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As filed with the Securities and Exchange
Commission on February 26, 1999
File Nos. 333-18505
811-09160
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. 4 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 X
_______________________________
ALLIANCE HIGH YIELD FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:(212) 969-1000
_____________________________
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
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immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
X 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.
This Post-Effective Amendment No. 4 relates solely to the Advisor
Class shares of the Registrant. No information contained in the
Registrant's Registration Statement relating to the Class A,
Class B or Class C shares of the Registrant is amended or
superseded hereby.
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Alliance High
Yield Fund
Advisor Class Prospectus and Application
March 1, 1999
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)
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2
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TABLE OF CONTENTS
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Page
RISK/RETURN SUMMARY......................................................... 3
FEES AND EXPENSES OF THE FUND............................................... 5
GLOSSARY.................................................................... 6
DESCRIPTION OF THE FUND..................................................... 7
Investment Objective, Policies and Risk Considerations...................... 7
Description of Investment Practices......................................... 8
Additional Risk Considerations.............................................. 14
MANAGEMENT OF THE FUND...................................................... 16
PURCHASE AND SALE OF SHARES................................................. 17
How The Fund Values Its Shares.............................................. 17
How To Buy Shares........................................................... 17
How To Exchange Shares...................................................... 17
How To Sell Shares.......................................................... 17
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................................... 18
CONVERSION FEATURE.......................................................... 19
GENERAL INFORMATION......................................................... 19
FINANCIAL HIGHLIGHTS........................................................ 21
APPENDIX A: BOND RATINGS................................................... 25
Alliance High Yield Fund's investment adviser is Alliance Capital Management
L.P., a global investment manager providing diversified services to institutions
and individuals through a broad line of investments including more than 100
mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about Alliance High
Yield Fund. 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.
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Alliance High Yield Fund
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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.
PRINCIPAL RISKS:
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.
Other important things for you to note:
o You may lose money by investing in the Fund.
o An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
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 by showing the Fund's performance in
the most recent year. The Fund's past performance, of course, does not
necessarily indicate how it will perform in the future.
PERFORMANCE TABLE
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Since
1 Year Inception*
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Advisor Class -1.32% 12.91%
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First Boston High Yield Index .58% 5.95%
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The average annual total returns in the performance table are for the periods
ended 12/31/98.
* Advisor Class inception date 4/22/97.
Index Return from 4/30/97.
BAR CHART
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n/a n/a n/a n/a n/a n/a n/a n/a n/a -1.32
89 90 91 92 93 94 95 96 97 98
Calendar Year End
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 6.36%, 1st quarter, 1998; and Worst quarter was down -9.57%,
3rd quarter, 1998.
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FEES AND EXPENSES OF THE FUND
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (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) and
EXAMPLE
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.
Operating Expenses Example
---------------------------- ----------------------------
Management Fees .75% After 1 year $116
12b-1 Fees None After 3 years $362
Other Expenses .41% After 5 years $628
---- After 10 years $1,386
Total Fund operating
expenses 1.16%
====
Waiver and/or Expense
Reimbursement (a) (.02)%
----
Net Expenses 1.14%
====
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(a) Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses.
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GLOSSARY
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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 fund) 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.
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 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.
Securities Act is the Securities Act of 1933, as amended.
6
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DESCRIPTION OF THE FUND
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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 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, POLICIES, AND RISK CONSIDERATIONS
Investment Objective and Policies
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 December 31, 1998, the Fund's investments were rated (or equivalent
quality):
o A and above 9.11%
o Ba or BB 4.23%
o B 72.64%
o CCC 1.62%
o Unrated 12.40%
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 fixed-income securities, securities
indices and foreign currencies and purchase put or call options on
fixed-income 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.
Risk Considerations
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 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 Investment Practices" and
"Additional Risk Considerations." These sections also include more information
about the Fund, its investments, and related risks.
7
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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.
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 is subject to higher credit risk because of its investments in debt
securities issued in connection with corporate restructurings by highly
leveraged issuers and in debt securities not current in the payment of interest
or principal or are in default.
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.
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.
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.
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 derivative may not correlate perfectly with relevant assets,
rates, or indices.
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.
DESCRIPTION OF INVESTMENT PRACTICES
This section describes the Fund's investment practices and associated risks.
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 use derivatives primarily as
direct investments in order to enhance yields and broaden portfolio
diversification. Each of these uses entails greater risk than if derivatives
were used solely for hedging purposes. Derivatives are a valuable tool which,
when used properly, can provide significant benefit to 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.
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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 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.
9
<PAGE>
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.
Derivatives Used by the Fund. The following describes specific derivatives that
the Fund may use.
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.
Options on Foreign Currencies. The Fund may invest in options on foreign
currencies that are privately negotiated or traded on U.S. or foreign exchanges
for the purpose of protecting against declines in the U.S. Dollar value of
foreign currency denominated securities held by the Fund and against increases
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.
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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.
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 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.
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 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
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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 foreign government securities 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. 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.
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
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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
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
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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 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.
Future Developments. The Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently contemplated
for use by the Fund, or are not available but may yet be developed, to the
extent such investment practices are consistent with the Fund's investment
objective and legally permissible for the Fund. Such investment practices, if
they arise, may involve risks that are different from or exceed those involved
in the practices described above.
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.
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.
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 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
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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 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.
Year 2000. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction, rather
than the full four digits. If these systems are not modified or replaced,
transactions occurring after 1999 could be processed as year "1900", which could
result in processing inaccuracies and computer system failures. This is commonly
known as the Year 2000 problem. Should any of the computer systems employed by
the Fund's major service providers fail to process Year 2000 related information
properly, that could have a significant negative impact on the Fund's operations
and the services that are provided to the Fund's shareholders. In addition, to
the extent that the operations of issuers of securities held by the Fund are
impaired by the Year 2000 problem, or prices of securities held by the Fund
decline as a result of real or perceived problems relating to the Year 2000, the
value of the Fund's shares may be materially affected.
With respect to the Year 2000, the Fund has been advised that Alliance, the
Fund's investment adviser, Alliance Fund Distributors, Inc. ("AFD"), the Fund's
principal underwriter, and Alliance Fund Services, Inc. ("AFS"), the Fund's
registrar, transfer agent and dividend disbursing agent, (collectively,
"Alliance"), began to address the Year 2000 issue several years ago in
connection with the replacement or upgrading of certain computer systems and
applications. During 1997, Alliance began a formal Year 2000 initiative, which
established a structured and coordinated process to deal with the Year 2000
issue. Alliance reports that it has completed its assessment of the Year 2000
issues on its domestic and international computer systems and applications.
Currently, management of Alliance expects that the required modifications for
the majority of its significant systems and applications that will be in use on
January 1, 2000, will be completed and tested by early 1999. Full integration
testing of these systems and testing of interfaces with third-party suppliers
will continue through 1999. At this time, management of Alliance believes that
the costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Custodian that it is also
in the process of reviewing its systems with the same goals. As of the date of
this prospectus, the Fund and Alliance have no reason to believe that the
Custodian will be unable to achieve these goals.
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MANAGEMENT OF THE FUND
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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 supervising client accounts with assets as of December 31, 1998 totaling
more than $286 billion (of which approximately $118 billion represented assets
of investment companies). Alliance's clients are primarily major corporate
employee benefit plans, public employee retirement systems, investment
companies, foundations, and endowment funds. The 54 registered investment
companies, with more than 118 separate portfolios, managed by Alliance currently
have over 3.6 million shareholder accounts. As of December 31, 1998, Alliance
was retained as investment manager for employee benefit plan assets for over 35
of the FORTUNE 100 companies.
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, 1998.
PORTFOLIO MANAGER
Wayne C. Tappe, Senior Vice President of Alliance Capital Management Corporation
("ACMC") and Nelson Jantzen, Senior Vice President of ACMC, are primarily
responsible for the day-to-day management of the Fund and have been since 1991.
PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of the
Fund. 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. Wayne C. Tappe, who together with Nelson Jantzen is primarily
responsible for the day-to-day management of the Fund, has been the person
principally responsible for the day-to-day management of the Historical
Portfolio since 1995.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of High Yield and the
Lipper High Current Yield Mutual Fund Average as a comparative benchmark. As of
September 30, 1998, the assets in the Historical Portfolio totalled
approximately $571 million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if reflected,
would lower the performance of the Historical Portfolio. In addition, the
performance data do not reflect the Fund's higher expenses, which, if reflected,
would lower the performance of the Historical Portfolio. The performance data
have not been adjusted for corporate or individual taxes, if any, payable with
respect to the Historical Portfolio. The rates of return shown for the
Historical Portfolio are not an estimate or guarantee of future investment
performance of the Fund.
The Lipper High Current Yield Mutual Fund 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 the Fund and the Historical
Portfolio. This survey is published by Lipper Analytical Services, Inc.
("Lipper"), a firm recognized for its reporting of performance of actively
managed funds. According to Lipper, performance data are presented net of
investment management fees, operating expenses and, for funds with Rule 12b-1
plans, asset-based sales charges.
The performance results presented below are based on percentage 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. The inception date for the Historical Portfolio and Lipper
data is January 2, 1987 and for High Yield is April 22, 1997.
ANNUALIZED RATES OF RETURN
Periods Ended December 31, 1998
Portfolio/ Since
Benchmark 1 Year 3 Years 5 Years 10 Years Inception
- --------- ------ ------- ------- -------- ---------
Historical
Portfolio .......... -5.15% 11.36% 9.99% 11.17% 10.49%
Lipper High
Current Yield
Mutual Fund
Average ............ -0.44 8.21 7.37 9.34 8.97
Alliance High Yield
Fund................ -5.83 n/a n/a n/a 9.72
CUMULATIVE RATES OF RETURN
Periods Ending December 31, 1998
Portfolio/ Since
Benchmark 1 Year 3 Years 5 Years 10 Years Inception
- --------- ------ ------- ------- -------- ---------
Historical
Portfolio .......... -5.15% 38.11% 61.01% 188.22% 231.11%
Lipper High
Current Yield
Mutual Fund
Average ............ -0.44 26.80 43.00 145.62 182.21
Alliance High Yield
Fund................ -5.83 n/a n/a n/a 17.01
16
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- --------------------------------------------------------------------------------
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 accepted 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:
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 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 funds 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, 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. 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.
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<PAGE>
-- 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
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 Fund's income dividend and capital gains distribution, 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 chares 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. 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 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.
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 a capital gain.
The Fund expects that distributions will consist either of net income (or
short-term capital gains) or long-term 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 long-term capital gains
distributions may be taxable to you as long-term capital gains. The Fund's
distributions also may be subject to certain state and local taxes.
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.
18
<PAGE>
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 automatically
and without notice, to Class A shares of the same Fund during the calendar month
following the month in which the Fund is informed of the occurrence of the
Conversion Event. The failure of a shareholder or a fee-based program to satisfy
the minimum investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the basis of the
relative 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.
19
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20
<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 accountants for the Fund whose report, along with the Fund's
financial statements, is included in the SAI, which is available upon request.
21
<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)(c) and unrealized) Operations Income Income Capital Gains
--------------------- --------- ---------- --------------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alliance High Yield Fund
Year ended August 31,
1998 .................... $11.17 $1.11 $(.32) $ .79 $(1.05) $(.01) $(.14)
4/22/97(a) to 8/31/97...... $10.00 $1.40 $1.13 $1.53 $ (.36) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement of distribution.
(b) Based on average shares outstanding.
(c) Net of fee waiver and expense reimbursement.
(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 of net asset value during the period, and
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 return calculated for a period of
less than one year is not annualized.
(e) Net of expenses assumed and/or waived/reimbursed. If Alliance High Yield
Fund Advisor Class had borne all expenses, the expense ratio would have
been 2.82% (annualized) for 1997 and 1.16% for 1998.
(f) Annualized.
22
<PAGE>
<TABLE>
<CAPTION>
Less Distributions Ratios/Supplemental Data
- ------------------ -------------------------------------------------------------------------------
Total Net Asset Ratio of Ratio of Net
Dividends Value, Net Assets, Expenses Income (Loss)
and End of Total End of Period to Average to Average Portfolio
Distributions Period Return (d) (omitted) Net Assets (e)(f) Net Assets (f) Turnover Rate
- ------------- --------- ---------- ------------- ----------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$(1.20) $10.76 6.68% $2,256 1.14% 9.25% 311%
$ (.36) $11.17 15.44% $ 321 1.40% 8.20% 73%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to footnotes on page 22.
23
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24
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- --------------------------------------------------------------------------------
APPENDIX A
- --------------------------------------------------------------------------------
BOND RATINGS
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bond 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; 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
25
<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.
26
<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.
27
<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, 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:
In Person: at the Commission's Public Reference Room
in Washington, D.C.
By Phone: 1-800-SEC-0330
By Mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On The Internet: www.sec.gov
You also may find more information about Alliance and the Fund on the internet
at www.Alliancecapital.com.
28
<PAGE>
- --------------------------------------------------------------------------------
Alliance High Yield Fund
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:
o 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.
o Transfer on Death:
o Ensure that your state participates
o 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.
o 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
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For Literature Call: (800) 227-4618
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<PAGE>
The Alliance High Yield Fund Subscription Application -
Advisor Class
================================================================================
1. Your Account Registration (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
================================================================================
|_| Individual Account {|_| Male |_| Female } - or - |_| Joint Account - or -
|_| Transfer on Death {|_| Male |_| Female } - or - |_| Gift/Transfer to a Minor
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Owner or Custodian (First Name) (MI) (Last Name)
|_| |_| |_| |_| |_| |_| |_| |_| |_|
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
(MI) (Last Name)
|_| |_| |_| - |_| |_| - |_| |_| |_| |_|
Social Security Number of Owner or Minor (required to open account)
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
If Uniform Gift/Transfer to Minor Account:
|_| |_| Minor's State of Residence
|_| Trust - or - |_| Corporation - or - |_| Other_______________________________
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name of Trustee if applicable (First Name) (MI) (Last Name)
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name of Trust or Corporation or Other Entity
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name of Trust or Corporation or Other Entity continued
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Trust Dated (MM,DD,YYYY) Tax ID Number (required to open account)
|_| Employer ID Number - OR - |_| Social Security Number
================================================================================
2. Your Address
================================================================================
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Street Number Street Name
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
City State Zip code
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_| |_| |_| - |_| |_| |_| |_|
If Non-U.S., Specify Country Daytime Phone Number
|_| U.S. Citizen |_| Resident Alien |_| Non-Resident Alien
HIYAPP299-Page 1 AllianceCapital [LOGO](R)
<PAGE>
================================================================================
3. Your Initial Investment
The minimum investment is $50,000.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
================================================================================
I hereby subscribe for shares of the Alliance Select Investor Series - Premier
Portfolio and elect distribution options as indicated.
- --------------------------------------
Broker/Dealer Use Only: Wire Confirm #
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
- --------------------------------------
Dividend and Capital Gain Distribution Options:
R Reinvest distributions into my fund account.
C Send my distributions in cash to the address I have provided
in Section 2. (Complete Section 4D for direct deposit to your
bank account. Complete Section 4E for payment to a third party)
D Direct my distributions to another Alliance fund. Complete the
appropriate portion of Section 4A to direct your distributions
(dividends and capital gains) to another Alliance Fund (the $250
minimum investment requirement applies to Funds into which
distributions are directed).
