional Investment Practices and Additional Risk Considerations
following this section.
o Additional descriptions of the Fund's strategies, investments, and risks,
can be found in the Fund's Statement of Additional Information or SAI.
o Except as noted, (i) the Fund's investment objectives are "fundamental"
and cannot be changed without a shareholder vote, and (ii) the Fund's
investment policies are not fundamental and thus can be changed without a
shareholder vote.
INVESTMENT OBJECTIVE AND PRINCIPAL POLICIES AND RISKS
Investment Objective
Alliance Global Strategic Income Trust seeks primarily a high level of current
income and, secondarily, capital appreciation.
Principal Policies
The Fund invests primarily in a portfolio of debt securities of U.S. and
non-U.S. companies and U.S. Government and foreign governments and supranational
entities, including lower-rated securities. The Fund also may use derivative
instruments to attempt to enhance income. The Fund expects that the average
weighted maturity of its portfolio of fixed-income securities will vary between
five years and 30 years in accordance with Alliance's changing perceptions of
the relative attractiveness of various maturity ranges.
The Fund normally invests at least 65% of its total assets in fixed-income
securities of issuers located in at least three countries, one of which may be
the United States. The Fund limits its investments in the securities of any one
foreign government to 25% of its total assets. The Fund's investments in U.S.
Government securities may include mortgage-related securities and zero coupon
securities. The Fund's investments in fixed-income securities may include
preferred stock, mortgage-related and other asset-backed securities, and zero
coupon securities.
The Fund invests at least 65% of its total assets in investment grade securities
and may invest up to 35% of its total assets in lower-rated 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 limit the risk to the Fund
to a degree comparable to that of rated securities that 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.
The Fund also may:
o invest in rights and warrants;
o invest in loan participations and assignments;
o invest in foreign currencies;
o purchase and write put and call options on securities and foreign
currencies;
o purchase or sell forward foreign exchange contracts;
o invest in variable, floating, and inverse floating rate instruments;
o invest in indexed commercial paper;
o invest in structured securities;
o enter into forward commitments;
o enter into standby commitments;
o 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;
o invest in Eurodollar instruments;
o enter into interest rate swaps, caps, and floors;
o make short sales of securities or maintain a short position;
o enter into reverse repurchase agreements and dollar rolls;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
The Fund may borrow in order to purchase securities or make other investments,
although it currently limits its borrowings to 25% of its total assets.
Principal Risks
The value of your investment in the Fund will change with changes in the values
of the Fund's investments. Many factors can affect those values. In this
discussion, we describe the principal risks that may affect the Fund as a whole.
The Fund could be subject to additional principal risks because the types
7
<PAGE>
of investments made by the Fund can change over time. This Prospectus has
additional descriptions of the types of investments that appear in bold type in
the discussions under "Descriptions of Additional Investment Practices" and
"Additional Risk Considerations." These sections also include more information
about the Fund, its investments, and related risks.
o Interest Rate Risk
This is the risk that changes in interest rates will affect the value of
the Fund's investments in debt securities, or other income-producing
securities. Increases in interest rates may cause the value of the Fund's
investments to decline.
Interest rate risk generally is greater for the Fund because it invests a
significant portion of its assets in lower-rated securities or comparable
unrated securities.
Interest rate risk also is generally greater for the Fund because it
invests in debt securities with longer maturities. This risk may be
compounded for the Fund's investments in mortgage-related securites or
other asset-backed securities. The value of these securities is affected
more by changes in interest rates because when interest rates rise, the
maturities of these types of securities tend to lengthen and the value of
the securities decreases more significantly. In addition, these types of
securities are subject to prepayment when interest rates fall, which
generally results in lower returns because the Funds must reinvest their
assets in debt securities with lower interest rates. Increased interest
rate risk also is likely for the Fund due to its investments in debt
securities paying no current interest, such as zero coupon,
principal-only, and interest-only securities.
o Credit Risk
This is the risk that the issuer or the guarantor of a debt security, or
the counterparty to a derivatives contract, will be unable or unwilling to
make timely payments of interest or principal, or to otherwise honor its
obligations. The degree of risk for a particular security may be reflected
in its credit rating. Credit risk is greater for the Fund's investments in
lower-rated securities. These debt securities and similar unrated
securities (commonly known as "junk bonds") have speculative elements or
are predominantly speculative credit risks.
The Fund's investments in foreign securities are subject to increased
credit risk because of the difficulties of requiring foreign entities,
including issuers of sovereign debt obligations, to honor their
contractual commitments, and because a number of foreign governments and
other issuers are already in default.
o Market Risk
This is the risk that the value of the Fund's investments will fluctuate
as the bond markets fluctuate and that prices overall will decline over
shorter or longer-term periods.
o Foreign Risk
This is the risk of investments in issuers located in foreign countries.
The Fund's investments in foreign securities may experience more rapid and
extreme changes in value than if it invested solely in securities of U.S.
companies. The securities markets of many foreign countries are relatively
small, with a limited number of companies representing a small number of
securities. In addition, foreign companies usually are not subject to the
same degree of regulation as U.S. companies. Reporting, accounting, and
auditing standards of foreign countries differ, in some cases
significantly, from U.S. standards. Nationalization, expropriation or
confiscatory taxation, currency blockage, political changes, or diplomatic
developments could adversely affect the Fund's investments in a foreign
country. In the event of nationalization, expropriation, or other
confiscation, the Fund could lose its entire investment.
Political, social, and economic changes in a particular country could
result in increased risks for the Fund because a substantial portion of
its assets are in sovereign debt obligations, including Brady Bonds. The
Fund's investments in a specific geographic area like Europe or the
Americas generally have more exposure to regional economic risks than
funds making foreign investments throughout the world's economies.
o Currency Risk
This is the risk that fluctuations in the exchange rates between the U.S.
Dollar and foreign currencies may negatively affect the value of a Fund's
investments. The Fund's investments in securities denominated in, and
receiving revenues in, foreign currencies are subject to currency risk.
o Diversification Risk
Most analysts believe that overall risk can be reduced through
diversification, while concentration of investments in a small number of
securities increases risks. The Fund is "non-diversified" meaning that it
can invest more of its assets in a relatively smaller number of issuers
with a greater concentration of risk. Factors affecting these issuers can
have a more significant effect on the Fund's net asset value.
o Leveraging Risk
When the Fund borrows money or otherwise leverages its portfolio, the
value of an investment in the Fund will be more volatile and all other
risks will tend to be compounded. The Fund may create leverage by using
reverse repurchase agreements, inverse floating rate instruments or
derivatives, or by borrowing money.
o Derivatives Risk
Derivatives that the Fund may use are financial contracts whose value
depends on, or is derived from, the value of an underlying asset,
reference rate, or index. Alliance will sometimes use derivatives as part
of a strategy designed to reduce other risks. Generally, however, the Fund
uses derivatives as direct investments to earn income, enhance yield, and
broaden Fund diversification, which entail greater risk than if used
solely for hedging purposes. In addition to other risks such as the credit
risk of the counterparty, derivatives involve the risk of difficulties in
pricing and valuation and the risk that changes in the value of the
8
<PAGE>
derivative may not correlate perfectly with relevant assets, rates, or
indices. The Fund's investments in structured securities could have
increased derivatives risk.
o Management Risk
The Fund is subject to management risk because it is an actively managed
investment Fund. Alliance will apply its investment techniques and risk
analyses in making investment decisions for the Fund, but there can be no
guarantee that these decisions will produce the desired results. In some
cases, derivatives and other investment techniques may be unavailable or
Alliance may determine not to use them, possibly even under market
conditions where their use could benefit the Fund.
Portfolio Turnover. The Fund's portfolio turnover rate is included in the
Financial Highlights section. The Fund is actively managed and, in some cases in
response to market conditions, its portfolio turnover may exceed 100%. A higher
rate of portfolio turnover increases brokerage and other expenses, 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, which, when
distributed, are taxable to shareholders.
Temporary Defensive Position. For temporary defensive purposes, the Fund may
invest in certain types of short-term, liquid, high-grade or high-quality debt
securities. These securities may include U.S. Government securities, qualifying
bank deposits, money market instruments, prime commercial paper and other types
of short-term debt securities, including notes and bonds. The Fund's investments
in foreign countries may include short-term, foreign-currency denominated
securities of the type mentioned above issued by foreign governmental entities,
companies and supranational organizations. While the Fund is investing for
temporary defensive purposes, it may not meet its investment objective.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
This section describes the Fund's investment practices and associated risks.
There can be no assurance that at any given time the Fund will engage in any of
these derivative or other practices.
Derivatives. The Fund may use derivatives to achieve its investment objective.
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. The Fund is permitted to use derivatives for one or more
of these purposes, although the Fund generally uses 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 the Fund's 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
generally makes extensive use of carefully selected forwards and other
derivatives to achieve the currency hedging that is an integral part of its
investment 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.
o 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).
o 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.
9
<PAGE>
o 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.
o Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to changes
in specified prices or rates (interest rates in the case of interest rate
swaps, currency exchange rates in the case of currency swaps) for a
specified amount of an underlying asset (the "notional" principal amount).
The payment flows are netted against each other, with the difference being
paid by one party to the other. Except for currency swaps, the notional
principal amount is used solely to calculate the payment streams but is
not exchanged. With respect to currency swaps, actual principal amounts of
currencies may be exchanged by the counterparties at the initiation, and
again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. The term "derivative" also is
sometimes used to describe securities involving rights to a portion of the cash
flows from an underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the securities. These
securities are described below under Mortgage-Related Securities and Other
Asset-Backed Securities.
While the judicious use of derivatives by highly-experienced investment managers
such as Alliance can be quite beneficial, derivatives involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. The following is a general discussion of important risk
factors and issues relating to the use of derivatives that investors should
understand before investing in a Fund.
o Market Risk--This is the general risk of all investments that the value of
a particular investment will change in a way detrimental to the Fund's
interest based on changes in the bond market generally.
o 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.
o Credit Risk--This is the risk that a loss may be sustained by the Fund as
a result of the failure of a derivative counterparty to comply with the
terms of the derivative contract. The credit risk for exchange-traded
derivatives is generally less than for privately negotiated derivatives,
since the clearing house, which is the issuer or counterparty to each
exchange-traded derivative, provides a guarantee of performance. This
guarantee is supported by a daily payment system (i.e., margin
requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar
clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative
in evaluating potential credit risk.
o 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.
o 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.
o 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. In
addition, there is no guarantee that a specific derivative will be
available for the Fund to utilize at any given time.
Derivatives Used by the Fund. The following describes specific derivatives that
the Fund may use.
Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options that are linked to LIBOR.
Eurodollar futures contracts enable purchasers
10
<PAGE>
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 each Fund invests are linked).
Forward Foreign Currency Exchange Contracts. The Fund purchases or sells forward
foreign currency exchange contracts ("forward contracts") to minimize the risk
from adverse changes in the relationship between the U.S. Dollar and other
currencies. The 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").
Futures Contracts and Options on Futures Contracts. The Fund may buy and sell
futures contracts on fixed-income or other securities or foreign currencies, and
contracts based on interest rates or financial indices, including any index of
U.S. Government securities, foreign government securities or corporate debt
securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by
the Fund will be traded on U.S. or foreign exchanges and will be used for income
or hedging purposes.
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. The Fund will not 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 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 Fund's total assets.
Interest Rate Transactions (Swaps, Caps, and Floors). The Fund may enter into
interest rate swap, cap, or floor transactions and expects to do so 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 in 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 is then rated in the
highest rating category of at least one NRSRO. 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 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 the Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
Options on Foreign Currencies. The Fund may invest in options on foreign
currencies that are privately negotiated or traded on
11
<PAGE>
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 in the U.S. Dollar cost of securities to be acquired. The
purchase of an option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although if rates move adversely, the
Fund may forfeit the entire amount of the premium plus related transaction
costs.
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 on 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 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.
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. The Fund effects such transactions only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by Alliance. Privately negotiated options
purchased or written by the Fund may be illiquid and it may not be possible for
the Fund to effect a closing transaction at an advantageous time.
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.
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 constitutes
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 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.
Forward Commitments. Forward commitments for the purchase or sale of securities
may include purchases on a when-issued
12
<PAGE>
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.
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
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 its total assets.
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.
Illiquid Securities. The Fund will limit its investments in illiquid securities
to 15% of its net assets. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps, (ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days.
The Fund may not be able to sell its illiquid securities and may not be able to
realize their full value upon sale. Alliance will monitor the Fund's investments
in illiquid securities. Rule 144A securities will not be treated as "illiquid"
for the purposes of the limit on investments so long as the securities meet
liquidity guidelines established by the Board of Directors.
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 indexed
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.
Loans of Portfolio Securities. The 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 from
the securities. The Fund may invest any cash collateral in portfolio securities
and earn additional income or receive an agreed-upon amount of income from a
borrower who has delivered equivalent collateral. The Fund's lending of
portfolio securities is limited to 25% of its net assets.