- ----------------------------------------
Make all checks* payable to:
Alliance Funds
- ----------------------------------------
* Cash and money orders are not accepted
- -------------------------------------- --------------------------------------
Three digit Fund Indicate Dollar Amount
number located below --------------------------------------
- --------------------------------------
--------------------------------------
|4| |0| |3| $
--------------------------------------
- --------------------------------------
Distributions Options
*Check One*
- --------------------------------------
- ------------- -----------------
Dividends Capital Gains
R C D R C D
- ------------- -----------------
|R| |C| |D| |R| |C| |D|
HIYAPP299-Page 2
<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
account(s) as indicated below (Complete Section 4D also for the bank account you
wish to use).
1- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
} Frequency:
M = monthly
Q = quarterly
A = annually
* Electronic Funds Transfer. Your bank must be a member of the National
Automated Clearing House Association (NACHA)
|_| Direct My Distributions
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM:
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_|
Fund Number Account Number (If existing)
TO:
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_|
Fund Number Account Number (If existing)
|_| Exchange My Shares Monthly I authorize Alliance to transact monthly
exchanges, within the same class of shares, between my fund accounts as
listed below.
FROM:
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_|
Fund Number Account Number (If existing)
|_| |_| , |_| |_| |_| .00 |_| |_|
Amount 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: o Review the information in the Prospectus about telephone
transaction services.
o 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.
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HIYAPP299-Page 3
<PAGE>
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4. Your Shareholder Options (CONTINUED)
- --------------------------------------------------------------------------------
C. Systematic Withdrawal Plans (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
|_| I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
} Frequency:
M = monthly
Q = quarterly
A = annually
Please send my SWP proceeds to:
|_| My Address of Record (via check)
|_| My checking account-via EFT (complete section 4D) Your bank must be a member
of the National Automated Clearing House Association (NACHA) in order for
you to receive SWP proceeds directly into your bank account. Otherwise
payment will be made by check
|_| The Payee and address specified in section 4E (via check) (Medallion
Signature Guarantee required)
D. Bank Information This bank account information will be used for:
|_| Distributions (Section 3)
|_| Telephone Transactions (Section 4B)
|_| Automatic Investments (Section 4A)
|_| Withdrawals (Section 4C)
- --------------------------------------------------------------------------------
Please Tape a Pre-printed Voided Check Here*
- --------------------------------------------------------------------------------
[GRAPHIC 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
HIYAPP299-Page 4
<PAGE>
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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
HIYAPP299-Page 5
<PAGE>
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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
HIYAPP299-Page 6 AllianceCapital [LOGO](R)
<PAGE>
(LOGO) ALLIANCE HIGH YIELD FUND, 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
November 2, 1998
(as amended March 1, 1999)
____________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the
Prospectus dated March 1, 1999 that offers Class A, Class B and
Class C shares of Alliance High Yield Fund, Inc. (the "Fund"),
and the Prospectus that offers the Advisor Class shares of the
Fund (the "Advisor Class Prospectus" and, together with the
Prospectus that offers the Class A, Class B and Class C shares,
the "Prospectus"). Copies of such Prospectuses 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 Statement..................................
Appendix A: Options................................... A-1
Appendix B: Bond Ratings.............................. B-1
Appendix C: Certain Employee Benefit Plans............ C-1
______________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_________________________________________________________________
DESCRIPTION OF THE FUND
_________________________________________________________________
Alliance High Yield Fund, Inc. (the "Fund") is a
diversified, open-ended investment company. Except as otherwise
indicated, the investment policies of the Fund are not
"fundamental policies" and may, therefore, be changed by the
Board of Directors without a shareholder vote. However, the Fund
will not change its investment policies without contemporaneous
written notice to its shareholders. The Fund's investment
objectives may not be changed without shareholder approval.
There can be, of course, no assurance that the Fund will achieve
its investment objectives.
Investment Objective
The Fund's fundamental investment objective is to
achieve high total return by maximizing current income and, to
the extent consistent with that objective, capital appreciation.
The Fund will pursue this objective by investing primarily in a
diversified mix of high yield, below investment grade fixed-
income securities involving greater volatility of price and risk
of principal and income than higher quality fixed-income
securities. The below investment grade debt securities in which
the Fund may invest are known as "junk bonds."
Investment Policies
The Fund attempts to achieve its objective by investing
primarily in a diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of
price and risk of principal and income than higher fixed-income
securities. The Fund will be managed to maximize current income
by taking advantage of market developments, yield disparities and
variations in the creditworthiness of issuers. The Fund will use
various strategies in attempting to achieve its objective.
Under normal circumstances, at least 65% of the Fund's
total assets will be invested in high yield fixed-income
securities rated below investment grade by two or more NRSROs
(i.e., rated lower than Baa by Moody's Investors Services, Inc.
("Moody's") or lower than BBB by Standard & Poor's Ratings
Services ("S&P")) or unrated but deemed by the Alliance Capital
Management L.P., the Fund's investment adviser (the "Adviser"),
to be equivalent to such lower-rated securities. The Fund will
not, however, invest more than 10% of its total assets in
(i) fixed-income securities which are rated lower than B3 or B-
or their equivalents by two or more NRSROs or if unrated are of
equivalent quality as determined by the Adviser, and
2
<PAGE>
(ii) moneymarket instruments of any entity which has an
outstanding issue of unsecured debt that is rated lower than B3
or B- or their equivalents by two or more NRSROs or if unrated is
of equivalent quality as determined by the Adviser.
Certain of the Fund's investments will be in fixed-
income securities which are providing high current yields because
of risks other than credit. For example, the Fund may invest in
securities which have prepayment risks, and non-U.S. dollar
denominated foreign securities, which may have currency risks.
See Appendix B, "Bond Ratings," for a description of
each rating category. In the event that any securities held by
the Fund fall below those ratings, the Fund will not be obligated
to dispose of such securities and may continue to hold such
securities if, in the opinion of the Adviser, such investment is
considered appropriate under the circumstances.
Although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed
and other asset-backed securities, (ii) enter into repurchase
agreements, (iii) invest in loan participations and assignments
of loans to corporate, governmental, or other borrowers
originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of
securities and purchase and sell securities on a when-issued or
delayed delivery basis, (v) write covered put and call options on
fixed-income securities, securities indices and foreign
currencies and purchase put or call options on fixed-income
securities, securities indices and foreign currencies,
(vi) purchase and sell futures contracts and related options on
debt securities and on indices of debt securities, (vii) enter
into contracts for the purchase or sale of a specific currency
for hedging purposes only, (viii) invest in foreign securities
and buy and sell foreign currencies principally for the purpose
of preserving the value of foreign securities or in anticipation
or purchasing foreign securities provided, however, that the
value of foreign issues denominated in foreign currencies shall
not exceed 20% of the Fund's total assets and the value of
foreign issues denominated in United States currency shall not
exceed 25% of the Fund's total assets, and (ix) lend portfolio
securities. The Fund will have the right to regain record
ownership of loaned securities or equivalent securities in order
to exercise ownership rights such as voting rights, subscription
rights and rights to dividends, interest or distributions. The
Fund may pay reasonable finders', administrative and custodial
fees in connection with a loan. The 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
3
<PAGE>
principal business activities in the same industry (i.e., foreign
government).
In addition to the foregoing, the Fund may from time to
time make investments in (1) U.S. Government Securities,
(2) certificates of deposit, bankers' acceptances, bank notes,
time deposits and interest bearing savings deposits issued or
guaranteed by certain domestic and foreign banks, (3) commercial
paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if not
rated, issued by domestic or foreign companies having high
quality outstanding debt securities) and participation interests
in loans extended by banks to such companies, (4) 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 (5) floating rate or master demand notes.
Securities Ratings. The ratings of fixed-income
securities by S&P, Moody's, Duff & Phelps Credit Rating Co.
("Duff & Phelps") and Fitch IBCA, Inc. ("Fitch") are a generally
accepted barometer of credit risk. They are, however, subject to
certain limitations from an investor's standpoint. The rating of
an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
difference in credit risk of securities within each rating
category.
Additional Investment Policies and Practices
The following additional investment policies supplement
those set forth above.
Options. The Fund may (a) write covered call options on
fixed-income securities or securities indices for the purpose of
increasing its return or to provide a partial hedge against a
decline in the value of its portfolio securities or both,
(b) write covered put options on fixed-income securities or
securities indices in order to earn additional income or (in the
case of put options written on individual securities) to purchase
the underlying securities at a price below the current market
price, (c) purchase put or call options on fixed-income
securities and securities indices in order to hedge against
changes in interest rates or stock prices which may adversely
affect the prices of securities that the Fund wants to purchase
at a later date, to hedge its existing investments against a
decline in value, or to attempt to reduce the risk of missing a
market or industry segment advance, and (d) purchase put and call
options and write covered put and call options against declines
4
<PAGE>
in the dollar value of portfolio securities and against increases
in the dollar cost of securities to be acquired (i.e. as a hedge
and not for speculation).
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
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 liquid
assets in a segregated account with the Custodian. A put option
written by the Fund is "covered" if the Fund maintains liquid
assets with a value equal to the exercise price in a segregated
account with the 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. 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.
A call option is for cross-hedging purposes if the Fund
does not own the underlying security, and is designed 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 Custodian liquid
assets 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
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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
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. The Fund retains the premium
received from writing a put or call option whether or not the
option is exercised. See Appendix A for a discussion of the use,
risks and costs of option trading.
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
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time when the Adviser believes it would be advantageous to do so.
See "Illiquid Securities."
Options on Securities Indices. The Fund may purchase
and sell exchange-traded options on any securities index composed
of the types of securities in which it may invest. 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 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. There are
no specific limitations on the Fund's purchasing and selling of
options on securities indices.
Through the purchase of listed index options, the Fund
could achieve many of the same objectives as through the use of
options on individual securities. Price movements in the Fund's
portfolio securities probably will not correlate perfectly with
movements in the level of the index and, therefore, the Fund
would bear a risk of loss on index options purchased by it if
favorable price movements of the hedged portfolio securities do
not equal or exceed losses on the options or if adverse price
movements of the hedged portfolio securities are greater than
gains realized from the options.
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 is generally 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 accrues to the purchaser
prior to the settlement date. At the time the Fund enters 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
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canceled in the event that the required condition did not occur
and the trade was canceled.
The use of forward commitments enables 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 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. However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices
inferior to the then current market values.
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 Custodian
will maintain, in a segregated account of the Fund, liquid assets
having value equal 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.
Futures Contracts and Options on Futures Contracts. The
Fund may invest in futures contracts and options thereon in order
to hedge against anticipated changes in interest rates that might
otherwise have an adverse effect on the value of the Fund's
assets or assets it intends to acquire, sell stock index futures
contracts and related options to hedge the equity portion of the
Fund's assets or equity assets it intends to acquire with regard
to market as distinguished from stock-specific risk, and enter
into futures contracts and related options on foreign currencies
in order to limit its exchange risk.
Mortgage-Related Securities. The mortgage-related
securities in which the Fund principally invests provide funds
for mortgage loans made to residential home buyers. These
include securities which represent interests in pools of mortgage
loans made by lenders such as savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage
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loans are assembled for sale to investors (such as the Fund) by
various governmental, government-related and private
organizations.
Interests in pools of mortgage-related securities differ
from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some
mortgage-related securities, such as securities issued by the
Government National Mortgage Association ("GNMA"), are described
as "modified pass-through." These securities entitle the holder
to receive all interest and principal payments owed on the
mortgage pool, net of certain fees, regardless of whether or not
the mortgagor actually makes the payment.
The average life of pass-through pools varies with the
maturities of the underlying mortgage instruments. In addition,
a pool's term may be shortened by unscheduled or early payments
of principal and interest on the underlying mortgages. The
occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social
and demographic conditions. As prepayment rates of individual
pools vary widely, it is not possible to accurately predict the
average life of a particular pool. For pools of fixed-rate
30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of
mortgages with other maturities or different characteristics will
have varying average life assumptions. The assumed average life
of pools of mortgages having terms of less than 30 years, is less
than 12 years, but typically not less than 5 years.
Yields on pass-through securities are typically quoted
by investment dealers and vendors based on the maturity of the
underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of
prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-related securities.
Conversely, in periods of rising interest rates the rate of
prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Historically, actual average life has
been consistent with the 12-year assumption referred to above.
Actual prepayment experience may cause the yield to differ from
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the assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original
investment, thus affecting the yield of the Fund. The
compounding effect from reinvestment of monthly payments received
by the Fund will increase the yield to shareholders compared with
bonds that pay interest semi-annually.
The principal governmental (i.e., backed by the full
faith and credit of the United States Government) guarantor of
mortgage-related securities is GNMA. GNMA is a wholly-owned
United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government,
the timely payment of principal and interest on securities issued
by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed
by pools of FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith
and credit of the United States Government) guarantors include
the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation. The Federal National Mortgage
Association ("FNMA") is a government-sponsored corporation owned
entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved
seller/servicers which include state and federally-chartered
savings and loan associations, mutual savings banks, commercial
banks and credit unions and mortgage bankers. Pass-through
securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full
faith and credit of the United States Government. The Federal
Home Loan Mortgage Corporation ("FHLMC") is a corporate
instrumentality of the United States Government whose stock is
owned by the twelve Federal Home Loan Banks. Participation
certificates issued by FHLMC, which represent interests in
mortgages from FHLMC's national portfolio, are guaranteed by
FHLMC as to the timely payment of interest and ultimate
collection of principal but are not backed by the full faith and
credit of the United States Government.
Commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other
secondary market issuers also create pass-through pools of
conventional residential mortgage loans. Such issuers may also
be the originators of the underlying mortgage loans as well as
the guarantors of the mortgage-related securities. Pools created
by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because
there are no direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and
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<PAGE>
principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a
mortgage-related security meets the Fund's investment quality
standards. There can be no assurance that the private insurers
can meet their obligations under the policies. The Fund may buy
mortgage-related securities without insurance or guarantees if
through an examination of the loan experience and practices of
the poolers the Adviser determines that the securities meet the
Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by
certain private organizations may not be readily marketable. The
Fund will not maintain more than 15% of its net assets in
illiquid securities.
Mortgage-related securities in which the Fund may invest
may also include collateralized mortgage obligations ("CMOs").
CMOs are debt obligations issued generally by finance
subsidiaries or trusts that are secured by mortgage-backed
certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC,
together with certain funds and other collateral. Although
payment of the principal of and interest on the mortgage-backed
certificates pledged to secure the CMOs may be guaranteed by
GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FNMA, FHLMC or
any other governmental agency, or by any other person or entity.
The issuers of CMOs typically have no significant assets other
than those pledged as collateral for the obligations.
In a common structure, payments of principal, including
any principal prepayments, on the underlying mortgages are
applied to the classes of the series of a CMO in the order of
their respective stated maturities or final distribution dates,
so that no payment of principal will be made on any class of a
CMO until all other classes having an earlier stated maturity or
final distribution date have been paid in full. One or more
tranches of a CMO may have coupon rates that reset periodically,
or "float," at a specified increment over an index such as the
London Interbank Offered Rate ("LIBOR"). Floating-rate CMOs may
be backed by fixed or adjustable rate mortgages. To date, fixed-
rate mortgages have been more commonly utilized for this purpose.
Floating-rate CMOs are typically issued with lifetime caps on the
coupon rate thereon. These caps, similar to the caps on
adjustable-rate mortgages described below, represent a ceiling
beyond which the coupon rate on a floating-rate CMO may not be
increased regardless of increases in the interest rate index to
which the floating-rate CMO is tied. The collateral securing the
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CMOs may consist of a pool of mortgages, but may also consist of
mortgage-backed bonds or pass-through securities. The Fund also
expects that governmental, government-related or private entities
may create mortgage loan pools offering pass-through investments
in addition to those described above. The mortgages underlying
these securities may be alternative mortgage instruments, that
is, mortgage 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 Adviser
will, consistent with the Fund's investment objective, policies
and quality standards, consider making investments in such new
types of securities.
Other Asset-Backed Securities. In general, the
collateral supporting asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience
unexpected levels of prepayments. As with mortgage-related
securities, asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different
parties and use similar credit enhancement techniques.
Repurchase Agreements. The Fund may enter into
repurchase agreements pertaining to the types of securities in
which it invests with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank
of New York) in such securities. There is no percentage
restriction on the Fund's ability to enter into repurchase
agreements. The Fund may enter into repurchase agreements with
the 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. 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 Adviser monitors the
creditworthiness of the dealers with which the Fund enters into
repurchase agreement transactions.
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Illiquid Securities. The Fund has adopted the following
investment policy which may be changed by the vote of the Board
of Directors.
The Fund will not maintain more than 15% of its net
assets (taken at market value) in illiquid securities. For this
purpose, illiquid securities include, among others (a) direct
placements or other securities which are subject to legal or
contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers
do not exist or will not entertain bids or offers), (b) over-the-
counter options purchased or written by the Fund and all assets
used to cover written over-the-counter options, and
(c) repurchase agreements not terminable within seven days.
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 ("Securities Act") and securities which are
otherwise not readily marketable. 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, foreign
securities and corporate bonds. 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.
The Fund may invest up to 5% of its net assets (taken at
market value) in restricted securities, other than securities
issued under Rule 144A, issued under Section 4(2) of the
Securities Act, which exempts from registration "transactions by
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an issuer not involving any public offering." Section 4(2)
instruments are restricted in the sense that they can be resold
only in transactions that are exempt from the registration
requirements of the Securities Act and only to institutional
investors; they cannot be resold to the general public without
registration.
Securities eligible for resale under Rule 144A of the
Securities Act that have legal or contractual restrictions on
resale but have a readily available market are not deemed
illiquid for purposes of this limitation. More specifically,
Rule 144A 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 sponsored by the National
Association of Securities Dealers, Inc., an automated system for
the trading, clearance and settlement of unregistered securities
of domestic and foreign issuers.
The Adviser, acting under the supervision of the Board
of Directors, will monitor the liquidity of restricted securities
in the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, inter alia, the following factors: (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
securities.
Loans of Portfolio Securities. The Fund may make
secured loans of its portfolio securities to brokers, dealers and
financial institutions provided that liquid assets, or bank
letters of credit equal to at least 100% of the market value of
the securities loaned are deposited and maintained by the
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<PAGE>
borrower with the Fund. 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 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 or equivalent securities in
order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or other
distributions. The Fund may pay reasonable finders,
administrative and custodial fees in connection with a loan. The
Fund will not lend its portfolio securities to any officer,
director, employee or affiliate of the Fund or the Adviser. The
Board of Directors will monitor the Fund's lending of portfolio
securities.
U.S. Government Securities. U.S. Government securities
may be backed by the full faith and credit of the United States,
supported only by the right of the issuer to borrow from the U.S.
Treasury or backed only by the credit of the issuing agency
itself. These securities include: (i) the following U.S.
Treasury securities, which are backed by the full faith and
credit of the United States and differ only in their interest
rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less with no interest paid and hence
issued at a discount and repaid at full face value upon
maturity), U.S. Treasury notes (maturities of one to ten years
with interest payable every six months) and U.S. Treasury bonds
(generally maturities of greater than ten years with interest
payable every six months); (ii) obligations issued or guaranteed
by U.S. Government agencies and instrumentalities that are
supported by the full faith and credit of the U.S. Government,
such as securities issued by GNMA, the Farmers Home
Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and
the Small Business Administration; and (iii) obligations issued
or guaranteed by U.S. government agencies and instrumentalities
that are not supported by the full faith and credit of the U.S.
Government, such as securities issued by FNMA and FHLMC, and
governmental CMOs. The maturities of the U.S. Government
securities listed in paragraphs (i) and (ii) above usually range
from three months to 30 years. Such securities, except GNMA
certificates, normally provide for periodic payments of interest
in fixed amount with principal payments at maturity or specified
call dates.
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Securities issued by GNMA ("GNMA Certificates") differ
in certain respects from other U.S. Government securities, which
normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call
dates. GNMA Certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans. These
loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan-associations -- are either insured by
the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled
and, after being approved by GNMA, is offered to investors
through securities dealers. Once approved by GNMA, the timely
payment of interest and principal on each mortgage is guaranteed
by the full faith and credit of the United States. GNMA
Certificates also differ from other U.S. Government securities in
that principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA
Certificates are called "pass-through" securities because both
interest and principal payments (including pre-payments) are
passed through to the holder of the Certificate. Upon receipt,
principal payments are used by the Portfolio to purchase
additional U.S. Government securities.
U.S. Government securities also include zero coupon
securities and principal-only securities and certain SMRS. In
addition, other U.S. Government agencies and instrumentalities
have issued stripped securities that are similar to SMRS. Such
securities include those that are issued with an interest only
("IO") 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.
General. The successful use of the foregoing investment
practices, all of which are highly specialized investment
activities, draws upon the Adviser's special skills and
experience with respect to such instruments and usually depends
on the Adviser's ability to forecast interest rate movements
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correctly. Should interest rates move in an unexpected manner,
the Fund may not achieve the anticipated benefits of these
practices or may realize losses and, thus be in an worse position
than if such strategies had not been used. In addition, the
correlation between movements in the prices of such instruments
and movements in the prices of the securities hedged or used for
cover will not be perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in
options, interest rate transactions and forward commitment
contracts will depend on the availability of liquid markets in
such instruments. Markets for all these vehicles with respect to
a number of fixed-income securities are relatively new and still
developing. If, for example, 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 portfolio securities
covering an option written by the Fund until the option expires.
Therefore, no assurance can be given that the Fund will be able
to utilize these instruments effectively for the purposes set
forth 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. Such
high rate of portfolio turnover involves correspondingly greater
expenses than a lower rate, which expenses must be borne by the
Fund and its shareholders. See "Dividends, Distributions and
Taxes" and "General Information--Portfolio Transactions."
Certain Risk Considerations
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
Commission. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign
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currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the
Chicago Board Options Exchange, subject to Commission regulation.
Similarly, options on 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
Commission, as are other securities traded on such exchanges. As
a result, many of the protections provided to traders on
organized exchanges will be available with respect to such
transactions. In particular, all foreign currency option
positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation
("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a
national securities exchange may be more readily available than
in the over-the-counter market, potentially permitting the 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.
18
<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 assets 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 and cross-
19
<PAGE>
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 cancelled in the event that the
required conditions did not occur and the trade was cancelled.
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,
liquid assets having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis
20
<PAGE>
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.
Investments in Lower-Rated and Unrated Instruments.
Substantially all of the Fund's assets will be invested in high
yield, high risk debt securities that are rated in the lower
rating categories (i.e., below investment grade) or which are
unrated but are of comparable quality as determined by the
Adviser. Debt securities rated below investment grade are those
rated Ba or lower by Moody's or BB or lower by S&P and are
considered by those organizations to be subject to greater risk
of loss of principal and interest than higher-rated securities
and are considered to be predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal,
which may in any case decline during sustained periods of
deteriorating economic conditions or rising interest rates. The
Fund may invest in securities having the lowest ratings for non-
subordinated debt instruments assigned by Moody's or S&P (i.e.,
rated C by Moody's or CCC or lower by S&P) and in unrated
securities of comparable investment quality. These securities
are considered to have extremely poor prospects of ever attaining
any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to
pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal.
Lower-rated securities generally are considered to be
subject to greater market risk than higher-rated securities in
times of deteriorating economic conditions. In addition, lower-
rated securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than
investment grade securities, although the market values of
securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate
levels than do those of higher-rated securities. The market for
lower-rated securities may be thinner and less active than that
for higher-quality 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 Adviser may experience difficulty in valuing such
securities and, in turn, the Fund's assets. In addition, adverse
publicity and investor perceptions about lower-rated securities,
whether or not based on fundamental analysis, may tend to
21
<PAGE>
decrease the market value and liquidity of such lower-rated
securities. Transaction costs with respect to lower-rated
securities may be higher, and in some cases information may be
less available, than is the case with investment grade
securities.
Many fixed income securities, including certain U.S.
corporate fixed income securities in which the Fund may invest,
contain call or buy-back features which permit the issuer of the
security to call or repurchase it. Such securities may present
risks based on payment expectations. If an issuer exercises such
a "call option" and redeems the security, the Fund may have to
replace the called security with a lower yielding security,
resulting in a decreased rate of return for the Fund.
Ratings of fixed-income securities by Moody's and S&P
are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's
standpoint. The rating of a security 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 the credit risk of securities
within each rating category.
Non-rated securities will also be considered for
investment by the Fund when the Adviser believes that the
financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves,
limits the risk to the Fund to a degree comparable to that of
rated securities which are consistent with the Fund's objectives
and policies.
The Adviser will try to reduce the risk inherent in its
investment approach through credit analysis, diversification and
attention to current developments and trends in interest rates
and economic and political conditions. However, there can be no
assurance that losses will not occur. Since the risk of default
is higher for lower-quality securities, the Adviser's research
and credit analysis are a correspondingly more important aspect
of its program for managing the Fund's securities than would be
the case if the Fund did not invest in lower-rated securities. In
considering investments for the Fund, the Adviser will attempt to
identify those high-yielding securities whose financial condition
is adequate to meet future obligations, has improved, or is
expected to improve in the future. The Adviser's analysis
focuses on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
22
<PAGE>
In seeking to achieve the Fund's investment objectives,
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 are reflected in the net asset
value of the Fund.
Risks of Investments In Foreign Securities. Foreign
issuers are subject to accounting and financial standards and
requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and
profits appearing on the financial statements of a foreign issuer
may not reflect its financial position or results of operations
in the way they would be reflected had the financial statement
been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps
accounting records in local currency, inflation accounting rules
in some of the countries in which the Fund will invest require,
for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to
express items in terms of currency of constant purchasing power.
Inflation accounting may indirectly generate losses or profits.
Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the
real condition of those issuers and securities markets.
Substantially less information is publicly available about
certain non-U.S. issuers than is available about U.S. issuers.
Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar
developments, such as military coups, have occurred in the past
in countries in which the Fund will invest and could adversely
affect the Fund's assets should these conditions or events recur.
Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities and increase the costs and expenses of
the Fund. Certain countries in which the Fund will invest
require governmental approval prior to investments by foreign
persons, limit the amount of investment by foreign persons in a
particular issuer, limit the investment by foreign persons only
to a specific class of securities of an issuer that may have less
advantageous rights than the classes available for purchase by
domiciliaries of the countries and/or impose additional taxes on
foreign investors.
23
<PAGE>
Certain countries other than those on which the Fund
will focus it investments may require governmental approval for
the repatriation of investment income, capital or the proceeds of
sales of securities by foreign investors. In addition, if a
deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the
Fund of any restrictions on investments. Investing in local
markets may require the portfolio to adopt special procedures,
seek local governmental approvals or take other actions, each of
which may involve additional costs to the Fund.
Income from certain investments held by the Fund could
be reduced by foreign income taxes, including withholding taxes.
It is impossible to determine the effective rate of foreign tax
in advance. The Fund's net asset value may also be affected by
changes in the rates or methods of taxation applicable to the
Fund or to entities in which the Fund has invested. The Adviser
generally will consider the cost of any taxes in determining
whether to acquire any particular investments, but can provide no
assurance that the tax treatment of investments held by the Fund
will not be subject to change.
Debt Securities. The net asset value of the Fund's
shares will change as the general levels of interest rates
fluctuate. When interest rates decline, the value of a portfolio
primarily invested in debt securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio
primarily invest in debt securities can be expected to decline.
Certain debt securities in which the Fund may invest are
floating-rate debt securities. To the extent that the Fund does
not enter into interest rate swaps with respect to such floating-
rate debt securities, the Fund may be subject to greater risk
during periods of declining interest rates.
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 anticipates that the net return on the Fund's investment
portfolio will exceed the interest expense by the Fund on
borrowing.
1940 Act Restrictions. Under the 1940 Act, a Fund is
not permitted to borrow unless immediately after such borrowing
there is "asset coverage," as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund.
In addition, under the 1940 Act, in the event asset coverage
falls below 300%, a Fund must within three days reduce the amount
of its borrowing to such an extent that the asset coverage of its
24
<PAGE>
borrowings is at least 300%. Assuming, for example, outstanding
borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset
coverage of the Fund's portfolio would be 300%; while outstanding
borrowings representing 25% of the Fund's total assets less
liabilities (other than such borrowings), the asset coverage of
the Fund's portfolio would be 400%. A Fund will maintain asset
coverage of outstanding borrowings of at least 300% and if
necessary will, to the extent possible, reduce the amounts
borrowed by making repayments from time to time in order to do
so. Such repayments could require a Fund to sell portfolio
securities at times considered disadvantageous by the Adviser 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 Fund has adopted several fundamental investment
policies listed below, which may not be changed without the
approval of its shareholders, which means the affirmative vote of
the holders of (i) 67% or more or the shares represented at a
meeting at which more than 50% of the outstanding shares are
represented, or (ii) more than 50% of the outstanding shares,
whichever is less. Whenever any investment restriction states a
maximum percentage of the Fund's assets which may be invested in
any security or other asset, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other
assets. Accordingly, any later increases or decreases in
percentage beyond the specified limitation resulting from a
change in values or net assets will not be considered a
violation.
The Fund may not:
(1) invest in any one industry if that investment would
make the Fund's holding in that industry exceed 25% of the Fund's
total assets;
(2) make an investment unless, when considering all its
other investments, 75% of the value of its assets would consist
of cash, cash items, U.S. Government Securities, securities of
other investment companies and other securities;
25
<PAGE>
(3) invest more than 10% of its total assets in
securities of other investment companies;
(4) 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;
(5) underwrite securities issued by other persons
except to the extent that, in connection with the disposition of
its portfolio investments, it may be deemed to be an underwriter
under certain federal securities laws;
(6) make short sales of securities, except when it has,
by reason of ownership of other securities, the right to obtain
securities of equivalent kind and amount that will be held so
long as it is in a short position;
(7) issue senior securities;
(8) purchase real estate or mortgages; however, the
Fund may, as appropriate and consistent with its investment
policies and other investment restrictions (a) buy securities of
issuers which engage in real estate operations and securities
which are secured by interests in real estate (including
partnership interests and shares of real estate investment
trusts) and (b) may hold and sell real estate acquired as a
result of ownership of such securities;
(9) purchase any security on margin or borrow money,
except that this restriction shall not apply to (a) borrowing
from banks for temporary purposes, (b) the pledging of assets to
banks in order to transfer funds for various purposes as required
without interfering with the orderly liquidation of securities in
the Fund (but not for leveraging purposes), or (c) margin
payments or pledges in connection with options, futures
contracts, options on futures contracts, forward contracts or
options on foreign currencies;
(10) make loans except through (a) the purchase of debt
obligations in accordance with its investment objectives and
policies; (b) the lending of portfolio securities; or (c) the use
of repurchase agreements;
(11) purchase or sell commodities (except that the Fund
may purchase and sell futures contracts and related options on
debt securities and on indices of debt securities).