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 by the Fund is
restricted by the governing documentation as to the
13
<PAGE>
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. The 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 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 investments 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.
Mortgage-Related Securities. The Fund's investments in mortgage-related
securities 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 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. Private issuers
sometimes obtain committed loan facilities, lines of credit, letters of credit,
surety bonds or other forms of liquidity and credit enhancement to support the
timely payment of interest and principal with respect to their securities if the
borrowers on the underlying mortgages fail to make their mortgage payments. The
ratings of such non-governmental securities are generally dependent upon the
ratings of the providers of such liquidity and credit support and would be
adversely affected if the rating of such an enhancer were downgraded. The 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. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. The principal and interest on the underlying mortgages may be
allocated among several classes of a series of a CMO in many ways. 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 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 fund 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). 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.
14
<PAGE>
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 or IOs
receiving all of the interest payments from the underlying assets; while the
other class of securities, principal-only securities or 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, the Fund does not rely 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. These 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 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, 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 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. 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. 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.
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
15
<PAGE>
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 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.
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 also 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.
Short Sales. A short sale is effected by selling a security that the 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 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 or may not receive any payments (e.g., dividends or
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 also may make short sales "against the box" of securities
which are eligible for such deferral. 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.
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
16
<PAGE>
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.
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.
Variable, Floating and Inverse Floating Rate Instruments. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
The 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.
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 are
generally held by a bank in a custodial or trust account).
The Fund also may 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.
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
17
<PAGE>
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.
ADDITIONAL RISK CONSIDERATIONS
Investment in the Fund involves the special risk considerations described below.
Certain of these risks may be heightened when investing in emerging markets.
Currency Considerations. The Fund's investments in securities denominated in,
and that receive revenues in, foreign currencies will be adversely affected by
reductions in the value of those currencies relative to the U.S. Dollar. These
changes will affect the Fund's net assets, distributions and income. If the
value of 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, as described above, which involve certain special risks.
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. Utilization of
leverage, which is usually considered speculative, involves certain risks to the
Fund's shareholders. These include a higher volatility of the net asset value of
the Fund's shares and the relatively greater effect on the net asset value of
the 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 of the Fund's
investments. If 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. 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. Similarly, the effect of leverage in a declining
market could be a greater decrease in net asset value per share. 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 and reduce 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 the Fund's 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 also may reduce the degree to
which it is leveraged by repaying amounts borrowed.
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 a 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.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, the Fund whose investment portfolio includes foreign
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States.
Securities registration, custody and settlements may in some instances be
subject to delays and legal and administrative uncertainties. Furthermore,
foreign investment in the securities
18
<PAGE>
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 also could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require the Fund to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to the Fund. These factors may affect the liquidity of the Fund's
investments in any country 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. In the
event of nationalization, expropriation or other confiscation, the Fund could
lose its entire investment in securities in the country involved. In addition,
laws in foreign countries governing business organizations, bankruptcy and
insolvency may provide less protection to security holders such as the Fund than
that provided by U.S. laws.
Investment in Fixed-Income Securities Rated Baa and BBB. Securities rated Baa or
BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
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 a 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.
There can be no assurance, however, 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 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.
Unrated Securities. Unrated 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.
Sovereign Debt Obligations. No established secondary markets may exist for many
of the sovereign debt obligations in which the Fund may 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
19
<PAGE>
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 in, among other things, 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 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.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
The Fund's Adviser is Alliance Capital Management, L.P., 1345 Avenue of the
Americas, New York, NY 10105. Alliance is a leading international investment
adviser managing client accounts with assets as of December 31, 1999 totaling
more than $368 billion (of which more than $169 billion represented assets of
investment companies). As of December 31, 1999, Alliance managed retirement
assets for many of the largest public and private employee benefit plans
(including 31 of the nation's FORTUNE 100 companies), for public employee
retirement funds in 31 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 53 registered
investment companies managed by Alliance, comprising 119 separate portfolios,
currently have more than 5 million shareholder accounts.
Alliance provides investment advisory services and order placement facilities
for the Fund. For these advisory services, the Fund paid Alliance as a
percentage of net assets .75% for the fiscal year ending October 31, 1999.
PORTFOLIO MANAGER
Wayne D. Lyski, Senior Vice President of Alliance Capital Management Corporation
("ACMC") and Douglas J. Peebles, Senior Vice President of ACMC, are primarily
responsible for the day-to-day management of the Fund and have been since the
Fund's inception.
- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------
How the Fund Values Its Shares
The Fund's net asset value or NAV is calculated at 4:00 p.m., Eastern time, each
day the Exchange is open for business. To calculate NAV, the Fund's assets are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Fund values its
securities at their current market value determined on the basis of market
quotations, or, if such quotations are not readily available, such other methods
as the Fund's directors believe accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at the next NAV
calculated after your order is received in proper form by the Fund.
How To Buy Shares
You may purchase Advisor Class shares through your financial representative at
NAV. Advisor Class shares are not subject to any initial or contingent sales
charges or distribution expenses. You may purchase and hold shares solely:
20
<PAGE>
o through accounts established under a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial intermediary
and approved by the Fund's principal underwriter, Alliance Fund
Distributors, Inc. or AFD;
o 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;
o by investment advisory clients of, and certain other persons associated
with, Alliance and its affiliates or the Fund; and
o through 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 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.
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 to be approved by AFD
for investment in Advisor Class shares. The Fund's Statement of Additional
Information has more detailed information about who may purchase and hold
Advisor Class shares.
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 To Exchange Shares
You may exchange your Advisor Class shares for Advisor Class shares of other
Alliance Mutual Funds. Exchanges of Advisor Class shares are made at the
next-determined NAV without any sales or service charge. You may request an
exchange by mail or telephone. You must call by 4:00 p.m., Eastern time, to
receive that day's NAV. The Fund may change, suspend, or terminate the exchange
service on 60 days' written notice.
How To Sell Shares
You may "redeem" your shares (i.e., sell your shares to the Fund) on any day the
Exchange is open, either directly or through your financial intermediary. Your
sales price will be the next-determined NAV after the Fund receives your sales
request in proper form. Normally, proceeds will be sent to you within 7 days. If
you recently purchased your shares by check or electronic funds transfer, you
cannot redeem any portion of it until the Fund is reasonably satisfied that the
check or electronic fund transfer has been collected (which may take up to 15
days). If you are in doubt about what procedures or documents are required by
your fee-based program or employee benefit plan to sell your shares, you should
contact your financial representative.
o Selling Shares Through Your Financial Representative
Your financial representative must receive your sales request by 4:00 p.m.,
Eastern time, and submit it to the Fund by 5:00 p.m., Eastern time, for you to
receive that day's NAV. Your financial representative is responsible for
submitting all necessary documentation to the Fund and may charge you for this
service.
o Selling Shares Directly to the Fund
By Mail:
--Send a signed letter of instruction or stock power, along with
certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, N.J. 07906-1520
800-221-5672
--For your protection, a bank, a member firm of a national stock exchange,
or other eligible guarantor institution, must guarantee signatures.
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. If you have any questions about these
procedures, contact AFS.
By Telephone:
--You may redeem your shares for which no stock certificates have been
issued by telephone request. Call AFS at 800-221-5672 with
instructions on how you wish to receive your sale proceeds.
--A telephone redemption request must be received by 4:00 p.m., Eastern
time, for you to receive that day's NAV.
--If you have selected electronic funds transfer in your Shareholder
Application, the redemption proceeds may be sent directly to your
bank. Otherwise, the proceeds will be mailed to you.
--Redemption requests by electronic funds transfer may not exceed $100,000
per day and redemption requests by check cannot exceed $50,000 per day.
--Telephone redemption is not available for shares held in nominee or
"street name" accounts, retirement plan accounts, or shares held by a
shareholder who has changed his or her address of record within the
previous 30 calendar days.
Other
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
21
<PAGE>
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.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
AND TAXES
- --------------------------------------------------------------------------------
The Fund declares dividends on its shares each Fund business day. For Saturdays,
Sundays, and holidays, dividends will be as of the previous business day. The
Fund pays dividends on its shares after the close of business on the twentieth
day of each month or on the first day after that day if the day is not a
business day.
The income dividends and capital gains distributions, if any, declared by the
Fund on its outstanding shares will, at the election of each shareholder, be
paid in cash or in additional shares of the same class of shares of the Fund. If
paid in additional shares, the shares will have an aggregate net asset value as
of the close of business on the day following the declaration date of the
dividend or distribution equal to the cash amount of the dividend or
distribution. You may make an election to receive dividends and distributions in
cash or in shares at the time you purchase shares. Your election can be changed
at any time prior to a record date for a dividend. Cash dividends may be paid in
check or, at your election, electronically via the ACH network. There is no
sales or other charge on the reinvestment of Fund dividends and distributions.
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 the Fund without charge by returning to
Alliance, with appropriate instructions, the check representing the 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.
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.
For federal income tax purposes, the Fund's dividend distributions of net income
(or short-term taxable gains) will be taxable to you as ordinary income. Any
distributions of long-term capital gains generally will be taxable to you as
long-term capital gains. The Fund's distributions also may be subject to certain
state and local 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 foreign income taxes withheld at the source, 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 for foreign taxes paid by the Fund may be subject to certain
limitations imposed by the Code, as a result of which a shareholder may not be
permitted to claim a full credit or deduction for the amount of such taxes.
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.
If you buy shares just before the Fund deducts a distribution from its NAV, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for federal income
tax purposes.
Each year shortly after December 31, the Fund will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state, and local tax consequences in your
particular circumstances.
- --------------------------------------------------------------------------------
CONVERSION FEATURE
- --------------------------------------------------------------------------------
CONVERSION
As described above, Advisor Class shares may be held solely through certain
fee-based program accounts, employee benefit plans and registered investment
advisory or other financial intermediary relationships, and by investment
advisory clients of, and certain persons associated with, Alliance and its
affiliates or the Fund. If a holder of Advisor Class shares (i) ceases to
participate in the fee-based program or plan, or to be associated with an
eligible investment advisor or financial intermediary or (ii) is otherwise no
longer eligible to purchase Advisor Class shares (each a "Conversion Event"),
then all Advisor Class shares held by the shareholder will convert to Class A
shares of the same Fund. The Fund will provide the shareholder with at least 30
days advance notice of such
22
<PAGE>
conversion. 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 NAV of the two classes and without the imposition of any sales load,
fee or other charge.
DESCRIPTION OF CLASS A SHARES
The Class A shares of the Fund have a distribution fee of .30% under the Fund's
Rule 12b-1 plan that allows the Fund to pay distribution and service fees for
the distribution and sale of its shares. Because this fee is paid out of the
Fund's assets, Class A shares have a higher expense ratio and may pay lower
dividends and may have a lower NAV than Advisor Class shares.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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 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 in
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephone 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 failed to do so. Dealers and
agents may charge a commission for handling telephone requests. The telephone
service may be suspended or terminated at any time without notice.
23
<PAGE>
This page intentionally blank
24
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming investment of all dividends and
distributions). The information has been audited by Ernst & Young LLP, the
independent auditors for the Fund whose report, along with the Fund's financial
statements, is included in the SAI, which is available upon request.
25
<PAGE>
<TABLE>
<CAPTION>
Income from Investment Operations Less Dividends and Distributions
--------------------------------------- ------------------------------------------
Net Gains
Net Asset Net or Losses on Dividends Distributions
Value, Investment Securities Total from from Net in Excess of Distributions
Beginning Income (both realized Investment Investment Net Investment from
Fiscal Year or Period of Period (Loss) (b) and unrealized) Operations Income Income Capital Gains
------------------- ------------ ---------- --------------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance Global Strategic
Income Trust
Year ended 10/31/99 ...... $10.18 $.98 $(.22) $.76 $(.98) $(.04) $0
12/18/97(a) - 10/31/98 ... 11.09 .85(c) (.84) .01 (.85) (.07) 0
<CAPTION>
Less Distributions
------------------
Total Net Asset
Dividends Value,
and End of Total
Fiscal Year or Period Distributions Period Return (d)
------------------- -------------- ---------- ----------
<S> <C> <C> <C>
Alliance Global Strategic
Income Trust
Year ended 10/31/99 ...... $(1.02) $ 9.92 7.58%
12/18/97(a) - 10/31/98 ... (.92) 10.18 .07
<CAPTION>
Ratios/Supplemental Data
--------------------------------------------------------------
Ratio of Ratio of Net
Net Assets, Expenses Income (Loss)
End of Period to Average to Average Portfolio
Fiscal Year or Period (000's omitted) Net Assets Net Assets Turnover Rate
------------------- --------------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Alliance Global Strategic
Income Trust
Year ended 10/31/99 ...... $1,359 1.45% 9.52% 254%
12/18/97(a) - 10/31/98 ... 1,133 1.58(e)(f) 7.64(e) 183
</TABLE>
- --------------------------------------------------------------------------------
(a) Commencement of distribution.
(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) Net of expenses assumed and/or waived/reimbursed. If the Fund had borne
all expenses, the expense ratio would have been 1.77% for 1998.
Please refer to footnotes on page 26.
26 & 27
<PAGE>
This page intentionally blank
28
<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
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if: new and material circumstances arise, the
effects of which preclude satisfactory analysis; there is no longer available
reasonable up-to-date data to permit a judgment to be formed; or a bond is
called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the
29
<PAGE>
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to an inadequate
capacity to pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial
or economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent upon
favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
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.
30
<PAGE>
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.
31
<PAGE>
For more information about the Fund, the following documents are available upon
request:
o Annual/Semi-Annual Reports to Shareholders
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
o Statement of Additional Information (SAI)
The Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Fund's SAI is incorporated
by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
by contacting your broker or other financial intermediary, or by contacting
Alliance:
By Mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, N.J. 07096-1520
By Phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
o Call the Commission at 1-202-942-8090 for information on the operation of
the Public Reference Room.
o Reports and other information about the Fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov.
o Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at public [email protected], or by writing the
Commission's Public Reference Section, Washington, DC 20594-0102.
You also may find more information about Alliance and the Fund on the internet
at www.Alliancecapital.com.
SEC File No. 811-07391
32
<PAGE>
=========================
Alliance Global Strategic
Income Trust
Subscription Application
- - Advisor Class
=========================
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:
o Indicate your name(s) exactly as it appears on your social
security card.
> Transfer on Death:
o Ensure that your state participates
> Trust/Other:
o 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:
o 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'. (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.
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.
Or Visit Our Website: www.alliancecapital.com
===================================
For Literature Call: (800) 227-4618
===================================
<PAGE>
Alliance Global Strategic Income Trust
- - Advisor Class 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*, (MI) (Last Name)
Transfer On Death Beneficiary
or Minor
|_||_||_| - |_||_| - |_||_||_||_| If Uniform Gift/Transfer to
Social Security Number of Owner Minor Account:
or Minor (required to open 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 (MI) (Last Name)
(First 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
AllianceCapital [LOGO](R)
<PAGE>
================================================================================
3. Your Initial Investment
================================================================================
I hereby subscribe for shares of the Alliance Global Strategic Income Trust -
Advisor Class and elect distribution options as indicated.
Dividend and Capital Gain Distribution
Options:
R Reinvest distributions into my fund
account.
- --------------------------------------
Broker/Dealer Use Only: Wire Confirm # 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.
- ----------- -------------- ---------------------- --------------------------
Distributions Options
*Check One*
Three digit --------------------------
Alliance Global --------- --------------
Strategic Income Indicate Dollar Amount Dividends Capital Gains
Make all Trust number R C D R C D
checks* -------------- ---------------------- --------- --------------
payable to: |4||2||4| $_____________________ |R||C||D| |R||C||D|
Alliance
Funds
- -----------
* Cash and money orders are not accepted
<PAGE>
================================================================================
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 accounts 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 stock 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 15 calendar days after the purchase date.
================================================================================
<PAGE>
================================================================================
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)
|_| The Payee and address specified in section 4E (via check) (Medallion
Signature Guarantee required)
|_| 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
D. Bank Information This bank account information will be used for:
|_| Distributions (Section 3) |_| Telephone Transactions
(Section 4B)
|_| Automatic Investments |_| Withdrawals (Section 4C)
(Section 4A)
================================================================================
Please Tape a Pre-printed Voided Check Here*
================================================================================
[GRAPHIC OF VOIDED CHECK OMITTED]
* 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.
|_||_||_||_||_||_||_||_||_| |_||_||_||_||_||_||_||_||_||_||_||_||_|
Your Bank's ABA Routing Number Your Bank Account Number
|_| Checking Account |_| Savings Account
<PAGE>
================================================================================
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
================================================================================
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
<PAGE>
================================================================================
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 for redemptions by check.
|_| 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
Alliance Capital [LOGO](R)
GSITPR0300
<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 1, 2000
_________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the
Prospectus, dated March 1, 2000, for Alliance Global Strategic
Income Trust, Inc. (the "Fund") that offers Class A, Class B and
Class C shares of the Fund and the Prospectus, dated March 1,
2000, 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 "Prospectuses"). Copies of the Prospectus(es) 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.......................
Portfolio Transactions...................................
General Information......................................
Report of Independent Auditors and
Financial Statements...................................
Appendix A: Certain Investment Practices................ A-1
Appendix B: Certain Employee Benefit Plans.............. B-1
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
________________________________________________________________
DESCRIPTION OF THE FUND
________________________________________________________________
Alliance Global Strategic Income Trust, Inc. (the
"Fund") is a non-diversified, open-end 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 "Additional Risk Considerations" 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
2
<PAGE>
Fund's investment adviser (the "Adviser") 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.
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 Internal Revenue 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". 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
this 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.
3
<PAGE>
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.
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
4
<PAGE>
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.
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. 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
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
5
<PAGE>
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. Repurchase agreements may be
entered into with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of
New York) in United States Government securities. It is the
6
<PAGE>
Fund's current practice to enter into repurchase agreements only
with such primary dealers.
Borrowing. 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.
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
7
<PAGE>
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
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
8
<PAGE>
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
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
9
<PAGE>
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.
The Adviser 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.
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.
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.
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
10
<PAGE>
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 Government National Mortgage
Association ("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 Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation
("FHLMC"), and governmental collateralized mortgage obligations
("CMOs"). The maturities of the U.S. Government securities
listed in paragraphs (i) and (ii) above usually range from three
months to 30 years. Such securities, except GNMA certificates,
normally provide for periodic payments of interest in fixed
amount with principal payments at maturity or specified call
dates.
U.S. Government securities also include zero coupon
securities and principal-only securities and certain Stripped
Mortgage Related Securities ("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 interest only ("IP") class and a
principal only ("PO") class. 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 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.
The ability of governments to make timely payments on
their obligations is likely to be influenced strongly by the
issuers 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
11
<PAGE>
currencies other than U.S. dollars, its ability to make debt
payments denominated in U.S. 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.
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 of the Fund's portfolio 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 and such sales could cause the Fund to incur related
transaction costs and to realize taxable gains.
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.
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
12
<PAGE>
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,
(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;
(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
13
<PAGE>
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 business and affairs of the Fund are managed under
the direction of the Board of Directors. 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, 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,* 54, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), with which he has been
associated since prior to 1995.
RUTH BLOCK, 69, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and BP Amoco Corporation (oil
and gas). Her address is P.O. Box 4623, Stamford, Connecticut
06903.
DAVID H. DIEVLER, 70, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
14
<PAGE>
JOHN H. DOBKIN, 58, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1995.
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., 67, is an Investment Adviser 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 1995. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 75, has been President of the Harry
Frank Guggenheim Foundation, with which he has been associated
since prior to 1995. He was formerly President of New York
University, the New York Botanical Garden and Rector of the
United Nations University. His address is 25 Cleveland Lane,
Princeton, New Jersey 08540.
CLIFFORD L. MICHEL, 60, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1995. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 65, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
JOHN D. CARIFA, President, see biography, under
"Directors" section, above.
KATHLEEN A. CORBET, Senior Vice President, 40, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1995.
WAYNE D. LYSKI, 58, Senior Vice President, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1995.
DOUGLAS J. PEEBLES, 34, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1995.
EDMUND P. BERGAN, JR., 49, Secretary, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
15
<PAGE>
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1995.
ANDREW L. GANGOLF, 45, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since prior to 1995.
DOMENICK PUGLIESE, 38, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Previously, he was a Vice
President and Counsel of Concord Holding Corporation since 1995.
MARK D. GERSTEN, 49, Treasurer and Chief Financial
Officer, is a Senior Vice President of AFS and a Vice President
of AFD, with which he has been associated since prior to 1995.
JUAN J. RODRIGUEZ, 42, Controller, is a Vice President
of AFS, with which he has been associated since prior to
1995.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended through October 31,
1999, the aggregate compensation paid to each of the Directors
during calendar year 1999 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.
16
<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- 50 103
Ruth Block $3,617 $154,262 38 80
David H. Dievler $3,735 $210,187 45 87
John H. Dobkin $3,737 $206,487 42 84
William H. Foulk, Jr. $3,738 $246,412 45 98
Dr. James M. Hester $3,740 $164,137 39 81
Clifford L. Michel $3,740 $183,387 39 83
Donald J. Robinson $2,984 $140,812 41 92
As of February 4, 2000, the Directors and officers of
the Fund as a group owned less than 1% of the shares of the Fund.
As of February 4, 2000 Mr. Dievler owned 1.65% of Class A shares
of the Fund and Batrus & Co. owned 46% of Advisor Class
shares.
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 adviser managing
client accounts with assets as of December 31, 1999 totaling more
than $368 billion (of which more than $169 billion represented
assets of investment companies). As of December 31, 1999, the
Adviser managed retirement assets for many of the largest public
and private employee benefit plans (including 31 of the nation's
FORTUNE 100 companies), for public employee retirement funds in
31 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 53
registered investment companies managed by the Adviser,
comprising 119 separate investment portfolios, currently have
approximately 5 million shareholder accounts.
17
<PAGE>
ACMC is the general partner of the Adviser and a wholly
owned subsidiary of The Equitable Life Assurance Society of the
United States ("Equitable"). Equitable, one of the largest life
insurance companies in the United States, is the beneficial owner
of an approximately 55.4% partnership interest in the Adviser.
Alliance Capital Management Holding L.P. ("Alliance Holding")
owns an approximately 41.9% partnership interest in the
Adviser.** Equity interests in Alliance Holding are traded on
the New York Stock Exchange in the form of units. Approximately
98% of such interests are owned by the public and management or
employees of the Adviser and approximately 2% are owned by
Equitable. Equitable is a wholly owned subsidiary of AXA
Financial, Inc. ("AXA Financial"), a Delaware corporation whose
shares are traded on the New York Stock Exchange. AXA Financial
serves as the holding company for the Adviser, Equitable and
Donaldson, Lufkin & Jenrette, Inc., an integrated investment and
merchant bank. As of June 30, 1999, AXA, a French insurance
holding company, owned approximately 58.2% of the issued and
outstanding shares of common stock of AXA Financial.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order 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.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Fund
prospectuses and other reports to shareholders and fees related
____________________
** Until October 29, 1999, Alliance Holding served as the
investment adviser to the Fund. On that date, Alliance
Holding reorganized by transferring its business to the
Adviser. Prior thereto, the Adviser had no material
business operations. One result of the organization was
that the Advisory Agreement, then between the Fund and
Alliance Holding, was transferred to the Adviser by means
of a technical assignment, and ownership of Alliance Fund
Distributors, Inc. and Alliance Fund Services, Inc., the
Fund's principal underwriter and transfer agent,
respectively, also was transferred to the Adviser.
18
<PAGE>
to registration with the Securities and Exchange Commission and
with state regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
performed by third parties. In such event, the services will be
provided to the Fund at cost and the payments specifically
approved by the Fund's Board of Directors.
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.
TAdvisory Agreement was approved for another annual term 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 meeting held on October 13, 1999.
For the services rendered by the Adviser under the
Advisory Agreement, the Fund pays the Adviser a fee at the annual
rate of .75% of the Fund's average daily net assets.
For the fiscal years ended October 31, 1997, October 31,
1998 and October 31, 1999 the Adviser received from the Fund
advisory fees of $138,196, $512,829 and $874,909, respectively.
The Fund was reimbursed by the Adviser in the amount of $397,971
for the fiscal year ended October 31, 1997, $129,000 for the
fiscal year ended October 31, 1998 and $0 for the fiscal year
ended October 31, 1999.
19
<PAGE>
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.
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: AFD Exchange Reserves, Alliance All-Asia Investment
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Disciplined Value Fund,
Inc., Alliance Global Dollar Government Fund, Inc., Alliance
Global Environment Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Government Reserves, Alliance Greater China '97
Fund, Inc., Alliance Growth and Income Fund, Inc., Alliance
Health Care Fund, Inc., Alliance High Yield Fund, Inc., Alliance
Institutional Funds, Inc., Alliance Institutional Reserves, 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 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 Select
Investor Series, Inc., Alliance Technology Fund, Inc., Alliance
Utility Income Fund, Inc., Alliance Variable Products Series
Fund, Inc., Alliance Worldwide Privatization Fund, Inc., The
Alliance Fund, Inc., The Alliance Portfolios 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.
20
<PAGE>
________________________________________________________________
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
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").