26
<PAGE>
Non-Fundamental Restrictions
The following investment restrictions are not fundamental. They
may be changed without a vote of the Fund's shareholders.
The Fund will not:
(1) invest more than 15% of its assets in securities
restricted as to disposition under federal securities laws, or
securities otherwise considered illiquid or not readily
marketable, including repurchase agreements having a maturity of
more than seven days; however, this restriction will not apply to
securities sold pursuant to Rule 144A under the Securities Act,
so long as such securities meet liquidity guidelines to be
established by the Fund's Board of Directors;
(2) trade in foreign exchange (except transactions
incidental to the settlement of purchases or sales of securities
for the Fund) except in connection with its foreign currency
hedging strategies, provided the amount of foreign exchange
underlying such a currency hedging transactions does not exceed
10% of such Fund's net assets;
(3) acquire securities of any company that is a
securities broker or dealer,a securities underwriter, an
investment adviser of an investment company, or an investment
adviser registered under the Investment Advisers Act of 1940
(other than any such company that derives no more than 15% of its
gross revenues from securities related activities), except the
Fund may purchase bank, trust company, and bank holding company
stock, and except that the Fund may invest, in accordance with
Rule 12d3-1 under the Investment Company Act of 1940, as amended
(the "1940 Act"), up to 5% of its total assets in any such
company provided that it owns no more than 5% of the outstanding
equity securities of any class plus 10% of the outstanding debt
securities of such company;
(4) make an investment in order to exercise control or
management over a company; or
(5) borrow for temporary purposes (including the
purposes mentioned in the preceding sentence) in an amount
exceeding 5% of the value of the assets of the Fund. Borrowings
for temporary purposes are not subject to the 300% asset average
limit described above. See "1940 Act Restrictions."
27
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_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
Directors and Officers
The Directors and officers of the Fund, their ages and
their principal occupations during the past five years are set
forth below. Each such Director and officer is also a director,
trustee 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,* 53, 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 1994.
RUTH BLOCK, 68, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States ("Equitable"). She is a Director of
Ecolab Incorporated (specialty chemicals) and BP Amoco
Corporation (oil and gas). Her address is P.O. Box 4623,
Stamford, Connecticut 06903.
DAVID H. DIEVLER, 69, is currently 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.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1994.
Previously, he was Director of the National Academy of Design.
His address is Historic Hudson Valley, 150 White Plains Road,
Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, 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 1994. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
____________________
* An interested person of the Fund as defined in the 1940
Act.
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<PAGE>
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1994. 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, 59, is a member of the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1994. He is President, and Chief Executive Officer and
Director of Wenonah Development Company (investments) and a
Director of Placer Dome Inc. (mining). His address is St.
Barnard's Road, Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel of 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 above.
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
NELSON JANTZEN, SENIOR VICE PRESIDENT, 54, is a Senior
Vice President and Portfolio Manager of ACMC, with which he has
been associated since prior to 1994. Mr. Jantzen is head of the
High Yield Group and is responsible for the management of
domestic high yield assets.
WAYNE C. TAPPE, VICE PRESIDENT, 36, is a Vice President
and Portfolio Manager of ACMC, with which he has been associated
since prior to 1994.
EDMUND P. BERGAN, JR., SECRETARY, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1994.
ANDREW L. GANGOLF, ASSISTANT SECRETARY, 44, has been a
Vice President and Assistant General Counsel of AFD, with which
he has been associated since December 1994. Prior thereto he was
a Vice President and Assistant Secretary of Delaware Management
Company, Inc. since prior to 1994.
29
<PAGE>
DOMENICK PUGLIESE, ASSISTANT SECRETARY, 37, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was a Vice
President and Counsel of Concord Holding Corporation since prior
to 1994.
EMILIE D. WRAPP, ASSISTANT SECRETARY, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
MARK D. GERSTEN, TREASURER and CHIEF FINANCIAL OFFICER,
48, is a Senior Vice President of AFS, with which he has been
associated since prior to 1994.
JUAN RODRIGUEZ, CONTROLLER, 41, is Vice President of
AFS, with which he has been associated since prior to 1994.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended August 31, 1998, and
the aggregate compensation paid to each of the Directors during
calendar year 1998 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 Fund 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.
30
<PAGE>
Total Number Total Number of
of Investment Investment
Companies in Portfolios
the Alliance within the
Total Fund Complex, Funds,
Compensation Including the Including the
From the Fund, as to Fund, as to
Alliance Fund which the which the
Aggregate Complex, Director is a Director is a
Compensation Including the Director or Director or
Name of Director From the Fund Fund Trustee Trustee
________________ _____________ _____________ _____________ ________________
John D. Carifa $0 $0 50 114
Ruth Block $4,414 $180,763 37 77
David H. Dievler $4,415 $216,288 43 80
John H. Dobkin $4,381 $185,363 41 91
William H. Foulk, Jr. $4,411 $241,003 45 109
Dr. James M. Hester $4,418 $172,913 37 74
Clifford L. Michel $4,418 $187,763 38 90
Donald J. Robinson $4,414 $193,709 41 103
As of February 1, 1999, the Directors and officers of
the Fund as a group owned 21.6% of the Advisor Class shares of
the Fund and less than 1% of the shares of any other class of
shares of the Fund.
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1998, totaling more than $286 billion (of which more
than $118 billion represented the assets of investment
companies). The Adviser's clients are primarily major corporate
employee benefit funds, public employee retirement systems,
investment companies, foundations and endowment funds. The 54
registered investment companies managed by the Adviser,
comprising 118 separate investment portfolios, currently have
more than 3.6 million shareholder accounts. As of December 31,
1998, the Adviser and its subsidiaries employed more than 2,000
employees who operate out of domestic offices and the offices of
subsidiaries in Bahrain, Bangalore, Cairo, Chennai, Hong Kong,
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<PAGE>
Istanbul, Johannesburg, London, Luxembourg, Madrid, Moscow,
Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore,
Sydney, Tokyo, Toronto, Vienna and Warsaw. As of December 31,
1998, the Adviser was retained as an investment manager for
employee benefit plan assets of 35 of the FORTUNE 100
companies.
Alliance Capital Management Corporation ("ACMC"), the
sole general partner of, and the owner of a 1% general
partnership interest in the Adviser, is an indirect wholly-owned
subsidiary of the Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of the
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA- a French insurance holding company
which at March 1, 1998, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1998, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
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
32
<PAGE>
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.
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 furnish 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. 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 period of the Fund ended August 31, 1997,
the Adviser waived its right to receive advisory fees from the
Fund. For the fiscal year ended August 31, 1998, the Adviser
received advisory fees of $1,369,676 from the Fund.
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may employ its own personnel.
For such services, it also may utilize personnel employed by the
Adviser or its affiliates and, in such event, the services will
be provided to the Fund at cost and the payments therefor must be
specifically approved by the Fund's Directors. For the fiscal
period of the Fund ended August 31, 1997 the Adviser waived its
right to such payments. During the Fund's fiscal year ended
August 31, 1998, the Adviser waived its right to reimbursement of
$44,000 for such services and received $88,015 for such services.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
(as defined in the 1940 Act) 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 will continue in effect for
successive twelve-month periods (computed from each January 1),
33
<PAGE>
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 of any such party as defined by the 1940 Act.
Most recently, continuance of the Advisory Agreement was approved
for the period ending December 31, 1999 by the Board of
Directors, including a majority of the Directors who are not
"interested persons" as defined in the 1940 Act, at their Regular
Meeting held on October 15, 1998.
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 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 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/Regent Sector Opportunity 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 Spain Fund, Inc. and The Southern
Africa Fund, Inc. all closed-end investment companies.
34
<PAGE>
_________________________________________________________________
EXPENSES OF THE FUND
_________________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., 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 the distribution
of its Class A shares, Class B shares 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 Fund's fiscal year ended August 31, 1998,
with respect to Class A shares, the Fund paid distribution
services fees for expenditures under the Agreement, in the
aggregate amount of $70,152 which constituted .30% of the Fund's
aggregate average daily net assets attributable to the Class A
shares during the period, and the Adviser made payments from its
own resources as described above, aggregating $372,660. Of the
$442,812 paid by the Fund and the Adviser under the Plan, with
respect to the Class A shares, $16,485 was spent on advertising,
$6,055 on the printing and mailing of prospectuses for persons
other than current shareholders, $97,788 for compensation to
broker-dealers and other financial intermediaries (including,
$34,240 to the Fund's Principal Underwriter), $163,531 for
compensation to sales personnel and, $158,953 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the Fund's fiscal year ended August 31, 1998,
with respect to Class B shares, the Fund paid distribution
services fees for expenditures under the Agreement in the
aggregate amount of $1,329,240, which constituted 1.00% of the
Fund's aggregate average daily net assets attributable to Class B
shares during the period, and the Adviser made payments from its
own resources, as described above, aggregating $9,510,838. Of
the $10,840,078 paid by the Fund and the Adviser under the Plan,
with respect to Class B shares, $80,103 was spent on advertising,
$27,349 on the printing and mailing of prospectuses for persons
other than current shareholders, $9,788,877 for compensation to
broker-dealers and other financial intermediaries (including,
$172,767 to the Fund's Principal Underwriter), $496,910 for
compensation to sales personnel, $281,299 was spent on printing
of sales literature, travel, entertainment, due diligence and
35
<PAGE>
other promotional expenses, and $165,540 was spent on interest on
Class B shares financing.
During the Fund's fiscal year ended August 31, 1998,
with respect to Class C shares, the Fund paid distribution
services fees for expenditures under the Agreement, in the
aggregate amount of $249,621 which constituted 1.00% annualized,
of the Fund's aggregate average daily net assets attributable to
Class C shares during the period, and the Adviser made payments
from its own resources, as described above, aggregating $444,132.
Of the $693,753 paid by the Fund and the Adviser under the Plan,
with respect to Class C shares, $16,413 was spent on advertising,
$5,409 on the printing and mailing of prospectuses for persons
other than current shareholders, $488,086 for compensation to
broker-dealers and other financial intermediaries (including,
$34,469 to the Fund's Principal Underwriter), $99,471 for
compensation to sales personnel, $54,870 was spent on printing of
sales literature, travel, entertainment, due diligence and other
promotional expenses, and $29,504 was spent on interest on
Class C shares 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 respective contingent deferred sales
charges and respective distribution services fees on the Class B
shares, and the distribution services fee on the Class C shares
are the same as those of the initial sales charge and/or
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 under the Rule 12b-1 Plan is directly tied to the
expenses incurred by AFD. Actual distribution expenses for Class
b and Class C shares for any given year, however, will probably
exceed the distribution services 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
36
<PAGE>
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.
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,
$11,190,075 (4.15% of the net assets of Class B) and $523,224
(1.08% 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 to 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 Agreement will continue in effect for successive
twelve-month periods (computed from each January 1) with respect
to each class of the Fund, 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 Act) of that
class, and in either case, by a majority of the Directors of the
Fund who are not parties to this agreement or interested persons,
as defined in the Act, of any such party (other than as trustees
of the Fund) and who have no direct or indirect financial
interest in the operation of the Rule 12b-1 Plan or any agreement
related thereto. Most recently, the continuance of the Agreement
until December 31, 1999 was approved by a vote, cast in person,
of Directors, including a majority of the Directors who are not
"interested persons" as defined in the 1940 Act, at their Regular
Meeting held on October 15, 1998.
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
37
<PAGE>
such compensation to brokers or other persons for their
distribution assistance.
In the event that the Rule 12b-1 Plan is terminated or
not continued with respect to the Class A shares, Class B shares
or Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
The Glass-Steagall Act and other applicable laws may
limit the ability of a bank or other depository institution to
become an underwriter or distributor of securities. However, in
the opinion of the Fund's management, based on the advice of
counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the
administrative, accounting and other services referred to in the
Agreement. In the event that a change in these laws prevented a
bank from providing such services, it is expected that other
service arrangements would be made and that shareholders would
not be adversely affected.
Registrar, Transfer Agent and Dividend-Disbursing Agent
Alliance Fund Services, an indirect wholly-owned
subsidiary of the Adviser, located at 500 Plaza Drive, Secaucus,
New Jersey 07094, acts as each Fund's registrar, transfer agency
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. For the fiscal year ended
August 31, 1998 the Fund paid Alliance Fund Services, Inc.
$130,783 for transfer agency services.
_________________________________________________________________
PURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--How to Buy Shares."
38
<PAGE>
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"), 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
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 the Principal Underwriter 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 representative may also impose
requirements with respect to the purchase, sale or exchange of
39
<PAGE>
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
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
40
<PAGE>
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
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.
41
<PAGE>
In addition to the discount or commission amount 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, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Alliance Mutual
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives may take the form
of payment for attendance at seminars, meals, sporting events, or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent to urban or resort locations
within or outside the United States. Such dealer or agent may
elect to receive cash incentives of equivalent amount in lieu of
such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
that borne by Class A shares, and Advisor Class shares do not
bear such a fee, (iii) Class B and Class C shares bear higher
transfer agency costs than that borne by Class A 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 and Advisor Class
shareholders and the Class A, Class B and Advisor Class
shareholders will vote separately by class, and (v) Class B 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.
42
<PAGE>
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares**
The alternative purchase arrangements available with
respect to Class A shares, Class B shares 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 charge on
Class B shares prior to conversion, or the accumulated
distribution services fee and contingent deferred sales charge on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the
Principal Underwriter will reject any order (except orders from
certain retirement plans and certain employee benefit plans) for
more than $250,000 for Class B shares. (See Appendix C 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 purchase 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.
____________________
** Advisor Class shares are sold only to investors described
above in this section under "--General."
43
<PAGE>
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 four-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge 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 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
four-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 Fund's fiscal period April 22, 1997
(commencement of operations) to August 31, 1997 and during the
fiscal year ended August 31, 1998, the aggregate amount of
underwriting commission payable with respect to shares of the
Fund was $203,434 and $1,434,547, respectively. Of that amount,
the Principal Underwriter received $6,775 and $44,762,
respectively, representing that portion of the sales charge paid
on shares of the Fund sold during the fiscal period which was not
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter). During the Fund's fiscal period
ended in 1998 and during the fiscal year ended August 31, 1998,
the Principal Underwriter received contingent deferred sales
charges of $7,095 and $1, respectively on Class A shares, $14,342
and $251,624, respectively on Class B shares and $2,565 and
$48,433, respectively on Class C shares of the Fund.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
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<PAGE>
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the Public or Agents
Amount of Net Amount Offering As % of
Purchase Invested 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, as 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 and
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 or agents for selling Class A
45
<PAGE>
shares. With respect to purchases of $1,000,000 or more made
through selected dealers or agents, the Adviser may, pursuant to
the Distribution Services Agreement described above, pay such
dealers or agents from its own resources a fee of up to 1% of the
amount invested to compensate such dealers or agents for their
distribution assistance in connection with such purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "-
- -Class B Shares--Conversion Feature" and "--Conversion of Advisor
Class Shares to Class A Shares." The Fund receives the entire
net asset value of its Class A shares sold to investors. The
Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act.