During the fiscal year ended October 31, 1999, the Fund
paid distribution services fees for expenditures under the
Agreement, with respect to Class A shares, in amounts aggregating
$81,191 which constituted .30 of 1%, annualized, of the Fund's
aggregate 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 $351,761. Of the
$432,952 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to Class A shares, $22,643 was spent on
advertising, $6,640 on the printing and mailing of prospectuses
for persons other than current shareholders, $158,927 for
compensation to broker-dealers and other financial intermediaries
(including, $65,138 to the Fund's Principal Underwriter), $93,576
for compensation to sales personnel and $151,166 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the fiscal year ended October 31, 1999, the Fund
paid distribution services fees for expenditures under the
Agreement, with respect to Class B shares, in amounts aggregating
$684,598 which constituted 1.00%, annualized, of the Fund's
aggregate average daily net assets attributable to Class B shares
during such fiscal year and the Adviser made payments from its
own resources aggregating $1,494,048. Of the $2,178,646 paid by
the Fund and the Adviser under the Rule 12b-1 Plan with respect
to Class B shares, $56,369 was spent on advertising, $15,279 on
the printing and mailing of prospectuses for persons other than
current shareholders, $1,574,628 for compensation to broker-
dealers and other financial intermediaries (including, $147,896
to the Fund's Principal Underwriter), $114,538 for compensation
to sales personnel and $280,567 was spent on the printing of
sales literature, travel, entertainment, due diligence and other
21
<PAGE>
promotional expenses, and $137,265 on interest on Class B
financing.
During the fiscal year ended October 31, 1999, the Fund
paid distribution services fees for expenditures under the
Agreement, with respect to Class C shares, in amounts aggregating
$198,819 which constituted 1.00%, annualized, of the Fund's
aggregate 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 $240,553. Of the
$439,372 paid by the Fund and the Adviser under the Rule 12b-1
Plan with respect to Class C shares, $24,251 was spent on
advertising, $6,967 on the printing and mailing of prospectuses
for persons other than current shareholders, $248,998 for
compensation to broker-dealers and other financial intermediaries
(including, $59,095 to the Fund's Principal Underwriter), $44,226
for compensation to sales personnel, $109,254 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses, and $5,676 on interest
on Class C financing.
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.
With respect to Class A shares of the 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 for any given year, however, will probably exceed
the distribution services fee payable under the Rule 12b-1 Plan
with respect to the class involved and, in the case of Class B
and Class C shares, payments received from contingent deferred
sales charges ("CDSCS"). The excess will be carried forward by
AFD and reimbursed from distribution services fees payable under
the Rule 12b-1 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 Rule 12b-1 Plan is in
effect.
22
<PAGE>
Unreimbursed distribution expenses incurred as of the
end of the 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 of the Fund were, respectively,
$4,610,457 (13.37% of the net assets of Class B) and $642,232
(.81% of the net assets of Class C).
The Rule 12b-1 Plan is 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 of 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per
annum.
In approving the Rule 12b-1 Plan, the Directors of the
Fund determined that there was a reasonable likelihood that the
Rule 12b-1 Plan would benefit the Fund and its shareholders. 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.
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. The Agreement was
approved for another annual term by the Board of Directors,
including majority of the Directors who are not parties to the
Advisory Agreement or interested persons of any such party, at
their meeting held on October 13, 1999.
In the event that the Rule 12b-1 Plan is terminated or
not continued with respect to the Class A shares, Class B shares
23
<PAGE>
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.
Transfer Agency Agreement
Alliance Fund Services, Inc. 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
account holders 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 year ended October 31, 1999 the Fund
paid AFS $193,802 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
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
24
<PAGE>
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 Richard Ellis, 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 the Fund 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.
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
25
<PAGE>
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. (Certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value.) The selected dealer,
agent or financial representative, as 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
26
<PAGE>
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, 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, 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 to 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.
27
<PAGE>
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 contingent 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***
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
____________________
*** Advisor Class shares are sold only to investors described
above in this section under "-- General."
28
<PAGE>
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 and certain
employee benefit plans) for more than $250,000 for Class B
shares. (See Appendix B for information concerning the
eligibility of certain employee benefit plans to purchase Class B
shares at net asset value without being subject to a contingent
deferred sales charge and the ineligibility of certain such plans
to purchases Class A 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
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
29
<PAGE>
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 years ended October 31, 1997,
October 31, 1998 and October 31, 1999 the aggregate amount of
underwriting commission payable with respect to shares of the
Fund was $328,612, $432,712 and $532,074, respectively. Of that
amount, the Principal Underwriter received the amounts of
$10,947, $14,823 and $27,984, 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 years ended October 31, 1997, October 31, 1998
and October 31, 1999, the Principal Underwriter received
contingent deferred sales charges of $11,816, $113,731 and
$193,213, respectively on Class B shares and $4,488, $6,451 and
$13,234, 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.
30
<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
made through selected dealers or agents, the Adviser may,
31
<PAGE>
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.
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;
32
<PAGE>
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
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-Quality Bond Portfolio
-U.S. Government Portfolio
Alliance Disciplined Value 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 Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth 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.
-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
33
<PAGE>
-Pennsylvania Portfolio
-Virginia Portfolio
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 Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors 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:
(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
34
<PAGE>
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
$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
35
<PAGE>
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
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.
36
<PAGE>
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
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; and
(vi) 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
37
<PAGE>
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
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.
38
<PAGE>
Contingent Deferred Sales Charge as a %
of Dollar Amount Subject to Charge
-----------------------------------------
Shares Purchased Shares Purchased
Years Since prior to on or after
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.
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
____________________
**** Six years in the case of Class B shares purchased prior to
April 12, 1997.
39
<PAGE>
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
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
____________________
***** Six years in the case of Class B shares purchased prior to
April 12, 1997.
40
<PAGE>
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
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
41
<PAGE>
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 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 Fund will provide the shareholder with at
least 30 days' notice of the conversion. 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.
Adviser Class shares do not have any distribution services fee.
As a result, Class A shares have a higher expense ration and 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.
________________________________________________________________
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
42
<PAGE>
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
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
43
<PAGE>
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
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
44
<PAGE>
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
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time. (Certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's asset value.) 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
45
<PAGE>
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.
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
46
<PAGE>
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.
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
47
<PAGE>
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. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
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.
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
48
<PAGE>
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
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.
49
<PAGE>
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.
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
50
<PAGE>
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
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.
51
<PAGE>
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.
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.
52
<PAGE>
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.
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
53
<PAGE>
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
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
54
<PAGE>
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. Mortgage-backed and asset-backed securities may be
valued at prices obtained from a bond pricing service or at a
price obtained from one or more of the major broker/dealers in
such securities. In cases where broker/dealer quotes are
obtained, the Adviser may establish procedures whereby changes in
market yields or spreads are used to adjust, on a daily basis, a
recently obtained quoted bid price on a security.
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
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 Commission and other governmental
55
<PAGE>
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 Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the 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
qualify to be taxed as a "regulated investment company" under the
Code. To so qualify, the Fund must, among 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
56
<PAGE>
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
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.
Distributions of net capital gain are taxable as long-term
57
<PAGE>
capital gain, 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. The investment
objective of the Fund is such that only a small portion, if any,
of the Fund's distributions is expected to qualify for the
dividends-received deduction for corporate shareholders.
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 gain, 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
or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if the
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. 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 gain, 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.
58
<PAGE>
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
by the Fund. No deduction for foreign taxes may be claimed by an
individual shareholder who does not itemize deductions. In
addition, certain 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.
59
<PAGE>
Qualified Plans. 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.
Backup Withholding. The Fund may be required to
withhold United States federal income tax at the rate of 31% of
all 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
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." The
Fund could elect to "mark-to-market" stock in a PFIC. Under such
60
<PAGE>
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
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 income 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
61
<PAGE>
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
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.
62
<PAGE>
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
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
63
<PAGE>
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.
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.
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
64
<PAGE>
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. 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. 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 Fund is a Maryland corporation organized in 1995.
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. Any
65
<PAGE>
issuance of shares of another class or series would be governed
by the 1940 Act and the law of the State of Maryland.
A shareholder 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
Directors are authorized to reclassify and issue any unissued
shares to any number of additional series and classes without
shareholder approval. The Fund is empowered to establish,
without shareholder approval, additional portfolios, which may
have different investment objectives and policies than those of
the Fund, and additional classes of shares within the Fund. 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 together as a single class on
matters, such as the election of Directors, that affect each
portfolio and class 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. Class A,
Class B and Class C shares of the Fund have identical voting,
dividend, liquidation and other rights, except that each class
bears its own distribution and transfer agency expenses. Each
class of shares of the Fund votes separately with respect to the
Fund's Rule 12b-1 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, 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 this
Statement of Additional Information.
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.
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 4, 2000, there
were 14,839,637 shares of common stock of the Fund outstanding,
including 3,330,992 Class A shares, 8,656,886 Class B shares,
2,635,744 Class C shares and 216,015 Advisor Class shares. To
66
<PAGE>
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 4, 2000.
Name and Address No. of Shares % of Class
Class A Shares
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97KA9)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 476,763 14.40%
Class B Shares
MLPF&S For the Sole Benefit
of Its Customers
Attn: Fund Admin (97KB0)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 1,980,724 22.93%
Class C Shares
MLPF&S For the Sole Benefit of
Its Customers
Attn: Fund Admin (97KH9)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 980,175 37.62%
Advisor Class
Robert Errico &
Nicolena Errico JT TEN
960 Park Avenue
New York, NY 10028-0325 17,664 8.18%
Barbara M. Jenkel
105 Marcover Drive
Chappaqua, NY 10514-2506 56,895 26.34%
Batrus & Co.
P.O. Box 9005
Church Street Station
New York, NY 10008 99,361 46.00%
67
<PAGE>
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., an indirect wholly-
owned subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, is the principal underwriter
of 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 LLP, New
York, New York. Seward & Kissel LLP 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 has been appointed
as independent auditors for the Fund.
Yield and Total Return Quotations
From time to time, the Fund advertises its "yield" and
"total return," which are computed separately for Class A,
Class B and Class C shares. 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 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
68
<PAGE>
Class C shares. Advertisements of the Fund's total return
disclose its 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 purpose 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
the Fund's 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, Inc. and Morningstar, Inc. or compare the Fund's
performance to various indices.
The Fund calculates average annual total return
information in the Performance Table in the Risk/Return Summary
according to the Commission formula as described above. In
accordance with Commission guidelines, total return information
is presented for each class for the same time periods, i.e., the
1, 5 and 10 years (or over the life of the Fund, if the Fund is
less than 10 years old) ending on the last day of the most recent
calendar year. Since different classes may have first been sold
on different dates ("Actual Inception Dates"), in some cases this
can result in return information being presented for a class for
periods prior to its Actual Inception Date. Where return
information is presented for periods prior to the Actual
Inception Date of a Class (a "Younger Class"), such information
is calculated by using the historical performance of the class
with the earliest Actual Inception Date (the "Oldest Class").
For this purpose, the Fund calculates the difference in total
annual fund operating expenses (as a percentage of average net
assets) between the Younger Class and the Oldest Class, divides
the difference by 12, and subtracts the result from the monthly
performance at net asset value (including reinvestment of all
dividends and distributions) of the Oldest Class for each month
prior to the Younger Class's Actual Inception Date for which
performance information is to be shown. The resulting "pro
forma" monthly performance information is used to calculate the
Younger Class's average annual returns for these periods. Any
conversion feature applicable to the Younger Class is assumed to
occur in accordance with the Actual Inception Date for that
class, not its hypothetical inception date.
The Fund's yields for the month ended October 31, 1999
were 6.52%, 6.09%, 6.10% and 7.12% for Class A shares, Class B
shares, Class C shares and Advisor Class shares, respectively.
The Fund's actual distribution rates for the month ended April
30, 1999 were 9.38%, 9.09%, 9.09% and 10.11% for Class A shares,
69
<PAGE>
Class B shares, Class C shares and Advisor Class shares
respectively.
The average annual total return based on net asset value
for each class of shares for the one-, five- and ten-year periods
ended October 31, 1999 (or since inception through that date, as
noted) was as follows:
12 Months 5 Years 10 Years
Ended Ended Ended
10/31/99 10/31/99 10/31/99
Class A 7.17% 10.89%* N/A
Class B 6.44% 10.25%* N/A
Class C 6.44% 10.25%* N/A
Advisor Class 7.58%* 4.04%* N/A
* Inception Date: Class A - January 9, 1996
Class B - March 21, 1996
Class C - March 21, 1996
Advisor Class - December 18, 1997
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 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, 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.
70
<PAGE>
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.
71
<PAGE>
_________________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
_________________________________________________________________
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
ANNUAL REPORT
OCTOBER 31, 1999
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999 ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
ARGENTINA-3.6%
CORPORATE DEBT OBLIGATIONS-2.6%
CEI Citicorp Holdings
11.25%, 2/14/07 (a)(b) ARS 2,000 $ 1,540,724
CIA Radiocomunic Moviles
9.25%, 5/08/08 (a)(b) US$ 1,000 872,380
Perez Companc, SA
Series B
9.00%, 5/01/06 (a)(b) 1,200 1,084,320
-----------
3,497,424
GOVERNMENT OBLIGATION-1.0%
Republic of Argentina
Supplier-Bocon FRN
Pro1
2.86%, 4/01/07 (a) ARS 2,100 1,427,151
Total Argentinian Securities
(cost $5,381,263) 4,924,575
AUSTRALIA-1.9%
GOVERNMENT OBLIGATION-1.9%
Government of Australia
10.00%, 10/15/02
(cost $2,585,160) AUD 3,600 2,535,536
BRAZIL-1.1%
GOVERNMENT OBLIGATION-1.1%
Republic of Brazil
10.13%, 5/15/27
(cost $1,471,913) US$ 2,000 1,565,000
CANADA-1.5%
CORPORATE DEBT OBLIGATIONS-1.5%
Clearnet Communications
10.40%, 5/15/08 (a)(c) CAD 1,000 419,526
Metronet Communications
9.95%, 6/15/08 (c) US$ 2,000 1,565,000
Total Canadian Securities
(cost $1,953,403) 1,984,526
CAYMAN ISLANDS-2.1%
PREFERRED STOCK-2.1%
Centaur Funding Corp.
9.08%, 4/21/20 (b)
(cost $2,889,211) 2,800 2,902,334
CHILE-1.8%
CORPORATE DEBT OBLIGATION-1.8%
Empresa Nacional de Electric, SA
7.88%, 2/01/27 (a)
(cost $2,897,593) US$ 3,000 2,519,310
DENMARK-1.6%
GOVERNMENT OBLIGATION-1.6%
Kingdom of Denmark
6.00%, 11/15/09
(cost $2,203,958) DKK 15,000 2,193,960
DOMINICAN REPUBLIC-1.3%
CORPORATE DEBT OBLIGATION-1.3%
Tricom, SA
11.38%, 9/01/04 (a)
(cost $1,819,684) US$ 2,000 1,825,000
ECUADOR-0.1%
CORPORATE DEBT OBLIGATIONS-0.1%
Conecel Holdings, Ltd.
16.50%, 10/01/00 (a)(b)(d) 500 75,000
16.50%, 10/01/00 (d) 500 75,000
Total Ecuadorian Securities
(cost $1,065,000) 150,000
FRANCE-4.0%
CORPORATE DEBT OBLIGATION-1.5%
Credit Lyonnais FRN
6.31%, 9/19/49 (a) 2,250 2,075,486
GOVERNMENT OBLIGATION-2.5%
Government of France
4.50%, 7/12/03 (a) EUR 3,201 3,360,848
Total French Securities
(cost $5,660,445) 5,436,334
GERMANY-4.4%
GOVERNMENT OBLIGATIONS-4.4%
Republic of Germany
4.00%, 7/04/09 (a) 5,000 4,783,189
6.75%, 7/15/04 (a) 1,070 1,220,078
Total German Securities
(cost $6,185,527) 6,003,267
6
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
GREECE-1.3%
GOVERNMENT OBLIGATION-1.3%
Hellenic Republic
8.90%, 4/01/03 (a)
(cost $2,025,292) GRD 550,000 $ 1,817,798
HONG KONG-0.4%
CORPORATE DEBT OBLIGATION-0.4%
Guangdong Enterprises
8.88%, 5/22/07 (a)(b)
(cost $933,986) US$ 2,500 512,500
HUNGARY-1.4%
CORPORATE DEBT OBLIGATION-1.4%
Euronet Services, Inc.
12.38%, 7/01/06 (c)(e)
(cost $1,849,888) DEM 8,000 1,893,154
ITALY-4.0%
GOVERNMENT OBLIGATIONS-4.0%
Republic of Italy
6.25%, 3/01/02 (a) EUR 1,033 1,132,697
6.25%, 5/15/02 (a) 3,099 3,404,610
8.25%, 7/01/01 (a) 775 869,162
Total Italian Securities
(cost $5,626,938) 5,406,469
LUXEMBOURG-0.7%
CORPORATE DEBT OBLIGATION-0.7%
Carrier1 International, SA
Series B
13.25%, 2/15/09 US$ 1,000 990,000
warrants, expiring 2/19/09 (f) 1,000 3,000
Total Luxembourg Securities
(cost $1,040,000) 993,000
MEXICO-3.9%
CORPORATE DEBT OBLIGATIONS-2.4%
Innova S de R.L.
12.88%, 4/01/07 (a) 3,000 2,467,500
Petroleos Mexicanos
9.25%, 3/30/18 (a) 1,000 857,500
----------
3,325,000
GOVERNMENT OBLIGATION-1.5%
Mexican Cetes
23.41%, 7/13/00 (g) MXP 22,362 2,024,522
Total Mexican Securities
(cost $5,478,268) 5,349,522
NETHERLANDS-9.7%
CORPORATE DEBT OBLIGATIONS-9.7%
KPNQWEST
7.13%, 6/01/09 (a)(b) EUR 2,000 2,040,686
Netia Holdings, BV
Series B
11.00%, 11/01/07 (c) DEM 4,000 1,398,353
TPSA Finance, BV
7.75%, 12/10/08 (a)(b) 2,000 1,887,500
United Pan Europe Communications
10.88%, 8/01/09 (b) EUR 1,000 1,044,694
11.25%, 11/01/09 (b) 3,000 3,124,143
Versatel Telecom, BV
11.875%, 7/15/09 (a) 2,000 2,082,760
13.25%, 5/15/08 (a) US$ 1,250 1,262,500
warrants, expiring 5/15/08 (a)(f) 2,750 398,750
Total Dutch Securities
(cost $13,220,683) 13,239,386
PANAMA-0.7%
GOVERNMENT OBLIGATION-0.7%
Republic of Panama
9.38%, 4/01/29 (a)
(cost $999,205) 1,000 941,300
POLAND-1.2%
GOVERNMENT OBLIGATION-1.2%
Government of Poland
10.00%, 6/12/04 (a)
(cost $2,035,623) PLN 8,000 1,693,092
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
RUSSIA-1.2%
GOVERNMENT OBLIGATIONS-1.2%
Russian Ministry of Finance
Series IV
3.00%, 5/14/03 US$ 4,000 $ 904,800
Russia Principal Loans FRN
5.97%, 12/15/20 (a)(d) 8,000 730,400
Total Russian Securities
(cost $5,403,908) 1,635,200
SOUTH AFRICA-1.9%
CORPORATE DEBT OBLIGATIONS-1.9%
Development Bank of South Africa
Zero coupon,
12/31/27 (a) ZAR 50,000 199,430
European Bank for
Reconstruction & Development
Zero coupon,
12/31/29 (a)(h) 50,000 183,150
International Bank for
Reconstruction & Development
Zero coupon, 12/31/25 (a) 350,000 1,957,265
Zero coupon, 2/17/26 (a)(h) 50,000 260,724
Total South African Securities
(cost $5,421,094) 2,600,569
TURKEY-0.7%
GOVERNMENT OBLIGATION-0.7%
Republic of Turkey
12.00%, 12/15/08
(cost $993,807) US$ 1,000 1,012,500
UNITED KINGDOM-12.5%
CORPORATE DEBT OBLIGATIONS-4.1%
Luxfer Holdings Plc.
10.13%, 5/01/09 (a)(b) GBP 1,800 2,706,845
RSL Communications Plc.
10.00%, 3/15/08 (a)(c)(e) DEM 5,000 1,613,484
Telewest Communication Plc.
9.88%, 4/15/09 (a)(b)(c) GBP 1,250 1,277,002
----------
5,597,331
GOVERNMENT OBLIGATIONS-7.2%
U.K. Treasury Gilts
5.75%, 12/07/09 GBP 2,400 4,057,088
6.75%, 11/26/04 (a) 3,465 5,859,875
----------
9,916,963
PREFERRED STOCKS-1.2%
Abbey National Bank Plc.
7.76% (a) 400 908,855
Bank of Scotland
9.25% (a) 300 712,457
----------
1,621,312
Total United Kingdom Securities
(cost $29,732,807) 17,135,606
UNITED STATES-40.8%
CORPORATE DEBT OBLIGATIONS-17.7%
@Entertainment, Inc.
Series B
14.50%, 2/01/09 (c) US$ 5,120 3,161,600
Asian Development Bank
5.59%, 7/16/18 (a) 1,000 984,745
Auburn Hills Trust
12.00%, 5/01/20 2,200 3,293,387
Comcast Cable Communications
8.88%, 5/01/17 (a) 1,500 1,668,243
Derby Cycle Corp.
9.38%, 5/15/08 (a)(e) DEM 1,700 502,869
Dresdner Funding Trust
5.79%, 6/30/11 (a)(b) EUR 2,000 1,940,650
Federal-Mogul Corp.
7.50, 1/15/09 (b) US$ 2,500 2,225,783
Ford Motor Company
7.45%, 7/16/31 3,000 2,968,920
InterAmericas Communication
14.00%, 10/27/07 (a) 500 400,000
Iridium LLC Capital Corp.
Series B
14.00%, 7/15/05 (a)(d) 2,000 130,000
NTL, Inc.
Series B
10.75%, 4/01/08 (a)(c) 2,000 2,140,659
OpTel, Inc.
Series B
13.00%, 2/15/05 (a)(d)(i) 500 127,500
8
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
Viatel, Inc.
11.15%, 4/15/08 (a)(e) DEM 1,000 $ 516,315
11.50%, 3/15/09 EUR 2,000 2,030,167
Williams Communication Group, Inc.
10.88%, 10/1/09 US$ 2,000 2,060,000
-----------
24,150,838
U.S. GOVERNMENT OBLIGATIONS-14.1%
Treasury Bills
zero coupon, 11/04/99 US$ 10,000 9,996,320
Treasury Notes
4.75%, 11/15/08 2,000 1,809,376
5.50%, 5/15/09 4,800 4,603,502
6.00%, 8/15/09 2,915 2,912,269
-----------
19,321,467
COMMON STOCKS & WARRANTS-0.1%
Consorcio Ecuatoriano de
Telecomunicaciones, SA
Cl. B
warrants expiring 10/01/00 (a)(f) 6,750 0
Firstcom Corp.
warrants, expiring 10/27/07 (a)(b)(f) US$ 17,500 105,000
OpTel, Inc. (a)(b)(f) 500 5
Viatel, Inc. (a)(f) 1,627 54,635
-----------
159,640
TIME DEPOSIT-8.9%
Republic of London
5.19%, 11/01/99 12,200 12,200,000
Total United States Securities
(cost $44,868,130) 55,831,945
TOTAL INVESTMENTS-103.8%
(cost $153,742,786) 142,101,883
Other liabilities less assets-(3.8)% (5,247,003)
NET ASSETS-100% $ 136,854,880
(a) Securities, or a portion thereof, with an aggregate market value of
$63,460,036, have been segregated to collateralize forward exchange currency
contracts.
(b) 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, 1999,
these securities amounted to $21,957,559 or 16.04% of net assets.
(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) Security is in default and is non-income producing.
(e) Will be converted to Euro based upon a predetermined schedule.
(f) Non-income producing security.
(g) Annualized yield to maturity at purchase date.
(h) Unit consists of 1 senior discount note and 2.77 junior subordinate
debentures.
(i) Consists of $500,000 senior notes and 500 shares of common stock.
Glossary:
FRN-Floating Rate Note.
See notes to financial statements.
9
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999 ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value
(cost $153,742,786) $ 142,101,883
Cash, at value (cost $3,199,735) 3,199,458
Interest receivable 2,973,754
Receivable for capital stock sold 1,356,813
Receivable for investment securities sold 1,062,486
Unrealized appreciation of forward exchange
currency contracts 1,021,462
Deferred organization expenses 36,983
Unrealized appreciation of swap contracts 28,597
Total assets 151,781,436
LIABILITIES
Payable for investment securities purchased 13,131,175
Payable for capital stock sold 1,064,242
Dividend payable 375,590
Distribution fee payable 93,031
Advisory fee payable 85,824
Accrued expenses and other liabilities 176,694
Total liabilities 14,926,556
NET ASSETS $ 136,854,880
COMPOSITION OF NET ASSETS
Capital stock, at par $ 13,818
Additional paid-in capital 150,756,047
Distributions in excess of net investment income (1,023,118)
Accumulated net realized loss on investments and
foreign currency transactions (2,125,546)
Net unrealized depreciation of investments and
foreign currency denominated assets and liabilities (10,766,321)
$ 136,854,880
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($33,813,233 / 3,411,568 shares of
capital stock issued and outstanding) $ 9.91
Sales charge--4.25% of public offering price .44
Maximum offering price $10.35
CLASS B SHARES
Net asset value and offering price per share
($79,084,975 / 7,987,491 shares of
capital stock issued and outstanding) $ 9.90
CLASS C SHARES
Net asset value and offering price per share
($22,597,561 / 2,281,807 shares of
capital stock issued and outstanding) $ 9.90
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($1,359,111 / 137,053 shares of
capital stock issued and outstanding) $ 9.92
See notes to financial statements.