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 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
46
<PAGE>
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance 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
-Pennsylvania Portfolio
-Virginia Portfolio
47
<PAGE>
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
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
48
<PAGE>
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 the 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 only 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 the sales charge
will be used to purchase additional shares of the Fund subject to
49
<PAGE>
the rate of the 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 the 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.
50
<PAGE>
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an 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,
certain employee benefit plans for employees of the Adviser, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or 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 or 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 service in the nature of investment
advisory or administrative services; (vi) persons who establish
to the Principal Underwriter's satisfaction that they are
investing, within such time period as may be designated by the
Principal Underwriter, proceeds of redemption of shares of such
other registered investment companies as may be designated from
time to time by the Principal Underwriter; and (vii) employer-
sponsored qualified pension or profit-sharing plans (including
Section 401(k) plans), custodial accounts maintained pursuant to
Section 403(b)(7) retirement plans and individual retirement
accounts (including individual retirement accounts to which
simplified employee pension (SEP) contributions are made), if
such plans or accounts are established or administered under
programs sponsored by administrators or other persons that have
been approved by the Principal Underwriter.
51
<PAGE>
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B 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 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 2.0% (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
52
<PAGE>
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as
Year Since Purchase a % of Dollar Amount Subject to Charge
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter 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
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.
53
<PAGE>
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 shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
54
<PAGE>
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 and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts and 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 by 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 that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer
eligible to purchase Advisor Class shares as described in the
Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
55
<PAGE>
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A shares, Class B shares 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
56
<PAGE>
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 permit 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 received by a shareholder upon
redemption or repurchase of his or her shares, assuming the
shares constitute capital assets in his or her hands, will result
in long-term or short-term capital gain (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 stock
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 stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
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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 share 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 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, once in any 30-day
period, 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
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
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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
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
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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
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 Alliance). In
addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
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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 service 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. Except with respect to exchanges of
Class A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on
60 days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
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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
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 Fund being acquired may be legally
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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.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $5 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.
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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 the
shareholder's Class A, Class B, Class C or Advisor Class Fund
account, a Class A, Class B, Class C or Advisor Class account
with one or more other Alliance Mutual Funds may direct that
income dividends and/or capital gains paid on the shareholder's
Class A, Class B, Class C or Advisor Class Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown on the
cover of this Statement of Additional Information. Investors
wishing to establish a dividend direction plan in connection with
their initial investment should complete the appropriate section
of the Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
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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.
CDSC Waiver for Class B Shares 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.
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With respect to Class B shares, the waiver applies only
with respect to shares (or, in the case of shares acquired
through one or more exchanges of shares, the original 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.
Checkwriting
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against
Class A or Class C shares of the Fund redeemed from the
investor's account. Under this service, checks may be made
payable to any payee in any amount not less than $500 and not
more than 90% of the net asset value of the Class A or Class C
shares in the investor's account (excluding for this purpose the
current month's accumulated dividends and shares for which
certificates have been issued). A Class A or Class C shareholder
wishing to establish this checkwriting service subsequent to the
opening of his or her Fund account should contact the Fund by
telephone or mail. Corporations, fiduciaries and institutional
investors are required to furnish a certified resolution or other
evidence of authorization. This checkwriting service will be
subject to the Bank's customary rules and regulations governing
checking accounts, and the Fund and the Bank each reserve the
right to change or suspend the checkwriting service. There is no
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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 checks (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 following receipt of a
purchase or redemption order (and on such other days as the
Directors of the Fund deem 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. The net asset value is calculated at the close of
business on each Fund business day.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Boards duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the quoted bid prices on such day. If no bid prices are
quoted on such day, then the security is valued at the mean of
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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
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
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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
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.
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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
________________________________________________________________
General
The Fund intends for each taxable year to qualify to be
taxed as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (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;
(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, cash items, U.S. Government Securities, securities of other
regulated investment companies and other securities with respect
to which the Fund's investment is limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's total
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).
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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 net investment 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 will 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 shareholders
equal to the sum of (i) 98% of its ordinary income for such year,
(ii) 98% of its capital gain net income and foreign currency
gains for the twelve-month period ending on October 31 of such
year, and (iii) any ordinary income or capital gain net income
from the preceding calendar year that was not distributed during
such 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 but actually paid during the following January will be
treated as if paid by the Fund on December 31 of such 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 income so that the Fund will not be subject to federal
income or excise taxes.
The information set forth in the following discussion
relates solely to the significant United States federal income
tax consequences of dividends and distributions by the Fund and
of sales or redemptions of Fund shares, and assumes that the Fund
qualifies to be taxed as a regulated investment company.
Investors should consult their own tax counsel with respect to
the specific tax consequences of their being shareholders of the
Fund, including the effect and applicability of federal, state
and local tax laws to their own particular situation and the
possible effects of changes therein.
Dividends and Distributions. 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 and excise taxes. 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.
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Until the Directors of the Fund otherwise determine,
each income dividend and capital gains distribution, if any,
declared by the Fund on its outstanding shares will, at the
election of each shareholder, be paid in cash or reinvested in
additional full or fractional shares of the Fund. Election to
receive dividends and distributions in cash or full or fractional
shares is made at the time the shares are initially purchased and
may be changed at any time prior to the record date for a
particular dividend or distribution. Cash dividends can be paid
by check or, if the shareholder so elects, electronically via the
ACH network. There is no sales or other charge in connection
with the reinvestment of dividends and capital gains
distributions. Dividends paid by the Fund, if any, with respect
to Class A, Class B, Class C and Advisor Class shares will be
calculated in the same manner, at the same time, on the same day
and will be in the same amount, except as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes.
Distributions of net capital gain are taxable as long-
term 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.
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 such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. 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
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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.
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 types of
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.
Foreign Taxes. Income received by the Fund also may be
subject to foreign income taxes, including taxes withheld at the
source. 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.
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.
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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 United States 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 percent
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 percent 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 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 percent and
calendar year distribution requirements described above.
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Discount Obligations. Under current federal tax law,
the Fund will include in income as interest each year, in
addition to stated interest received on obligations held by the
Fund, amounts attributable to the Fund from holding (i) Discount
Obligations and (ii) securities purchased by the Fund at a price
less than their stated face amount or, in the case of Discount
Obligations, at a price less than their issue price plus the
portion of "original issue discount" previously accrued thereon,
i.e., purchased at a "market discount." Current federal tax law
requires that a holder (such as the Fund) of a Discount
Obligation accrue as income each year a portion of the discount
at which the obligation was purchased by the Fund even though the
Fund does not receive interest payments in cash on the security
during the year which reflect the accrued discount. The Fund
will elect to likewise accrue and include in income each year a
portion of the market discount with respect to a Discount
Obligation or other obligation even though the Fund does not
receive interest payments in cash on the securities which reflect
that accrued discount.
As a result of the applicable rules, in order to make
the distributions necessary for the Fund not to be subject to
federal income or excise taxes, the Fund may be required to pay
out as an income distribution each year an amount significantly
greater than the total amount of cash which the Fund has actually
received as interest during the year. Such distributions will be
made from the cash assets of the Fund, from borrowings 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 sales, its
shareholders may receive a larger capital gain distribution, if
any, than they would have in the absence of such sales.
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 gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
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taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. If such
distributions exceed such shareholder's basis, such excess 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
generally 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
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recognized but the premium received or paid will be included in
the calculation of gain or loss upon disposition of the property
underlying the option.
Gain or loss realized by the Fund on the lapse or sale
of put and call options on foreign currencies which are traded
over-the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, forward
foreign currency contract, currency swap, or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
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
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long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position is ordinary and at least one
position is capital. No such regulations have yet been issued.
Various elections are available to the Fund which may mitigate
the effects of the straddle rules, particularly with respect to
mixed straddles. In general, the straddle rules described above
do not apply to any straddles held by the Fund all of the
offsetting positions of which consist of section 1256 contracts.
Other Taxation
As noted above, the Fund may be subject to other state
and local taxes.
Taxation of Foreign Shareholders
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 own counsel for further information as to the
United States federal income tax consequences of receipt of
income from the Fund.
_________________________________________________________________
PORTFOLIO TRANSACTIONS
_________________________________________________________________
Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions of the Fund. The Fund's portfolio transactions
occur primarily with the issuers, underwriters or major dealers
acting as principals. Such transactions are normally on a net
basis which do not involve payment of brokerage commissions. The
cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriters; transactions
with dealers normally reflect the spread between bid and ask
prices. Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
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obtain the best price and execution for its transactions. Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through 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 its shares as a factor in the selection at
dealers to enter into portfolio transactions with the Fund.
Portfolio securities will not be purchased from or sold
to Donaldson, Lufkin & Jenrette Securities Corporation, an
affiliate of the Adviser or any other subsidiary or affiliate of
the Equitable Life Assurance Society of the United States.
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
Capitalization
The Fund is a Maryland corporation organized in 1986.
The authorized capital stock of the Fund consists of
3,000,000,000 shares of Class A Common Stock, $.001 par value,
3,000,000,000 shares of Class B Common Stock, $.001 par value,
3,000,000,000 shares of Class C Common Stock, $.001 par value and
3,000,000,000 shares of Advisor Class Common Stock, $.001 par
value. All shares of the Fund, when issued, are fully paid and
non-assessable. Any 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
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,
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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, Class C and Advisor Class 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 distribution
plan and other matters for which separate class voting is
appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the
Directors and, 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 are available to shareholders of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders. 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 1, 1999 there
were 55,369,976 shares of common stock of the Fund outstanding,
including 7,510,806 Class A shares, 39,402,099 Class B shares,
8,159,778 Class C shares and 297,293 Advisor Class shares. To
the knowledge of the Fund, the following persons owned of record
or beneficially 5% or more of the outstanding shares of the Fund
as of February 1, 1999:
No. of % of
Name and Address Shares Class
Class A Shares
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97B13)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 1,016,225 13.53%
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Class B Shares
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97B14)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 13,705,351 34.78%
Class C Shares
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97B15)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 2,138,168 26.20%
Advisor Class Shares
MLPF&S
For the Sole Benefit of
Its Customers
Attn: Fund Admin (97B17)
4800 Deer Lake Dr. East 2nd Fl.
Jacksonville, FL 32246-6484 127,849 43.26%
Wayne C. Tappe
1775 York Avenue, Apt. 31A
New York, NY 10128-6921 63,454 21.34%
Trust For Profit Sharing Plan
For Employees of Alliance
Capital Management L.P. Plan C
Attn: Jill Smith, 32nd Fl.
1345 Avenue of the Americas
New York, NY 10105-0302 26,398 8.88%
Custodian
Bank of New York acts as 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, Bank of New York may enter into sub-custodial
agreement 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, the principal underwriter of
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shares of the Fund and as such may solicit orders from the public
to purchase shares of the Fund. Under the Distribution Services
Agreement, the Fund has agreed to indemnify the Principal
Underwriter, in the absence of its willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
thereunder, against certain civil liabilities, including
liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel 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, Class C and Advisor Class 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, Class C and Advisor Class 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 a 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
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organizations such as Lipper Analytical Services, 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 for the
most recent fiscal year ended prior to March 1, 1999, 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.
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,
its 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's yield for the month ended August 31, 1998 was
10.04% for Class A shares, 9.74% for Class B shares, 9.74% for
Class C shares and 10.31% for Advisor Class shares. The Fund's
actual distribution rates for such period for Class A, Class B,
Class C and Advisor Class shares were 9.61%, 9.40%, 9.40% and
10.32%, respectively.
83
<PAGE>
The average annual total return based on net asset value
for each class of shares for the one-, five- and ten-year periods
ended August 31, 1998 (or since inception through that date, as
noted) was as follows:
12 Months
Ended 5 Years Ended 10 Years Ended
8/31/98 8/31/98 8/31/98
Class A 6.42% 14.64%* N/A
Class B 5.69% 13.88%* N/A
Class C 5.69% 13.88%* N/A
Advisor Class 6.68% 14.94%* N/A
* Inception Dates: Class A - April 22, 1997
Class B - April 22, 1997
Class C - April 22, 1997
Advisor Class - April 22, 1997
Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. ("Lipper")
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 Barrons, Business Week, Changing
Times, Forbes, Investor's Daily, Money Magazine, The New York
Times and The Wall Street Journal or other media on behalf of the
Fund.
Additional Information
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. 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.
84
<PAGE>
_________________________________________________________________
REPORT OF INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS
_________________________________________________________________
85
<PAGE>
ALLIANCE HIGH YIELD FUND
ANNUAL REPORT
AUGUST 31, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1998 ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
CORPORATE DEBT OBLIGATIONS-82.5%
AEROSPACE & DEFENSE-1.0%
Pacific Aerospace &
Electronics, Inc.
11.25%, 8/01/05 (a) $ 4,000 $ 3,820,000
AIRLINES-2.3%
Aircraft Service
International Group, Inc.
11.00%, 8/15/05 (a) 3,500 3,395,000
Canadian Airlines Corp.
10.00%, 5/01/05 2,200 2,090,000
Trans World Airlines, Inc.
11.375%, 3/01/06 (a) 2,000 1,910,000
11.50%, 12/15/04 1,000 1,015,000
------------
8,410,000
APPAREL-0.5%
Norton McNaughton, Inc.
12.50%, 6/01/05 (a) 2,000 1,890,000
BUILDING/REAL ESTATE-0.7%
LNR Property Corp.
9.375%, 3/15/08 (a) 2,000 1,790,000
Reliant Building
Products, Inc.
Series B
10.875%, 5/01/04 1,000 935,000
------------
2,725,000
BUSINESS SERVICES-4.3%
ATC Group Services, Inc.
12.00%, 1/15/08 2,000 1,770,000
Dialog Corp. Plc.
Series A
11.00%, 11/15/07 2,000 2,110,000
Employee Solutions, Inc.
Series B
10.00%, 10/15/04 2,000 1,880,000
Geologistics Corp.
9.75%, 10/15/07 1,000 915,000
MSX International, Inc.
11.375%, 1/15/08 2,000 1,950,000
TM Group Holdings Plc.
11.00%, 5/15/08 (a) 5,000 4,962,500
T/SF Communications
Corp.
Series B
10.375%, 11/01/07 2,000 1,960,000
------------
15,547,500
CABLE-3.6%
EchoStar DBS Corp.
12.50%, 7/01/02 2,000 2,030,000
Knology Holdings, Inc.
11.875%, 10/15/07 (b) 1,500 765,000
Warrants, expiring 10/15/02 (c) 1,500 6,000
Optel, Inc.
11.50%, 7/01/08 (a) 4,000 3,820,000
Optel, Inc.
Series B
13.00%, 2/15/05 (d) 2,000 2,010,000
TRICOM, SA
11.375%, 9/01/04 2,000 1,615,000
United International
Holdings, Inc.
Series B
10.75%, 2/15/08 (b) 5,000 2,725,000
------------
12,971,000
CHEMICALS-3.3%
Aqua Chemical, Inc.
11.25%, 7/01/08 (a) 5,000 4,850,000
Brunner Mond Group Plc.
11.00%, 7/15/08 (a) 4,000 3,620,000
Climachem, Inc.
Series B
10.75%, 12/01/07 2,000 1,960,000
Trans-Resources, Inc.
Series B
10.75%, 3/15/08 1,500 1,477,500
------------
11,907,500
5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
COMMUNICATIONS-15.5%
American Communications
Lines LLC/ACL
10.25%, 6/30/08 (a) $ 3,000 $ 2,917,500
American Mobile Satellite
Warrants, expiring 4/01/08 (c) 5,000 35,000
AMSC Acquisition Co. Inc.