10
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999 ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest (net of foreign taxes
withheld of $13,175) $ 12,794,107
Dividends (net of foreign taxes
withheld of $8,046) 72,416 $ 12,866,523
EXPENSES
Advisory fee 874,909
Distribution fee - Class A 81,191
Distribution fee - Class B 684,598
Distribution fee - Class C 198,819
Custodian 248,203
Transfer agency 193,802
Administration 110,180
Audit and legal 96,984
Registration 69,551
Printing 50,955
Amortization of organization expenses 29,930
Directors' fees 26,115
Miscellaneous 11,666
Total expenses 2,676,903
Net investment income 10,189,620
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (2,125,545)
Net realized gain on foreign currency
transactions 939,635
Net change in unrealized depreciation of:
Investments (3,285,405)
Foreign currency denominated assets and
liabilities 1,035,326
Net loss on investment transactions (3,435,989)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 6,753,631
See notes to financial statements.
11
STATEMENT OF CHANGES
IN NET ASSETS ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1999 1998
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 10,189,620 $ 4,526,553
Net realized gain (loss) on investments
and foreign currency transactions (1,185,910) 76,173
Net change in unrealized depreciation
of investments and foreign
currency denominated assets and
liabilities (2,250,079) (7,854,398)
Net increase (decrease) in net assets
from operations 6,753,631 (3,251,672)
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (2,526,820) (1,411,993)
Class B (5,848,991) (2,495,352)
Class C (1,694,862) (556,457)
Advisor Class (118,947) (62,751)
Distributions in excess of net
investment income
Class A (75,442) (488,490)
Class B (262,528) (964,594)
Class C (78,399) (214,532)
Advisor Class (5,051) (17,887)
Net realized gain on investments
Class A -0- (429,062)
Class B -0- (663,991)
Class C -0- (138,457)
CAPITAL STOCK TRANSACTIONS
Net increase 40,879,087 74,331,248
Total increase 37,021,678 63,636,010
NET ASSETS
Beginning of year 99,833,202 36,197,192
End of year $ 136,854,880 $ 99,833,202
See notes to financial statements.
12
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999 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 may 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
fee-based programs and to certain retirement plan accounts. 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 financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities 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
generally valued at the last reported sale price or, if there was no sale on
such day, the last bid price quoted on such day. If no bid prices are quoted,
then the security is valued at the mean of the bid and asked prices as obtained
on that day from one or more dealers regularly making a market in that
security. Securities traded on the over-the-counter market, securities listed
on a foreign securities market whose operations are similar to the United
States over-the-counter market and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter are valued at
the mean of the closing bid and asked prices provided by two or more dealers
regularly making a market in such securities. U.S. government securities and
other debt securities which mature in 60 days or less are valued at amortized
cost unless this method does not represent fair value. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by, or in accordance with procedures approved by, the
Board of Directors. 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.
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 accrued.
Net realized gains or losses 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
13
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
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 any, 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 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 increase in
accumulated net realized loss on investment and foreign currency transactions,
a net decrease in distributions in excess of net investment income and a
corresponding increase in additional paid-in capital. 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 waive its fees and bear certain expenses to the
extent necessary to limit total operating expenses on an annual basis to 1.90%,
2.60%, 2.60% and 1.60% of the daily average net assets for the Class A, Class
B, Class C and Advisor Class shares, respectively.
Pursuant to the Advisory Agreement, the Fund paid $110,180 to the Adviser
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the year ended October 31, 1999.
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. Such compensation
amounted to $193,802, for the year ended October 31, 1999.
For the year ended October 31, 1999, the Fund's expenses were reduced by $5,695
under an expense offset arrangement with Alliance Fund Services, Inc.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser serves as the Distributor of the Fund's shares. The Distributor
has advised the Fund that it has received front-end sales charges of $27,984
from the sale of Class A shares and $193,213 and $13,234 in contingent deferred
sales charges imposed upon redemption by shareholders of Class B and Class C
shares, respectively, for the year ended October 31, 1999.
14
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
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 distribution and servicing fees 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 are no distribution and servicing
fees 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 advised the Fund that it has incurred expenses in excess of the
distribution costs reimbursed by the Fund in the amount of $4,610,457 and
$642,232 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.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $253,161,142 and $229,329,042,
respectively, for the year ended October 31, 1999. There were purchases of
$27,254,353 and sales of $40,230,006 of U.S. government and government agency
obligations for the year ended October 31, 1999.
At October 31, 1999, the cost of investments for federal income tax purposes
was substantially the same as the costs for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $2,387,461 and
gross unrealized depreciation of investments was $14,028,364 resulting in net
unrealized depreciation of $11,640,903 (excluding foreign currency
transactions).
At October 31, 1999, the Fund had a net capital loss carryforward of $2,125,545
which expires in the year 2007.
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, 1999, the Fund had outstanding forward exchange currency
contracts, as follows:
15
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
<TABLE>
<CAPTION>
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FORWARD EXCHANGE CURRENCY
BUY CONTRACTS
Australian Dollars,
settling 11/01/99-12/30/99 4,021 $ 2,637,165 $ 2,564,842 $ (72,323)
Canadian Dollars,
settling 11/01/99 546 370,729 370,742 13
Danish Krona,
settling 11/04/99 1,068 154,861 151,107 (3,754)
FORWARD EXCHANGE CURRENCY
SALE CONTRACTS
Australian Dollars,
settling 11/01/99 4,000 2,590,355 2,551,200 39,155
Canadian Dollars,
settling 11/01/99-12/01/99 1,091 737,453 741,705 (4,252)
Danish Krona,
settling 11/04/99 16,386 2,357,710 2,319,246 38,464
Euro,
settling 11/15/99-12/15/99 32,872 35,628,778 34,682,390 946,388
British Pound,
settling 11/30/99 11,019 18,188,643 18,110,872 77,771
-----------
$ 1,021,462
</TABLE>
2. OPTION TRANSACTIONS
For hedging and investment purposes, the Fund purchases and writes (sells) put
and call options on U.S. and foreign government 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.
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 received and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium received is less than the
amount paid for the closing purchase transaction, as a realized loss. If a call
option is exercised, the premium received 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 received
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. For
the year ended October 31, 1999, the Fund did not engage in any options
transactions.
16
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
3. INTEREST RATE SWAP AGREEMENTS
The Fund enters into currency and interest rate swaps to protect itself from
foreign currency and interest rate fluctuations on the underlying debt
instruments. A swap is an agreement that obligates two parties to exchange a
series of cash flows at specified intervals based upon or calculated by
reference to changes in specified prices or rates for a specified amount of an
underlying asset. The payment flows are usually netted against each other, with
the difference being paid by one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by
the failure of a counterparty is generally limited to the net interest payment
to be received by the Fund, and/or the termination value at the end of the
contract. Therefore, the Fund considers the creditworthiness of each
counterparty to a swap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the value of the foreign securities or currencies.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Net interest received or paid on these contracts is recorded as
interest income (or as an offset to interest income). Fluctuations in the value
of investments are recorded for financial statement purposes as unrealized
appreciation or depreciation of investments. Realized gains and losses from
terminated swaps are included in net realized gains on investment transactions.
At October 31, 1999, the Fund had an outstanding interest rate swap contract
with the following terms:
<TABLE>
<CAPTION>
RATE TYPE
----------------------------------
SWAP NOTIONAL TERMINATION PAYMENTS MADE PAYMENTS RECEIVED UNREALIZED
COUNTERPARTY AMOUNT DATE BY THE FUND BY THE FUND APPRECIATION
------------- -------- -------------- ---------------- ----------------- -------------
<C> <C> <C> <C> <C> <C>
Morgan GBP 6/25/04 Floating 6 month Fixed--6.33% US$ 28,597
Guaranty 5,000,000 GBP Libor-BBA*
</TABLE>
NOTE E: CAPITAL STOCK
There are 12,000,000,000 shares of $0.001 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C and Advisor
Class shares. Each class consists of 3,000,000,000 authorized shares.
Transactions in capital stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1999 1998 1999 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 2,169,162 1,598,361 $ 22,169,720 $ 17,759,050
Shares issued in
reinvestment of
dividends and
distributions 149,679 132,962 1,524,262 1,459,025
Shares converted
from Class B 25,906 14,015 261,732 151,910
Shares redeemed (1,348,486) (460,665) (13,762,106) (4,969,798)
Net increase 996,261 1,284,673 $ 10,193,608 $ 14,400,187
* LIBOR (London Interbank Offered Rate)
17
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1999 1998 1999 1998
------------ ------------ -------------- --------------
CLASS B
Shares sold 3,834,483 4,986,132 $ 39,159,037 $ 55,353,973
Shares issued in
reinvestment of
dividends and
distributions 220,611 142,636 2,246,476 1,558,164
Shares converted to
Class A (25,906) (14,015) (261,732) (151,910)
Shares redeemed (1,751,141) (1,050,901) (17,916,604) (11,262,473)
Net increase 2,278,047 4,063,852 $ 23,227,177 $ 45,497,754
CLASS C
Shares sold 1,669,635 1,453,523 $ 17,120,813 $ 15,925,299
Shares issued in
reinvestment of
dividends and
distributions 62,703 24,272 636,061 264,273
Shares redeemed (1,030,285) (281,009) (10,563,627) (3,002,847)
Net increase 702,053 1,196,786 $ 7,193,247 $ 13,186,725
DECEMBER 18, DECEMBER 18,
1997* 1997*
TO TO
OCTOBER 31, OCTOBER 31,
1998 1998
------------- -------------
ADVISOR CLASS
Shares sold 49,768 105,163 $ 514,645 $ 1,180,306
Shares issued in
reinvestment of
dividends and
distributions 11,472 6,251 117,493 67,683
Shares redeemed (35,477) (124) (367,083) (1,407)
Net increase 25,763 111,290 $ 265,055 $ 1,246,582
NOTE F: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility ("the Facility")
intended to provide for short-term financing if necessary, subject to certain
restrictions in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the year ended October 31, 1999.
* Commencement of distribution.
18
FINANCIAL HIGHLIGHTS ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
JANUARY 9,
1996(A)
YEAR ENDED OCTOBER 31, TO
------------------------------------ OCTOBER 31,
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.18 $ 11.46 $ 10.83 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .94 .78(c) .74(c) .69(c)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.22) (.64) 1.02 .95
Net increase in net asset value from
operations .72 .14 1.76 1.64
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.94) (.78) (.75) (.81)
Distributions in excess of net investment
income (.05) (.28) (.28) -0-
Distributions from net realized gains on
investments -0- (.36) (.10) -0-
Total dividends and distributions (.99) (1.42) (1.13) (.81)
Net asset value, end of period $ 9.91 $ 10.18 $ 11.46 $ 10.83
TOTAL RETURN
Total investment return based on net asset
value (d) 7.17% 1.00% 16.83% 17.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $33,813 $24,576 $12,954 $2,295
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.77% 1.89% 1.90% 1.90%(e)
Expenses, before waivers/reimbursements 1.77% 2.08% 4.06% 19.20%(e)
Net investment income 9.34% 7.08% 6.56% 8.36%(e)
Portfolio turnover rate 254% 183% 417% 282%
</TABLE>
See footnote summary on page 22.
19
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
MARCH 21,
1996(F)
YEAR ENDED OCTOBER 31, TO
------------------------------------- OCTOBER 31,
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.17 $ 11.46 $ 10.83 $ 9.97
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .87 .69(c) .66(c) .41(c)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (.22) (.63) 1.03 1.01
Net increase in net asset value from
operations .65 .06 1.69 1.42
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.87) (.69) (.67) (.56)
Distributions in excess of net investment
income (.05) (.30) (.29) -0-
Distributions from net realized gains on
investments -0- (.36) (.10) -0-
Total dividends and distributions (.92) (1.35) (1.06) (.56)
Net asset value, end of period $ 9.90 $ 10.17 $ 11.46 $ 10.83
TOTAL RETURN
Total investment return based on net asset
value (d) 6.44% .27% 16.12% 14.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $79,085 $58,058 $18,855 $800
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 2.47% 2.58% 2.60% 2.60%(e)
Expenses, before waivers/reimbursements 2.47% 2.76% 4.76% 19.57%(e)
Net investment income 8.54% 6.41% 5.86% 7.26%(e)
Portfolio turnover rate 254% 183% 417% 282%
</TABLE>
See footnote summary on page 22.
20
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------
MARCH 21,
1996(F)
YEAR ENDED OCTOBER 31, TO
------------------------------------- OCTOBER 31,
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.17 $ 11.46 $ 10.83 $ 9.97
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .88 .68(c) .66(c) .39(c)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (.23) (.62) 1.03 1.03
Net increase in net asset value from
operations .65 .06 1.69 1.42
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.88) (.68) (.67) (.56)
Distributions in excess of net investment
income (.04) (.31) (.29) -0-
Distributions from net realized gains on
investments -0- (.36) (.10) -0-
Total dividends and distributions (.92) (1.35) (1.06) (.56)
Net asset value, end of period $ 9.90 $ 10.17 $ 11.46 $ 10.83
TOTAL RETURN
Total investment return based on net asset
value (d) 6.44% .27% 16.12% 14.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $22,598 $16,067 $4,388 $750
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 2.46% 2.58% 2.60% 2.60%(e)
Expenses, before waivers/reimbursements 2.46% 2.77% 4.77% 19.49%(e)
Net investment income 8.52% 6.43% 5.86% 7.03%(e)
Portfolio turnover rate 254% 183% 417% 282%
</TABLE>
See footnote summary on page 22.
21
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE GLOBAL STRATEGIC INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
ADVISOR CLASS
----------------------------
DECEMBER 18,
1997(F)
YEAR ENDED TO
OCTOBER 31, OCTOBER 31,
1999 1998
------------- ------------
Net asset value, beginning of period $ 10.18 $ 11.09
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .98 .85(c)
Net realized and unrealized loss on
investments and foreign currency
transactions (.22) (.84)
Net increase in net asset value from
operations .76 .01
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.98) (.85)
Distributions in excess of net investment
income (.04) (.07)
Total dividends and distributions (1.02) (.92)
Net asset value, end of period $ 9.92 $ 10.18
TOTAL RETURN
Total investment return based on net asset
value (d) 7.58% .07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 1,359 $ 1,133
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.45% 1.58%(e)
Expenses, before waivers/reimbursements 1.45% 1.77%(e)
Net investment income 9.52% 7.64%(e)
Portfolio turnover rate 254% 183%
(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.
22
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, 1999, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1999, 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, 1999, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights
for each of the indicated periods, in conformity with generally accepted
accounting principles.
New York, New York
December 21, 1999
23
72
<PAGE>
________________________________________________________________
APPENDIX A:
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
A-4
<PAGE>
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
<PAGE>
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
A-6
<PAGE>
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
A-7
<PAGE>
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
<PAGE>
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
<PAGE>
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.
A-11
<PAGE>
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
A-13
<PAGE>
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
A-14
<PAGE>
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
A-15
<PAGE>
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.
A-16
<PAGE>
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
A-17
<PAGE>
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
A-18
<PAGE>
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.
A-19
<PAGE>
________________________________________________________________
APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
________________________________________________________________
Employee benefit plans described below which are
intended to be tax-qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended ("Tax Qualified Plans"), for
which Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
B-1
<PAGE>
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
B-2
00250223.AZ1
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. Exhibits
(a) (1) Articles of Incorporation of the Registrant -
Incorporated by reference to Exhibit 1 to the
Registrant's Registration Statement on Form N-
1A (File Nos. 33-63797 and 811-7391) filed
with the Securities and Exchange Commission on
October 27, 1995.
(2) Articles of Amendment of the Articles of
Incorporation of the Registrant dated
September 30, 1996 and filed October 2, 1996 -
Incorporated by reference to Exhibit 1 to
Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File Nos.
33-63797 and 811-7391) filed with the
Securities and Exchange Commission on
February 28, 1997.
(b) 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 (File Nos. 33-63797 and 811-7391) filed
with the Securities and Exchange Commission on
February 28, 1997.
(c) Not applicable.
(d) Advisory Agreement between the Registrant and
Alliance Capital Management L.P. -Incorporated by
reference to Exhibit 5 to Post-Effective Amendment
No. 5 to Registrant's Registration Statement on
Form N-1A (File Nos. 33-63797 and 811-7391) filed
with the Securities and Exchange Commission on
February 27, 1998.
(e) (1) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors,
Inc. - Incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-
1A (File Nos. 33-63797 and 811-7391) filed
with the Securities and Exchange Commission on
February 27, 1998.
(2) Amendment to Distribution Service Agreement
dated June 4, 1996 - Incorporated by reference
to Exhibit 6 to Post-Effective Amendment No. 3
to Registrant's Registration Statement on Form
C-1
<PAGE>
N-1A (File Nos. 33-63797 and 811-7391) filed
with the Securities and Exchange Commission on
February 28, 1997.
(3) Selected Dealer Agreement between Alliance
Fund Distributors, Inc. and selected dealers
offering shares of Registrant - Incorporated
by reference to Exhibit 6(b) to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A (File
Nos. 33-63797 and 811-7391) filed with the
Securities and Exchange Commission on
December 22, 1995.
(4) Selected Agent Agreement between Alliance Fund
Distributors, Inc. and selected agents making
available shares of Registrant - Incorporated
by reference to Exhibit 6 (c) to Pre-Effective
Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A (File
Nos. 33-63797 and 811-7391) filed with the
Securities and Exchange Commission on
December 22, 1995.
(f) Not applicable.
(g) Custodian Agreement between the Registrant and
Brown Brothers Harriman & Co. - Incorporated by
reference to Exhibit 8 to Post-Effective Amendment
No. 5 to Registrant's Registration Statement on
Form N-1A (File Nos. 33-63797 and 811-7391) filed
with the Securities and Exchange Commission on
February 27, 1998.
(h)(1) Transfer Agency Agreement between the
Registrant and Alliance Fund Services, Inc. -
Incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File Nos.
33-63797 and 811-7391) filed with the
Securities and Exchange Commission on
February 27, 1998.
(2) Form of Expense Limitation Undertaking by
Alliance Capital Management L.P. -
Incorporated by reference to Exhibit (h)(2) to
Post-Effective Amendment No. 8 to Registrant's
Registration Statement on Form N-1A (File Nos.
33-63797 and 811-7391) filed with the
Securities and Exchange Commission on
February 26, 1999.
C-2
<PAGE>
(i)(1) Opinion and Consent of Seward & Kissel LLP -
Incorporated by reference to Exhibit (i)(1) to
Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-
1A (File Nos. 33-63797 and 811-7391) filed
with the Securities and Exchange Commission on
October 29, 1999.
(2) Opinion and Consent of Venable, Baetjer &
Howard, LLP - Incorporated by reference to
Exhibit 10(b) to Pre-Effective Amendment No. 1
to the registrant's Registration Statement on
Form N-1A (File Nos. 33-63797 and 811-7391),
filed with the Securities and Exchange
Commission on December 22, 1995.
(j) Consent of Independent Auditors - Filed herewith
(k) Not applicable.
(l) Not applicable.
(m) Rule 12b-1 Plan - See Exhibit (e)(1) hereto.
(n) Financial Data Schedules - Filed herewith.
(o) Amended and Restated Rule 18f-3 Plan dated
September 30, 1996 - Incorporated by reference to
Exhibit 18 to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A
(File Nos. 33-63797 and 811-7391) filed with the
Securities and Exchange Commission on February 28,
1997.
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 - Incorporated
by reference to Other Exhibits to Post-
Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (File Nos.
33-63797 and 811-7391) filed with the
Securities and Exchange Commission on
October 29, 1999.
ITEM 24. Persons Controlled by or under Common Control with
Registrant.
None.
C-3
<PAGE>
ITEM 25. 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 (a) in response to
Item 23, Article VII and Article VIII of Registrant's
By-Laws, filed as Exhibit (b) in response to Item 23,
and Section 10 of the proposed Distribution Services
Agreement, filed as Exhibit (e)(1) in response to
Item 23, 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 (d) in
response to Item 23, 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
C-4
<PAGE>
(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.
(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
C-5
<PAGE>
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
[5~subsection.
(ii) The termination of any proceeding by
conviction, or a plea of no lo 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.
(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
C-6
<PAGE>
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 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,
C-7
<PAGE>
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
(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
C-8
<PAGE>
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.
(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
C-9
<PAGE>
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.
(4) 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.
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
C-10
<PAGE>
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 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 8. 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
C-11
<PAGE>
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 9. 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 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
C-12
<PAGE>
indemnification will ultimately be found to be
entitled to indemnification.
Section 10. 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 11. 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 12. 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 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 13. Amendments. References in this
Article are to the Maryland General Corporation Law
C-13
<PAGE>
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 (a), (b),
(d) and (e)(1), respectively, in response to Item
23 and each of which are incorporated by reference
herein.
C-14
<PAGE>
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
C-15
<PAGE>
entitled to indemnification and, as a condition to
the advance, (1) the indemnitee shall provide a
security for his 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 26. 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.
C-16
<PAGE>
ITEM 27. Principal Underwriters.
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale of
shares of the Registrant. Alliance Fund Distributors,
Inc. acts as Principal Underwriter or Distributor for
the following investment companies:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Disciplined Value 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 Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, 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 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 Select Investor Series, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
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>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
Michael J. Laughlin Director and Chairman
John D. Carifa Director President,
Director
Robert L. Errico Director and President
Geoffrey L. Hyde Director and Senior
Vice President
Dave H. Williams Director
David Conine Executive Vice President
Richard K. Saccullo Executive Vice President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel and
Secretary
Richard A. Davies Senior Vice President
and Managing Director
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Anne S. Drennan Senior Vice President
and Treasurer
Benji A. Baer Senior Vice President
Karen J. Bullot Senior Vice President
John R. Carl Senior Vice President
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Mark J. Dunbar Senior Vice President
Donald N. Fritts Senior Vice President
C-18
<PAGE>
Bradley F. Hanson Senior Vice President
George H. Keith Senior Vice President
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Susan L. Matteson-King Senior Vice President
Daniel D. McGinley Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Kevin A. Rowell Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
William C. White Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Gerard J. Friscia Vice President and
Controller
Ricardo Arreola Vice President
Kenneth F. Barkoff Vice President
Charles M. Barrett Vice President
Gregory P. Best Vice President
Casimir F. Bolanowski Vice President
Robert F. Brendli Vice President
Christopher L. Butts Vice President
C-19
<PAGE>
Timothy W. Call Vice President
Jonathan W. Cangalosi Vice President
Kevin T. Cannon Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Russell R. Corby Vice President
John W. Cronin Vice President
William J. Crouch Vice President
Robert J. Cruz Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
Richard P. Dyson Vice President
John C. Endahl Vice President
John E. English Vice President
Sohaila S. Farsheed Vice President
Duff C. Ferguson Vice President
Daniel J. Frank Vice President
Shawn C. Gage Vice President
Andrew L. Gangolf Vice President and Assistant
Assistant General Secretary
Counsel
Michael J. Germain Vice President
Mark D. Gersten Vice President Treasurer and
Chief
Financial
Officer
John Grambone Vice President
Charles M. Greenberg Vice President
C-20
<PAGE>
Alan Halfenger Vice President
William B. Hanigan Vice President
Michael S. Hart Vice President
Timothy A. Hill Vice President
Brian R. Hoegee Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Michael J. Hutten Vice President
Scott Hutton Vice President
Oscar J. Isoba Vice President
Richard D. Keppler Vice President
Richard D. Kozlowski Vice President
Daniel W. Krause Vice President
Donna M. Lamback Vice President
P. Dean Lampe Vice President
Nicholas J. Lapi Vice President
Henry Michael Lesmeister Vice President
Eric L. Levinson Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
David L. McGuire Vice President
Jeffrey P. Mellas Vice President
Michael V. Miller Vice President
Thomas F. Monnerat Vice President
C-21
<PAGE>
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Michael F. Nash, Jr. Vice President
Nicole Nolan-Koester Vice President
Daniel A. Notto Vice President
Peter J. O'Brien Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
Christopher W. Olson Vice President
Richard J. Olszewski Vice President
Catherine N. Peterson Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant
Assistant General Secretary
Counsel
Bruce W. Reitz Vice President
Karen C. Satterberg Vice President
John P. Schmidt Vice President
Robert C. Schultz Vice President
Richard J. Sidell Vice President
Clara Sierra Vice President
Teris A. Sinclair Vice President
Scott C. Sipple Vice President
Martine H. Stansbery, Jr. Vice President
Vincent T. Strangio Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
C-22
<PAGE>
Joseph T. Tocyloski Vice President
Benjamin H. Travers Vice President
David R. Turnbough Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
Mark E. Westmoreland Vice President
Stephen P. Wood Vice President
Emilie D. Wrapp Vice President and
Assistant General
Counsel
Michael W. Alexander Assistant Vice
President
Richard J. Appaluccio Assistant Vice
President
Paul G. Bishop Assistant Vice
President
Mark S. Burns Assistant Vice
President
John M. Capeci Assistant Vice
President
Maria L. Carreras Assistant Vice
President
John P. Chase Assistant Vice
President
William P. Condon Assistant Vice
President
Jean A. Coomber Assistant Vice
President
Terri J. Daly Assistant Vice
President
C-23
<PAGE>
Ralph A. DiMeglio Assistant Vice
President
Faith C. Deutsch Assistant Vice
President
Timothy J. Donegan Assistant Vice
President
Adam E. Engelhardt Assistant Vice
President
Michele Grossman Assistant Vice
President
Theresa Iosca Assistant Vice
President
Erik A. Jorgensen Assistant Vice
President
Eric G. Kalender Assistant Vice
President
Edward W. Kelly Assistant Vice
President
Victor Kopelakis Assistant Vice
President
Evamarie C. Lombardo Assistant Vice
President
Kristine J. Luisi Assistant Vice
President
Kathryn Austin Masters Assistant Vice
President
Richard F. Meier Assistant Vice
President
Rizwan A. Raja Assistant Vice
President
Carol H. Rappa Assistant Vice
President
C-24
<PAGE>
Mark V. Spina Assistant Vice
President
Eileen Stauber Assistant Vice
President
Margaret M. Tompkins Assistant Vice
President
Marie R. Vogel Assistant Vice Assistant
President Secretary
Wesley S. Williams Assistant Vice
President
Matthew Witschel Assistant Vice
President
David M. Wolf Assistant Vice
President
Mark R. Manley Assistant Secretary
(c) Not applicable.