Series B
12.25%, 4/01/08 5,000 3,375,000
CapRock Communications
Corp.
12.00%, 7/15/08 (a) 1,500 1,462,500
Cellco Finance NV
15.00%, 8/01/05 (a) 3,000 2,257,500
Dobson Wireline Co.
12.25%, 6/15/08 (a) 4,000 3,720,000
DTI Holdings, Inc.
12.50%, 3/01/08 (a)(b) 3,000 1,275,000
Warrants, expiring 3/01/08 (c) 15,000 6,270
Econophone, Inc.
11.00%, 2/15/08 (b) 5,000 2,662,500
Exodus Communications,
Inc.
11.25%, 7/01/08 (a) 3,000 2,865,000
Firstworld
Communications, Inc.
13.00%, 4/15/08 (b)(e) 3,250 991,250
ICO Global
Communications
Holdings, Ltd.
15.00%, 8/01/05 (f) 5,000 4,600,000
InterAmericas
Communications Corp.
14.00%, 10/27/07 (a)(g) 1,500 1,417,500
Ionica Group Plc.
13.50%, 8/15/06 2,000 710,000
15.00%, 5/01/07 (b)(h) 4,000 220,000
Level 3 Communications,
Inc.
9.125%, 5/01/08 2,500 2,237,500
Long Distance International,
Inc.
12.25%, 4/15/08 (a)(i) 2,000 1,920,000
Metronet Communications
Warrants, expiring 8/15/07 (c) 1,500 4,500
Northeast Optical Network,
Inc.
12.75%, 8/15/08 4,000 3,800,000
Onepoint Communications
Corp.
14.50%, 6/01/08 (a)(j) 2,000 1,670,000
Pathnet, Inc.
12.25%, 4/15/08 (a)(e) 2,000 1,810,000
Price Communications
Cellular Holdings, Inc.
11.25%, 8/15/08 (k) 4,000 3,580,000
Primus Telecommunications
Warrants, expiring 8/01/04 (c) 1,000 500
Startec Global
Communications Corp.
12.00%, 5/15/08 (a)(l) 3,000 2,685,000
US Xchange LLC
15.00%, 7/01/08 (a) 4,000 4,000,000
Versatel Telecom BV
13.25%, 5/15/08 (a) 2,000 1,930,000
Warrants, expiring 5/15/08 (c) 2,000 3,000
Winstar Communications,
Inc.
10.00%, 3/15/08 (a) 5,000 4,125,000
------------
56,280,520
CONGLOMERATES-1.4%
Wesco Distribution, Inc.
9.125%, 6/01/08 (a) 4,000 3,560,000
Wesco International, Inc.
11.125%, 6/01/08 (a)(b) 3,000 1,530,000
------------
5,090,000
6
ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
CONSUMER MANUFACTURING-7.5%
AAI Fostergrant, Inc.
10.75%, 7/15/06 (a) $ 5,000 $ 4,700,000
Bell Sports, Inc.
11.00%, 8/15/08 (a) 5,000 4,800,000
E&S Holdings Corp.
Series B
10.375%, 10/01/06 2,500 1,343,750
Evenflo Co., Inc.
11.75%, 8/15/06 (a) 3,000 2,910,000
Hedstrom Corp.
10.00%, 6/01/07 1,000 975,000
Imperial Home Decorating
Group
11.00%, 3/15/08 (a) 2,000 1,910,000
Ntex, Inc.
11.50%, 6/01/06 (a) 3,000 2,925,000
Outsourcing Services
Group, Inc.
10.875%, 3/01/06 (a) 2,000 1,910,000
Samsonite Corp.,
10.75%, 6/15/08 (a) 5,000 3,925,000
Sweetheart Cup, Inc.
9.625%, 9/01/00 2,000 1,780,000
------------
27,178,750
ENERGY-5.5%
Bayard Drilling
Technologies, Inc.
11.00%, 6/30/05 (a) 2,000 1,875,000
Chesapeake Energy Corp.
9.625%, 5/01/05 (a) 5,000 4,125,000
Dailey International, Inc.
Series B
9.50%, 2/15/08 1,000 810,000
Eagle Geophysical, Inc.
10.75%, 7/15/08 (a) 2,000 1,870,000
Gothic Energy Corp.
Warrants, expiring 9/01/04 (c) 14,000 14,000
Gothic Production Corp.
Series B
11.125%, 5/01/05 2,000 1,610,000
Michael Petroleum Corp.
11.50%, 4/01/05 (a) 1,000 935,000
National Energy Group, Inc.
Series D
10.75%, 11/01/06 2,000 1,270,000
Northern Offshore ASA
10.00%, 5/15/05 (a) 1,000 837,500
Petroleos Mexicanos
9.25%, 3/30/18 (a) 2,000 1,480,000
Queens Sand Resources, Inc.
12.50%, 7/01/08 (a) 2,000 1,895,000
Seven Seas Petroleum, Inc.
12.50%, 5/15/05 (a) 1,000 940,000
Southwest Royalties, Inc.
Series B
10.50%, 10/15/04 2,000 1,310,000
Transamerican Energy
Series B
11.50%, 6/15/02 1,500 922,500
------------
19,894,000
FINANCIAL-2.6%
BF Saul Real Estate
Investment Trust
Series B
9.75%, 4/01/08 1,000 930,000
Metris Companies, Inc.
10.00%, 11/01/04 2,000 2,080,000
Nationwide Credit, Inc.
10.25%, 1/15/08 (a) 2,000 1,910,000
Ocwen Asset Investment
Corp.
11.50%, 7/01/05 (a) 4,000 3,540,000
Wilshire Financial Services
Group, Inc.
Series B
13.00%, 8/15/04 1,000 955,000
------------
9,415,000
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
FOOD/BEVERAGES/TOBACCO-3.6%
Colorado Prime
Warrants, expiring 12/31/03 (c) 500 $ 1,000
Favorite Brands
International, Inc.
10.75%, 5/15/06 (a) $ 5,000 3,675,000
Fresh Foods, Inc.
10.75%, 6/01/06 (a) 3,000 2,745,000
Grupo Azucarero Mexico,
SA de CV
11.50%, 1/15/05 (a) 2,000 1,200,000
Mastellone Hermanos, SA
11.75%, 4/01/08 (a) 2,000 1,405,000
RAB Enterprises, Inc.
10.50%, 5/01/05 (a) 3,000 2,865,000
Specialty Foods Corp.
Series B
11.125%, 10/01/02 1,500 1,301,250
------------
13,192,250
HEALTHCARE-0.5%
Fountain View, Inc.
11.25%, 4/15/08 (a) 2,000 1,850,000
INDUSTRIAL-4.0%
Generac Portable
Products LLC
11.25%, 7/01/06 (a) 3,000 2,977,500
Glasstech, Inc.
Series B
12.75%, 7/01/04 750 678,750
Warrants, expiring 6/30/04 (c) 750 937
Insilco Corp.
10.25%, 8/15/07 1,000 1,010,000
Moll Industries, Inc.
10.50%, 7/01/08 (a) 2,000 1,875,000
Morris Materials Handling
9.50%, 4/01/08 (a) 2,000 1,550,000
MVE, Inc.
12.50%, 2/15/02 (m) 2,000 1,920,000
Penhall Acquisition Corp.
12.00%, 8/01/06 (a) 3,000 2,782,500
Scovill Fasteners, Inc.
Series B
11.25%, 11/30/07 2,000 1,930,000
------------
14,724,687
LEISURE/ENTERTAINMENT-3.6%
Epic Resorts LLC
13.00%, 6/15/05 (a) 2,500 2,387,500
Warrants, expiring 6/15/05 (c) 2,500 25
HMV Media Group Plc.
10.25%, 5/15/08 (a) 5,000 4,625,000
TVN Entertainment Corp.
14.00%, 8/01/08 (n) 5,000 4,750,000
V2 Music Holdings Plc.
14.00%, 4/15/08 (a)(b)(e) 2,500 1,225,000
------------
12,987,525
MANUFACTURING-3.4%
Amtrol, Inc.
10.625%, 12/31/06 5,000 4,800,000
Dyersburg Corp.
Series B
9.75%, 9/01/07 2,000 1,730,000
Goss Graphic Systems, Inc.
12.00%, 10/15/06 4,500 4,072,500
Windmere-Durable
Holdings, Inc.
10.00%, 7/31/08 2,000 1,930,000
------------
12,532,500
MEDIA-3.6%
Innova S de R.L.
12.875%, 4/01/07 2,000 1,565,000
Jones International
Networks, Ltd.
11.75%, 7/01/05 (a) 5,000 4,737,500
Radio Unica Corp.
11.75%, 8/01/06 (a)(b) 4,000 2,340,000
Regional Independent
Media Group Plc.
10.50%, 7/01/08 (a) 2,500 2,468,750
8
ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
Source Media, Inc.
12.00%, 11/01/04 $ 2,000 $ 1,980,000
------------
13,091,250
METALS/MINERALS-4.3%
Acme Metals, Inc.
10.875%, 12/15/07 3,500 2,222,500
Centaur Mining &
Exploration, Ltd.
11.00%, 12/01/07 5,000 4,625,000
DOE Run Resources Corp.
11.25%, 3/15/05 (a) 1,000 955,000
Ormet Corp.
11.00%, 8/15/08 (a) 3,000 2,865,000
P&L Coal Holdings Corp.
9.625%, 5/15/08 (a) 2,000 1,910,000
Pen Holdings, Inc.
9.875%, 6/15/08 (a) 3,000 2,925,000
------------
15,502,500
PAPER/PACKAGING-1.4%
Millar Western Forest
Products
9.875%, 5/15/08 (a) 3,000 2,325,000
Plainwell, Inc.
11.00%, 3/01/08 (a) 1,000 915,000
Riverwood International
Corp.
10.625%, 8/01/07 1,000 915,000
Zeta Consumer Products
11.25%, 11/30/07 (a) 2,000 900,000
------------
5,055,000
RESTAURANTS-2.2%
Ne Restaurant Co., Inc.
10.75%, 7/15/08 (a) 5,000 4,625,000
Planet Hollywood
International, Inc.
12.00%, 4/01/05 2,000 1,400,000
Romacorp, Inc.
12.00%, 7/01/06 (a) 2,000 1,950,000
------------
7,975,000
RETAIL-1.2%
Discovery Zone, Inc.
13.50%, 8/01/02 500 435,000
Warrants, expiring 8/01/07 (c) 500 125
Spin Cycle, Inc.
12.75%, 5/01/05 (a)(b)(o) 2,000 1,170,000
United Auto Group, Inc.
Series A
11.00%, 7/15/07 3,000 2,730,000
------------
4,335,125
SUPERMARKETS-1.8%
Di Giorgio Corp.
Series B
10.00%, 6/15/07 2,000 1,865,000
Pantry, Inc.
10.25%, 10/15/07 1,000 985,000
Richmont Marketing
Specialists, Inc.
10.125%, 12/15/07 (a) 4,000 3,700,000
------------
6,550,000
TECHNOLOGY-2.4%
CHS Electronics, Inc.
9.875%, 4/15/05 5,000 4,575,000
Concentric Network Corp.
Warrants, expiring 12/15/07 (c) 1,000 7,000
Elgar Holdings, Inc.
9.875%, 2/01/08 (a) 2,000 1,790,000
Phase Metrics, Inc.
10.75%, 2/01/05 (a) 3,000 2,250,000
------------
8,622,000
TRANSPORTATION-1.8%
GS Superhighway Holdings
10.25%, 8/15/07 1,500 738,750
Millenium Seacarriers, Inc.
12.00%, 7/15/05 (a)(p) 3,000 2,715,000
9
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
MTL, Inc.
10.00%, 6/15/06 (a) $ 2,000 $ 1,895,000
Panoceanic Bulk Carriers,
Ltd.
12.00%, 12/15/07 2,000 1,410,000
------------
6,758,750
UTILITIES-0.5%
Cathay International, Ltd.
13.00%, 4/15/08 (a) 3,000 2,025,000
Total Corporate Debt Obligations
(cost $337,361,294) 300,330,857
NON-CONVERTIBLE PREFERRED STOCKS-1.1%
Dobson Communications
Corp.
12.25% (q) 1,059 1,088,123
HH Acquisition Corp.
13.50% (a) 3,000 2,850,000
Total Non-Convertible Preferred Stocks
(cost $4,061,198) 3,938,123
TIME DEPOSIT-13.8%
Bank of New York
5.125%, 9/01/98
(cost $50,134,000) 50,134 50,134,000
TOTAL INVESTMENTS-97.4%
(cost $391,556,492) 354,402,980
Other assets less liabilities-2.6% 9,575,463
NET ASSETS-100% $ 363,978,443
(a) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31, 1998,
these securities amounted to $190,163,750 or 52.2% of net assets.
(b) 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.
(c) Non-income producing security.
(d) Consists of $2,000,000 senior notes and 1,635 shares of common stock.
(e) Security trades with warrants expiring April 15, 2008.
(f) Security trades with warrants expiring August 1, 2005.
(g) Security trades with warrants expiring October 27, 2007.
(h) Security trades with warrants expiring May 1, 2007.
(i) Security trades with warrants expiring April 13, 2008.
(j) Security trades with warrants expiring June 1, 2008.
(k) Paid-in-kind (PIK) Bond.
(l) Security trades with warrants expiring May 15, 2008.
(m) Security trades with warrants expiring February 15, 2002.
(n) Security trades with warrants expiring August 1, 2008.
(o) Security trades with warrants expiring May 1, 2005.
(p) Security trades with warrants expiring July 15, 2005.
(q) PIK preferred, quarterly stock payments.
See notes to financial statements.
10
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998 ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $391,556,492) $ 354,402,980
Cash, at value (cost $7,093,864) 7,094,868
Interest receivable 8,195,803
Receivable for capital stock sold 7,257,781
Deferred organization expenses 207,819
Total assets 377,159,251
LIABILITIES
Payable for investment securities purchased 9,286,131
Payable for capital stock redeemed 2,161,470
Dividends payable 995,927
Distribution fee payable 281,067
Advisory fee payable 232,667
Accrued expenses 223,546
Total liabilities 13,180,808
NET ASSETS $ 363,978,443
COMPOSITION OF NET ASSETS
Capital stock, at par $ 33,859
Additional paid-in capital 394,073,918
Distributions in excess of net investment income (341,284)
Accumulated net realized gain on investments and foreign
currency transactions 7,364,458
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (37,152,508)
$ 363,978,443
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($43,959,671/4,087,243 shares of capital stock
issued and outstanding) $10.76
Sales charge--4.25% of public offering price .48
Maximum offering price $11.24
CLASS B SHARES
Net asset value and offering price per share
($269,425,908/25,065,287 shares of capital stock
issued and outstanding) $10.75
CLASS C SHARES
Net asset value and offering price per share
($48,336,522/4,496,759 shares of capital stock
issued and outstanding) $10.75
ADVISOR CLASS SHARES
Net asset value, redemption and offering price per share
($2,256,342/209,729 shares of capital stock
issued and outstanding $10.76
See notes to financial statements.
11
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1998 ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $18,770,099
Dividends 66,922 $ 18,837,021
EXPENSES
Advisory fee 1,369,676
Distribution fee - Class A 70,152
Distribution fee - Class B 1,329,240
Distribution fee - Class C 249,621
Transfer agency 186,169
Registration 137,014
Administrative 132,015
Custodian 113,198
Audit and legal 67,229
Amortization of organization expenses 57,123
Printing 30,442
Directors' fees 19,561
Miscellaneous 2,669
Total expenses 3,764,109
Less: expenses waived and reimbursed
by the Adviser (See Note B) (44,000)
Net expenses 3,720,109
Net investment income 15,116,912
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 8,237,360
Net realized loss on foreign currency
transactions (45,958)
Net change in unrealized appreciation of:
Investments (38,676,674)
Foreign currency denominated assets and
liabilities 1,004
Net loss on investments and foreign currency
transactions (30,484,268)
DECREASE IN NET ASSETS FROM OPERATIONS $(15,367,356)
See notes to financial statements.
12
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
YEAR ENDED APRIL 22, 1997(A)
AUGUST 31, TO
1998 AUGUST 31, 1997
------------ ------------------
INCREASE (DECREASE)IN NET ASSETS
FROM OPERATIONS
Net investment income $ 15,116,912 $ 701,404
Net realized gain on investments and
foreign currency transactions 8,191,402 307,747
Net change in unrealized appreciation
of investments and foreign currency
denominated assets and liabilities (38,675,670) 1,523,162
Net increase (decrease) in net assets
from operations (15,367,356) 2,532,313
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (2,079,155) (100,429)
Class B (10,873,437) (573,256)
Class C (2,039,187) (97,883)
Advisor Class (125,133) (9,165)
Distributions in excess of net
investment income
Class A (4,665) -0-
Class B (171,932) -0-
Class C (38,955) -0-
Advisor Class (445) -0-
Net realized gain on investments
Class A (138,240) -0-
Class B (888,367) -0-
Class C (148,083) -0-
Advisor Class (5,959) -0-
CAPITAL STOCK TRANSACTIONS
Net increase 338,777,324 55,230,153
Total increase 306,896,410 56,981,733
NET ASSETS
Beginning of period 57,082,033 100,300
End of period $363,978,443 $57,082,033
(a) Commencement of operations.
See notes to financial statements.
13
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance High Yield Fund, Inc. (the "Fund") was incorporated in the state of
Maryland on December 19, 1996 as a diversified, open-end management investment
company. Prior to commencement of operations on April 22, 1997, the Fund had no
operations other than the sale to Alliance Capital Management L.P. (the
"Adviser") of 10 shares each of Class A, Class B and Class C and 10,000 shares
of Advisor Class for the aggregate amount of $100 each on Class A, Class B and
Class C shares and $100,000 on the Advisor Class shares on February 26, 1997.
The Fund offers Class A, Class B, Class C and Advisor Class shares. Class A
shares are sold with a front-end sales charge of up to 4.25% for purchases not
exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a contingent
deferred sales charge of 1%. Class B shares are currently sold with a
contingent deferred sales charge which declines from 4% to zero depending on
the period of time the shares are held. Class B shares will automatically
convert to Class A shares eight years after the end of the calendar month of
purchase. Class C shares are subject to a contingent deferred sales charge of
1% on redemptions made within the first year after purchase. Advisor Class
shares are sold without an initial or contingent deferred sales charge and are
not subject to ongoing distribution expenses. Advisor Class shares are offered
to investors participating in fee based programs and to certain retirement plan
accounts. All four classes of shares have identical voting, dividend,
liquidation and other rights, 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 exchange 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 into U.S.
dollars at the rates of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated into U.S. dollars at rates of
exchange prevailing when accrued.
Net realized foreign exchange gains and losses represent foreign exchange gains
and losses from sales and maturities of debt securities and forward currency
exchange contracts, holding of foreign currencies, exchange gains or losses
realized between the trade and settlement dates on security transactions, and
the difference between the amounts of dividends, interest and foreign taxes
receivable recorded on the Fund's books and the U.S. dollar equivalent amounts
actually received or paid. Net currency gains and losses from valuing foreign
currency denominated assets and liabilities at year end exchange
14
ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
rates are reflected as a component of net unrealized depreciation of
investments and foreign currency denominated assets and liabilities.
3. 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.
4. ORGANIZATION EXPENSES
Organization costs of $285,600 have been deferred and are being amortized on a
straight-line basis through April, 2002.
5. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Dividend income is recorded on ex-dividend
date. 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 discount as adjustment to interest income.
6. 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 each class's
transfer agent fees and distribution fees, if any, are charged only against the
assets of that class.
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 losses, resulted in a net increase in
accumulated net realized gain on investments and foreign currency transactions
and a corresponding increase in distributions in excess of net investment
income. This reclassification had no affect 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.
Pursuant to the advisory agreement, the Adviser provides certain legal and
accounting services for the Fund. For the year ended August 31, 1998, the
Adviser voluntarily agreed to waive its fees in the amount of $44,000 for such
services.
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 $130,783 for the year ended August 31, 1998.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $44,762 from the sale of Class A shares, and
$251,624 and $48,433 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class B and Class C shares, respectively, for
the year ended August 31, 1998.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the Fund's average daily net assets attributable to
Class A shares and 1% of the Fund's average daily net assets attributable to
the Class B and Class C shares. There is no distribution fee on the Advisor
Class shares. Such fee is accrued daily
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
and paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in excess of the distribution
costs reimbursed by the Fund in the amount of $11,190,075 and $523,224, 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 year
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 $811,386,580 and $531,514,874,
respectively, for the year ended August 31, 1998. There were no purchases or
sales of U.S. government or government agency obligations for the year ended
August 31, 1998.
At August 31, 1998, the cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $299,293 and gross unrealized
depreciation of investments was $37,452,805, resulting in net unrealized
depreciation of $37,153,512 (excluding foreign currency transactions).
NOTE E: CAPITAL STOCK
There are 12,000,000,000 shares of $.001 par value capital stock authorized,
divided into four classes, designated Class A, Class B, Class C and Advisor
Class shares. Each class consists of 3,000,000,000 authorized shares.
Transactions in capital stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
APRIL 22, APRIL 22,
YEAR ENDED 1997(A) YEAR ENDED 1997(A)
AUG. 31, TO AUG. 31, TO
1998 AUG. 31, 1997 1998 AUG. 31, 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 5,027,959 662,265 $ 59,133,579 $ 7,166,202
Shares issued in
reinvestment of
dividends and
distributions 112,980 5,192 1,324,915 57,153
Shares converted
from Class B 64,645 800 748,102 8,899
Shares redeemed (1,645,740) (140,868) (19,212,486) (1,561,101)
Net increase 3,559,844 527,389 $ 41,994,110 $ 5,671,153
CLASS B
Shares sold 24,230,640 3,983,130 $284,787,774 $ 43,164,351
Shares issued
in reinvestment
of dividends and
distributions 344,031 13,930 4,028,181 153,591
Shares converted
to Class A (64,645) (800) (748,102) (8,899)
Shares redeemed (3,322,484) (118,525) (38,535,879) (1,302,901)
Net increase 21,187,542 3,877,735 $249,531,974 $ 42,006,142
(a) Commencement of operations.
16
ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SHARES AMOUNT
--------------------------- ------------------------------
APRIL 22, APRIL 22,
YEAR ENDED 1997(A) YEAR ENDED 1997(A)
AUG. 31, TO AUG. 31, TO
1998 AUG. 31, 1997 1998 AUG. 31, 1997
------------ ------------ -------------- --------------
CLASS C
Shares sold 6,268,114 708,988 $ 73,913,613 $ 7,691,629
Shares issued
in reinvestment
of dividends and
distributions 74,074 3,959 868,654 43,572
Shares redeemed (2,523,883) (34,503) (29,681,577) (378,081)
Net increase 3,818,305 678,444 $ 45,100,690 $ 7,357,120
ADVISOR CLASS
Shares sold 224,696 18,485 $ 2,660,506 $ 193,285
Shares issued
in reinvestment
of dividends and
distributions 8,780 380 103,247 4,153
Shares redeemed (52,458) (154) (613,203) (1,700)
Net increase 181,018 18,711 $ 2,150,550 $ 195,738
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") to
provide 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 the
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the year ended August 31, 1998.
(a) Commencement of operations.
17
FINANCIAL HIGHLIGHTS ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS A
--------------------------------
APRIL 22,
1997(A)
YEAR ENDED TO
AUGUST 31, AUGUST 31,
1998 1997
---------- ----------
Net asset value, beginning of period $11.17 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) 1.03 .37
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.27) 1.15
Net increase in net asset value from
operations .76 1.52
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (1.02) (.35)
Distributions in excess of net investment
income (.01) -0-
Distributions from net realized gains (.14) -0-
Total dividends and distributions (1.17) (.35)
Net asset value, end of period $10.76 $11.17
TOTAL RETURN
Total investment return based on net
asset value (c) 6.42% 15.33%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $43,960 $5,889
Ratio to average net assets:
Expenses, net of waivers/reimbursements 1.43% 1.70%(d)
Expenses, before waivers/reimbursements 1.46% 3.11%(d)
Net investment income, net of waivers/
reimbursements 8.89% 8.04%(d)
Portfolio turnover rate 311% 73%
See footnote summary on page 21.
18
ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS B
----------------------------
APRIL 22,
1997(A)
YEAR ENDED TO
AUGUST 31, AUGUST 31,
1998 1997
---------- ----------
Net asset value, beginning of period $11.17 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .96 .31
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.28) 1.19
Net increase in net asset value from
operations .68 1.50
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.95) (.33)
Distributions in excess of net investment
income (.01) -0-
Distributions from net realized gains (.14) -0-
Total dividends and distributions (1.10) (.33)
Net asset value, end of period $10.75 $11.17
TOTAL RETURN
Total investment return based on net
asset value (c) 5.69% 15.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $269,426 $43,297
Ratio to average net assets:
Expenses, net of waivers/reimbursements 2.13% 2.40%(d)
Expenses, before waivers/reimbursements 2.16% 3.85%(d)
Net investment income, net of waivers/
reimbursements 8.18% 7.19%(d)
Portfolio turnover rate 311% 73%
See footnote summary on page 21.
19
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
----------------------------
APRIL 22,
1997(A)
YEAR ENDED TO
AUGUST 31, AUGUST 31,
1998 1997
---------- ----------
Net asset value, beginning of period $11.17 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .96 .32
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.28) 1.18
Net increase in net asset value from
operations .68 1.50
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.95) (.33)
Distributions in excess of net investment
income (.01) -0-
Distributions from net realized gains (.14) -0-
Total dividends and distributions (1.10) (.33)
Net asset value, end of period $10.75 $11.17
TOTAL RETURN
Total investment return based on net
asset value (c) 5.69% 15.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $48,337 $7,575
Ratio to average net assets:
Expenses, net of waivers/reimbursements 2.13% 2.40%(d)
Expenses, before waivers/reimbursements 2.16% 3.84%(d)
Net investment income, net of waivers/
reimbursements 8.17% 7.24%(d)
Portfolio turnover rate 311% 73%
See footnote summary on page 21.
20
ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
ADVISOR CLASS
------------------------------
APRIL 22,
1997(A)
YEAR ENDED TO
AUGUST 31, AUGUST 31,
1998 1997
---------- ----------
Net asset value, beginning of period $11.17 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) 1.11 .40
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.32) 1.13
Net increase in net asset value from
operations .79 1.53
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (1.05) (.36)
Distributions in excess of net investment
income (.01) -0-
Distributions from net realized gains (.14) -0-
Total dividends and distributions (1.20) (.36)
Net asset value, end of period $10.76 $11.17
TOTAL RETURN
Total investment return based on net
asset value (c) 6.68% 15.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $2,256 $321
Ratio to average net assets:
Expenses, net of waivers/reimbursements 1.14% 1.40%(d)
Expenses, before waivers/reimbursements 1.16% 2.82%(d)
Net investment income, net of waivers/
reimbursements 9.25% 8.20%(d)
Portfolio turnover rate 311% 73%
(a) Commencement of operations.
(b) Based on average shares outstanding.
(c) 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. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(d) Annualized.
21
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE HIGH YIELD FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE HIGH YIELD FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance High Yield Fund, Inc. (the "Fund"), including the portfolio of
investments, as of August 31, 1998, and the related statement of operations for
the year then ended, and the statement of changes in net assets and financial
highlights for the year then ended and for the period from April 22, 1997
(commencement of operations) to August 31, 1997. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, 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 High Yield Fund, Inc. at August 31, 1998, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the year then ended and for the period from April 22,
1997 to August 31, 1997, in conformity with generally accepted accounting
principles.
New York, New York
October 7, 1998
22
<PAGE>
_________________________________________________________________
APPENDIX A: OPTIONS
_________________________________________________________________
Options
The Fund will only write "covered" put and call options,
unless such options are written for cross-hedging purposes. The
manner in which such options will be deemed "covered" is
described in the Prospectus under the heading "Investment
Objective and Policies -- Investment Practices -- Options."
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
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 is no guarantee that
either a closing purchase or a closing sale transaction can be
effected.
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
A-1
<PAGE>
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
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
A-2
<PAGE>
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.
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.
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
A-3
<PAGE>
price of the underlying security rises sufficiently, the option
may expire worthless to the Fund.
A-4
<PAGE>
_________________________________________________________________
APPENDIX B
BOND RATINGS
_________________________________________________________________
STANDARD & POOR'S
A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation. Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree. 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
a debt of a higher rated category.
The ratings from "AA" and "A" may be modified by the
addition of a plus or minus sign to show relative standing within
the major rating categories.
MOODY'S
Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations; Baa
- - considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured.
FITCH INVESTORS SERVICE
AAA. Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
Directors and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with
such stability of applicable earnings that safety is beyond
reasonable question whatever changes occur in conditions. Other
features may enter in, such as a wide margin of protection
through collateral security or direct lien on specific property
B-1
<PAGE>
as in the case of high class equipment certificates or bonds that
are first mortgages on valuable real estate. Sinking funds or
voluntary reduction of the debt by call or purchase are often
factors, while guarantee or assumption by parties other than the
original debtor may also influence the rating.
AA. Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many
are highly active. Their merits are not greatly unlike those of
the AAA class, but a security so rated may be of junior through
strong lien--in many cases directly following an AAA security--or
the margin of safety is less strikingly broad. The issue may be
the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the
enterprise and more local type of market.
A. A securities are strong investments and in many cases
of highly active market, but are not so heavily protected as the
two upper classes or possibly are of similar security but less
quickly salable. As a class they are more sensitive in standing
and market to material changes in current earnings of the
company. With favoring conditions such securities are likely to
work into a high rating, but in occasional instances changes
cause the rating to be lowered.
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_________________________________________________________________
APPENDIX C:
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
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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."
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<PAGE>
PART C
OTHER INFORMATION
ITEM 23. Exhibits
(a) Articles of Incorporation of the Registrant -
Incorporated by reference to Exhibit 1 to the
Registrant's Registration Statement on Form N-1A
(File Nos. 333-18505 and 811-09160) filed with the
Securities and Exchange Commission on December 20,
1996.
(b) By-Laws of the Registrant - Incorporated by
reference to Exhibit 2 to the Registrant's
Registration Statement on Form N-1A (File Nos.
333-18505 and 811-09160) filed with the Securities
and Exchange Commission on December 20, 1996.
(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. 1 of Registrant's Registration Statement on
Form N-1A (File Nos. 333-18505 and 811-09160)
filed with the Securities and Exchange Commission
on October 31, 1997.