ITEM 28. 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 29. Management Services.
Not applicable.
ITEM 30. Undertakings.
C-25
<PAGE>
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-26
<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 28th day of February, 2000.
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 28, 2000
_________________________ President
John D. Carifa
2. Principal Financial and
Accounting Officer:
/s/ Mark D. Gersten Treasurer and February 28, 2000
_________________________ Chief Financial
Mark D. Gersten Officer
C-27
<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 28, 2000
_________________________
Edmund P. Bergan, Jr.
(Attorney-in-Fact)
C-28
<PAGE>
Index to Exhibits
(j) Consent of Independent Auditors
(n) Financial Data Schedules
C-29
00250223.AZ2
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights," "Shareholders Services - Statements and
Reports" and "General Information - Independent Auditors" and to
the use of our report dated December 21, 2000 included in this
Registration Statement (Form N-1A Nos. 333-63797 and 811-07391)
of Alliance Global Strategic Income Trust, Inc.
/s/ERNST & YOUNG LLP
New York, New York
February 24, 2000
00250223.AZ9
<PAGE>
[ARTICLE]06
[CIK]0000873067
[NAME]Global Strategic Income
[SERIES]
[NUMBER]001
[NAME]Class A
[MULTIPLIER]1
<TABLE>
<S> <C>
[PERIOD-TYPE] ANNUAL
[FISCAL-YEAR-END] 10/31/99
[PERIOD-START] 11/01/98
[PERIOD-END] 10/31/99
[INVESTMENTS-AT-COST] 153742786
[INVESTMENTS-AT-VALUE] 142101883
[RECEIVABLES] 5393053
[ASSETS-OTHER] 4286500
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 151781436
[PAYABLE-FOR-SECURITIES] 13131175
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1795381
[TOTAL-LIABILITIES] 14926556
[SENIOR-EQUITY] 13818
[PAID-IN-CAPITAL-COMMON] 150756047
[SHARES-COMMON-STOCK] 3411568
[SHARES-COMMON-PRIOR] 2415307
[ACCUMULATED-NII-CURRENT]
[OVERDISTRIBUTION-NII] 1023118
[ACCUMULATED-NET-GAINS]
[OVERDISTRIBUTION-GAINS] 2125546
[ACCUM-APPREC-OR-DEPREC] (10766321)
[NET-ASSETS] 136854880
[DIVIDEND-INCOME] 72416
[INTEREST-INCOME] 12794107
[OTHER-INCOME] 0
[EXPENSES-NET] 2676903
[NET-INVESTMENT-INCOME] 10189620
[REALIZED-GAINS-CURRENT] (1185910)
[APPREC-INCREASE-CURRENT] (2250079)
[NET-CHANGE-FROM-OPS] 6753631
[EQUALIZATION]
[DISTRIBUTIONS-OF-INCOME] 2602262
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2195068
[NUMBER-OF-SHARES-REDEEMED] 1348486
[SHARES-REINVESTED] 149679
[NET-CHANGE-IN-ASSETS] 37021678
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 62562
<PAGE>
[OVERDISTRIB-NII-PRIOR] 11602856
[OVERDIST-NET-GAINS-PRIOR]
[GROSS-ADVISORY-FEES] 874909
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2676903
[AVERAGE-NET-ASSETS] 116654358
[PER-SHARE-NAV-BEGIN] 10.18
[PER-SHARE-NII] 0.94
[PER-SHARE-GAIN-APPREC] (0.22)
[PER-SHARE-DIVIDEND] (0.94)
[PER-SHARE-DISTRIBUTIONS] (0.05)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.91
[EXPENSE-RATIO] 1.77
[AVG-DEBT-OUTSTANDING] 0.00
[AVG-DEBT-PER-SHARE] 0.00
00250223.AZ4
</TABLE>
<PAGE>
[ARTICLE]06
[CIK] 0000873067
[NAME]Global Strategic Income
[SERIES]
[NUMBER]001
[NAME]Class B
[MULTIPLIER]1
<TABLE>
<S> <C>
[PERIOD-TYPE] ANNUAL
[FISCAL-YEAR-END] 10/31/99
[PERIOD-START] 11/01/98
[PERIOD-END] 10/31/99
[INVESTMENTS-AT-COST] 153742786
[INVESTMENTS-AT-VALUE] 142101883
[RECEIVABLES] 5393053
[ASSETS-OTHER] 4286500
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 151781436
[PAYABLE-FOR-SECURITIES] 13131175
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1795381
[TOTAL-LIABILITIES] 14926556
[SENIOR-EQUITY] 13818
[PAID-IN-CAPITAL-COMMON] 150756047
[SHARES-COMMON-STOCK] 7987491
[SHARES-COMMON-PRIOR] 5709444
[ACCUMULATED-NII-CURRENT]
[OVERDISTRIBUTION-NII] 1023118
[ACCUMULATED-NET-GAINS]
[OVERDISTRIBUTION-GAINS] 2125546
[ACCUM-APPREC-OR-DEPREC] (10766321)
[NET-ASSETS] 136854880
[DIVIDEND-INCOME] 72416
[INTEREST-INCOME] 12794107
[OTHER-INCOME] 0
[EXPENSES-NET] 2676903
[NET-INVESTMENT-INCOME] 10189620
[REALIZED-GAINS-CURRENT] (1185910)
[APPREC-INCREASE-CURRENT] (2250079)
[NET-CHANGE-FROM-OPS] 6753631
[EQUALIZATION]
[DISTRIBUTIONS-OF-INCOME] 6111519
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3834483
[NUMBER-OF-SHARES-REDEEMED] 1777047
[SHARES-REINVESTED] 220611
[NET-CHANGE-IN-ASSETS] 37021678
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 62562
<PAGE>
[OVERDISTRIB-NII-PRIOR] 11602856
[OVERDIST-NET-GAINS-PRIOR]
[GROSS-ADVISORY-FEES] 874909
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2676903
[AVERAGE-NET-ASSETS] 116654358
[PER-SHARE-NAV-BEGIN] 10.17
[PER-SHARE-NII] 0.87
[PER-SHARE-GAIN-APPREC] (0.22)
[PER-SHARE-DIVIDEND] (0.87)
[PER-SHARE-DISTRIBUTIONS] (0.05)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.90
[EXPENSE-RATIO] 2.47
[AVG-DEBT-OUTSTANDING] 0.00
[AVG-DEBT-PER-SHARE] 0.00
00250223.AZ5
</TABLE>
<PAGE>
[ARTICLE]06
[CIK]0000873067
[NAME]
[SERIES]Global Strategic Income
[NUMBER]001
[NAME]Class C
[MULTIPLIER]1
<TABLE>
<S> <C>
[PERIOD-TYPE] ANNUAL
[FISCAL-YEAR-END] 10/31/99
[PERIOD-START] 11/01/98
[PERIOD-END] 10/31/99
[INVESTMENTS-AT-COST] 153742786
[INVESTMENTS-AT-VALUE] 142101883
[RECEIVABLES] 5393053
[ASSETS-OTHER] 4286500
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 151781436
[PAYABLE-FOR-SECURITIES] 13131175
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1795381
[TOTAL-LIABILITIES] 14926556
[SENIOR-EQUITY] 13818
[PAID-IN-CAPITAL-COMMON] 150756047
[SHARES-COMMON-STOCK] 2281807
Class Specific
[SHARES-COMMON-PRIOR] 1579754
Class Specific
[ACCUMULATED-NII-CURRENT]
[OVERDISTRIBUTION-NII] 1023118
[ACCUMULATED-NET-GAINS]
[OVERDISTRIBUTION-GAINS] 2125546
[ACCUM-APPREC-OR-DEPREC] (10766321)
[NET-ASSETS] 136854880
[DIVIDEND-INCOME] 72416
[INTEREST-INCOME] 12794107
[OTHER-INCOME] 0
[EXPENSES-NET] 2676903
[NET-INVESTMENT-INCOME] 10189620
[REALIZED-GAINS-CURRENT] (1185910)
[APPREC-INCREASE-CURRENT] (2250079)
[NET-CHANGE-FROM-OPS] 6753631
[EQUALIZATION]
[DISTRIBUTIONS-OF-INCOME] 1773261
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1669635
[NUMBER-OF-SHARES-REDEEMED] 1030285
<PAGE>
[SHARES-REINVESTED] 62703
[NET-CHANGE-IN-ASSETS] 37021678
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 62562
[OVERDISTRIB-NII-PRIOR] 11602856
[OVERDIST-NET-GAINS-PRIOR]
[GROSS-ADVISORY-FEES] 874909
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2676903
[AVERAGE-NET-ASSETS] 116654358
[PER-SHARE-NAV-BEGIN] 10.17
[PER-SHARE-NII] 0.88
[PER-SHARE-GAIN-APPREC] (0.23)
[PER-SHARE-DIVIDEND] (0.88)
[PER-SHARE-DISTRIBUTIONS] (0.04)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.90
[EXPENSE-RATIO] 2.46
[AVG-DEBT-OUTSTANDING] 0.00
[AVG-DEBT-PER-SHARE] 0.00
00250223.AZ6
</TABLE>
<PAGE>
[ARTICLE]06
[CIK]0000873067
[NAME]
[SERIES]
[NUMBER]001
[NAME]Advisor Class
[MULTIPLIER]1
<TABLE>
<S> <C>
[PERIOD-TYPE] ANNUAL
[FISCAL-YEAR-END] 10/31/99
[PERIOD-START] 11/01/98
[PERIOD-END] 10/31/99
[INVESTMENTS-AT-COST] 153742786
[INVESTMENTS-AT-VALUE] 142101883
[RECEIVABLES] 5393053
[ASSETS-OTHER] 4286500
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 151781436
[PAYABLE-FOR-SECURITIES] 13131175
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1795381
[TOTAL-LIABILITIES] 14926556
[SENIOR-EQUITY] 13818
[PAID-IN-CAPITAL-COMMON] 150756047
[SHARES-COMMON-STOCK] 137053
[SHARES-COMMON-PRIOR] 111290
[ACCUMULATED-NII-CURRENT]
[OVERDISTRIBUTION-NII] 1023118
[ACCUMULATED-NET-GAINS]
[OVERDISTRIBUTION-GAINS] 2125546
[ACCUM-APPREC-OR-DEPREC] (10766321)
[NET-ASSETS] 136854880
[DIVIDEND-INCOME] 72416
[INTEREST-INCOME] 12794107
[OTHER-INCOME] 0
[EXPENSES-NET] 2676903
[NET-INVESTMENT-INCOME] 10189620
[REALIZED-GAINS-CURRENT] (1185910)
[APPREC-INCREASE-CURRENT] (2250079)
[NET-CHANGE-FROM-OPS] 6753631
[EQUALIZATION]
[DISTRIBUTIONS-OF-INCOME] 123998
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 49768
[NUMBER-OF-SHARES-REDEEMED] 35477
[SHARES-REINVESTED] 11472
[NET-CHANGE-IN-ASSETS] 37021678
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 62562
<PAGE>
[OVERDISTRIB-NII-PRIOR] 11602856
[OVERDIST-NET-GAINS-PRIOR]
[GROSS-ADVISORY-FEES] 874909
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2676903
[AVERAGE-NET-ASSETS] 116654358
[PER-SHARE-NAV-BEGIN] 10.18
[PER-SHARE-NII] 0.98
[PER-SHARE-GAIN-APPREC] (0.22)
[PER-SHARE-DIVIDEND] (0.98)
[PER-SHARE-DISTRIBUTIONS] (0.04)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.92
[EXPENSE-RATIO] 1.45
[AVG-DEBT-OUTSTANDING] 0.00
[AVG-DEBT-PER-SHARE] 0.00
00250223.AZ7
</TABLE>