(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. 1 of
Registrant's Registration Statement on Form
N-1A (File Nos. 333-18505 and 811-09160)
filed with the Securities and Exchange
Commission on October 31, 1997.
(2) Form of 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 of the Registrant's Registration Statement
on Form N-1A (File Nos. 333-18505 and 811-
09160) filed with the Securities and
Exchange Commission on April 3, 1997.
(3) Form of Selected Agent Agreement between
Alliance Fund Distributors, Inc. and
selected agents making available shares of
Registrant - Incorporated by reference to
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Exhibit 6(c) to Pre-Effective Amendment No.
1 of the Registrant's Registration Statement
on Form N-1A (File Nos. 333-18505 and 811-
09160) filed with the Securities and
Exchange Commission on April 3, 1997.
(f) Not applicable.
(g) Custody Agreement between the Registrant and The
Bank of New York - Incorporated by reference to
Exhibit 8 to Post-Effective Amendment No. 1 of
Registrant's Registration Statement on Form N-1A
(File Nos. 333-18505 and 811-09160) filed with the
Securities and Exchange Commission on October 31,
1997.
(h) (1) Transfer Agency Agreement between the Registrant
and Alliance Fund Services, Inc. - Incorporated by
reference to Exhibit 9 to Post-Effective Amendment
No. 1 of Registrant's Registration Statement on
Form N-1A (File Nos. 333-18505 and 811-09160)
filed with the Securities and Exchange Commission
on October 31, 1997.
(h) (2) Form of Expense Limitation Undertaking by Alliance
Capital Management L.P. - Filed herewith.
(i) (1) Opinion and Consent of Seward & Kissel -
Incorporated by reference to Exhibit 10(a)
to Pre-Effective Amendment No. 1 of
Registrant's Registration Statement on Form
N-1A (File Nos. 333-18505 and 811-09160),
filed with the Securities and Exchange
Commission on April 3, 1997.
(2) Opinion and Consent of Venable, Baetjer &
Howard, LLP - Incorporated by reference to
Exhibit 10(b) to Pre-Effective Amendment No.
1 of the Registrant's Registration Statement
on Form N-1A (File Nos. 333-18505 and 811-
09160), filed with the Securities and
Exchange Commission on April 3, 1997.
(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 Schedule - Incorporated by
reference to Exhibit 17(d) to Post-Effective
Amendment No. 2 of Registrant's Registration
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Statement on Form N-1A (File Nos. 333-18505 and
811-09160) filed with the Securities and Exchange
Commission on October 30, 1998.
(o) Rule 18f-3 Plan - Incorporated by reference to
Exhibit 18 to Pre-Effective Amendment No. 1 of the
Registrant's Registration Statement on Form N-1A
(File Nos. 333-18505 and 811-09160) filed with the
Securities and Exchange Commission on April 3,
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. 3
of Registrant's Registration Statement on Form N-
1A (File Nos. 333-18505 and 811-09160) filed with
the Securities and Exchange Commission on
October 30, 1998.
ITEM 24. Persons Controlled by or under Common Control with
the Fund.
None.
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.
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Section 2-418 of the Maryland General Corporation
Law reads as follows:
"2-418 INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS.--(a) In this
section the following words have the meanings
indicated.
(1) "Director" means any person who
is or was a director of a corporation and
any person who, while a director of a
corporation, is or was serving at the
request of the corporation as a director,
officer, partner, trustee, employee, or
agent of another foreign or domestic
corporation, partnership, joint venture,
trust, other enterprise, or employee benefit
plan.
(2) "Corporation" includes any
domestic or foreign predecessor entity of a
corporation in a merger, consolidation, or
other transaction in which the predecessor's
existence ceased upon consummation of the
transaction.
(3) "Expenses" include attorney's
fees.
(4) "Official capacity" means the
following:
(i) When used with respect to
a director, the office of director in the
corporation; and
(ii) When used with respect to
a person other than a director as
contemplated in subsection (j), the elective
or appointive office in the corporation held
by the officer, or the employment or agency
relationship undertaken by the employee or
agent in behalf of the corporation.
(iii) "Official capacity" does
not include service for any other foreign or
domestic corporation or any partnership,
joint venture, trust, other enterprise, or
employee benefit plan.
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(5) "Party" includes a person who
was, is, or is threatened to be made a named
defendant or respondent in a proceeding.
(6) "Proceeding" means any
threatened, pending or completed action,
suit or proceeding, whether civil, criminal,
administrative, or investigative.
(b) (1) A corporation may indemnify
any director made a party to any proceeding
by reason of service in that capacity unless
it is established that:
(i) The act or omission of the
director was material to the matter giving
rise to the proceeding; and
1. Was committed in bad
faith; or
2. Was the result of
active and deliberate dishonesty; or
(ii) The director actually
received an improper personal benefit in
money, property, or services; or
(iii) In the case of any
criminal proceeding, the director had
reasonable cause to believe that the act or
omission was unlawful.
(2) (i) Indemnification may be
against judgments, penalties, fines,
settlements, and reasonable expenses
actually incurred by the director in
connection with the proceeding.
(ii) However, if the proceeding
was one by or in the right of the
corporation, indemnification may not be made
in respect of any proceeding in which the
director shall have been adjudged to be
liable to the corporation.
(3) (i) The termination of any
proceeding by judgment, order or settlement
does not create a presumption that the
director did not meet the requisite standard
of conduct set forth in this subsection.
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(ii) The termination of any
proceeding by conviction, or a plea of nolo
contendere or its equivalent, or an entry of
an order of probation prior to judgment,
creates a rebuttable presumption that the
director did not meet that standard of
conduct.
(c) A director may not be indemnified
under subsection (b) of this section in
respect of any proceeding charging improper
personal benefit to the director, whether or
not involving action in the director's
official capacity, in which the director was
adjudged to be liable on the basis that
personal benefit was improperly received.
(d) Unless limited by the charter:
(1) A director who has been
successful, on the merits or otherwise, in
the defense of any proceeding referred to in
subsection (b) of this section shall be
indemnified against reasonable expenses
incurred by the director in connection with
the proceeding.
(2) A court of appropriate
jurisdiction upon application of a director
and such notice as the court shall require,
may order indemnification in the following
circumstances:
(i) If it determines a
director is entitled to reimbursement under
paragraph (1) of this subsection, the court
shall order indemnification, in which case
the director shall be entitled to recover
the expenses of securing such reimbursement;
or
(ii) If it determines that the
director is fairly and reasonably entitled
to indemnification in view of all the
relevant circumstances, whether or not the
director has met the standards of conduct
set forth in subsection (b) of this section
or has been adjudged liable under the
circumstances described in subsection (c) of
this section, the court may order such
indemnification as the court shall deem
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<PAGE>
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.
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<PAGE>
(3) Authorization of indemnification
and determination as to reasonableness of
expenses shall be made in the same manner as
the determination that indemnification is
permissible. However, if the determination
that indemnification is permissible is made
by special legal counsel, authorization of
indemnification and determination as to
reasonableness of expenses shall be made in
the manner specified in subparagraph (ii) of
paragraph (2) of this subsection for
selection of such counsel.
(4) Shares held by directors who are
parties to the proceeding may not be voted
on the subject matter under this subsection.
(f) (1) Reasonable expenses
incurred by a director who is a party to a
proceeding may be paid or reimbursed by the
corporation in advance of the final
disposition of the proceeding, upon receipt
by the corporation of:
(i) A written affirmation by
the director of the director's good faith
belief that the standard of conduct
necessary for indemnification by the
corporation as authorized in this section
has been met; and
(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.
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(g) The indemnification and
advancement of expenses provided or
authorized by this section may not be deemed
exclusive of any other rights, by
indemnification or otherwise, to which a
director may be entitled under the charter,
the bylaws, a resolution of stockholders or
directors, an agreement or otherwise, both
as to action in an official capacity and as
to action in another capacity while holding
such office.
(h) This section does not limit the
corporation's power to pay or reimburse
expenses incurred by a director in
connection with an appearance as a witness
in a proceeding at a time when the director
has not been made a named defendant or
respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed
to have requested a director to serve an
employee benefit plan where the performance
of the director's duties to the corporation
also imposes duties on, or otherwise
involves services by, the director to the
plan or participants or beneficiaries of the
plan:
(2) Excise taxes assessed on a
director with respect to an employee benefit
plan pursuant to applicable law shall be
deemed fines; and
(3) Action taken or omitted by the
director with respect to an employee benefit
plan in the performance of the director's
duties for a purpose reasonably believed by
the director to be in the interest of the
participants and beneficiaries of the plan
shall be deemed to be for a purpose which is
not opposed to the best interests of the
corporation.
(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
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for a director and shall be entitled, to the
same extent as a director, to seek
indemnification pursuant to the provisions
of subsection (d);
(2) A corporation may indemnify and
advance expenses to an officer, employee, or
agent of the corporation to the same extent
that it may indemnify directors under this
section; and
(3) A corporation, in addition, may
indemnify and advance expenses to an
officer, employee, or agent who is not a
director to such further extent, consistent
with law, as may be provided by its charter,
bylaws, general or specific action of its
board of directors or contract.
(k) (1) A corporation may purchase
and maintain insurance on behalf of any
person who is or was a director, officer,
employee, or agent of the corporation, or
who, while a director, officer, employee, or
agent of the corporation, is or was serving
at the request, of the corporation as a
director, officer, partner, trustee,
employee, or agent of another foreign or
domestic corporation, partnership, joint
venture, trust, other enterprise, or
employee benefit plan against any liability
asserted against and incurred by such person
in any such capacity or arising out of such
person's position, whether or not the
corporation would have the power to
indemnify against liability under the
provisions of this section.
(2) A corporation may provide
similar protection, including a trust fund,
letter of credit, or surety bond, not
inconsistent with this section.
(3) The insurance or similar
protection may be provided by a subsidiary
or an affiliate of the corporation.
(1) 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
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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 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
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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 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
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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
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
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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 and to the Investment
Company Act of 1940 as from time to time
C-14
<PAGE>
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-15
<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
C-16
<PAGE>
determined that he is 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-17
<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 Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance 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-18
<PAGE>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
Michael J. Laughlin Director and Chairman
John D. Carifa 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
Bradley F. Hanson Senior Vice President
C-19
<PAGE>
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
Jamie A. Atkinson Vice President
Kenneth F. Barkoff Vice President
Charles M. Barrett Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Robert F. Brendli Vice President
Christopher L. Butts Vice President
Timothy W. Call Vice President
Jonathan W. Cangalosi Vice President
C-20
<PAGE>
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
Richard W. Dabney Vice President
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
John C. Endahl Vice President
John E. English Vice President
Sohaila S. Farsheed Vice President
Shawn C. Gage Vice President
Joseph C. Gallagher Vice President
Andrew L. Gangolf Vice President and Assistant
Assistant General Secretary
Counsel
Alex G. Garcia Vice President
Mark D. Gersten Vice President Treasurer and
Chief
Financial
Officer
John Grambone Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Michael S. Hart Vice President
Scott F. Heyer Vice President
Timothy A. Hill Vice President
C-21
<PAGE>
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
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
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
Peter J. O'Brien Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
C-22
<PAGE>
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
Joseph T. Tocyloski Vice President
David R. Turnbough Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
Mark E. Westmoreland Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President and Assistant
Assistant General Secretary
Counsel
C-23
<PAGE>
Patrick Look Assistant Vice
President and
Assistant Treasurer
Michael W. Alexander Assistant Vice
President
Richard J. Appaluccio Assistant Vice
President
John M. Capeci Assistant Vice
President
Maria L. Carreras Assistant Vice
President
John P. Chase Assistant Vice
President
Jean A. Coomber Assistant Vice
President
Terri J. Daly Assistant Vice
President
Ralph A. DiMeglio Assistant Vice
President
Faith C. Deutsch Assistant Vice
President
Adam E. Engelhardt Assistant Vice
President
Duff C. Ferguson 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
C-24
<PAGE>
Victor Kopelakis Assistant Vice
President
Michael Laino 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
Mark V. Spina Assistant Vice
President
Gayle S. Stamer Assistant Vice
President
Eileen Stauber Assistant Vice
President
Margaret M. Tompkins Assistant Vice
President
Marie R. Vogel Assistant Vice
President
Wesley S. Williams Assistant Vice
President
Matthew Witschel Assistant Vice
President
Christopher J. Zingaro Assistant Vice
President
Mark R. Manley Assistant Secretary
(c) Not applicable.
C-25
<PAGE>
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 The Bank of New York, 48 Wall Street,
New York, New York 10286. 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.
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 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 25th day of February, 1999.
ALLIANCE HIGH YIELD FUND, 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 25, 1999
_______________________ President
John D. Carifa
2. Principal Financial and
Accounting Officer:
/s/ Mark D. Gersten Treasurer and February 25, 1999
_______________________ 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 25, 1999
_______________________
Edmund P. Bergan, Jr.
(Attorney-in-Fact)
C-28
<PAGE>
Index to Exhibits
(h)(2) Form of Expense Limitation Undertaking
(j) Consent of Independent Auditors
C-29
00250233.AO1
<PAGE>
EXPENSE LIMITATION UNDERTAKING
ALLIANCE CAPITAL MANAGEMENT L.P.
1345 Avenue of the Americas
New York, New York 10105
February 1, 1999
[Name of Registrant]
1345 Avenue Of The Americas
New York, New York 10105
Dear Sirs:
Alliance Capital Management L.P. herewith undertakes
that for the Expense Limitation Period, as defined below, we
shall cause the aggregate operating expenses of every character
incurred by your [ ] portfolio (the "Portfolio") to be
limited to ___% of your aggregate average daily net assets (the
"Limitation"). To determine the amount of the Portfolio's
expenses in excess of the Limitation, the amount of allowable
fiscal-year-to-date expenses shall be computed daily by prorating
the Limitation based on the number of days elapsed within the
fiscal year of the Portfolio (the "Prorated Limitation"). The
Prorated Limitation shall be compared to the expenses of the
Portfolio recorded through the current day in order to produce
the allowable expenses to be recorded and accrued for the
Portfolio current day (the "Allowable Expenses"). If the
expenses of the Portfolio for the current day exceed the
Allowable Expenses, we shall be responsible for such excess and
<PAGE>
will for the current day (i) reduce our advisory fees and/or
(ii) reimburse the Fund accordingly.
For purposes of this Undertaking, the Expense Limitation
Period shall mean the period commencing on the date hereof and
terminating at the close of the Portfolio's fiscal year. The
Expense Limitation Period and the Undertaking given hereunder
will automatically be extended for additional one-year terms
unless we provide you with at least 60 days' notice prior to the
end of any Expense Limitation Period, of our determination not to
extend this Undertaking beyond its then current term.
We understand and intend that you will rely on this
Undertaking in preparing and filing a Registration Statement for
the Portfolio on Form N-1A with the Securities and Exchange
Commission, in accruing the Portfolio's expenses for purposes of
calculating its net asset value per share and for other purposes
and expressly permit you to do so.
Very truly yours,
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management
Corporation, its general
partner
By: ___________________________
2
00250157.BW2
<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 October 7, 1998 included in this
Registration Statement (Form N-1A Nos. 333-18505 and 811-09160)
of Alliance High Yield Fund, Inc.
/s/ERNST & YOUNG LLP
New York, New York
February 24, 1999
00250233.AN7
