<PAGE>
As filed with the Securities and Exchange
Commission on April 30, 1997
File Nos.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No.
_______________________________
Alliance Greater China '97 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:
Bruce D. Senzel
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
<PAGE>
immediately upon filing pursuant to paragraph (b)
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.
The purpose of this Registration Statement is to register the
Registrant under the Investment Company Act of 1940, to register
the shares of the Registrant under the Securities Act of 1933 and
to declare pursuant to Section 24(f) of the Investment Company
Act of 1940 and Rule 24f-2 thereunder that an indefinite number
of its securities is being registered by this Registration
Statement.
The Registrant hereby amends this Registrant Statement under
the Securities Act of 1933 on such date or dates as may be
necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with the provisions of Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in Prospectus
_____________ (Caption)
_______________________
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Expense Information
Item 3. Condensed Financial
Information....................... Not Applicable
Item 4. General Description
of Registrant..................... Description of the
Fund; General
Information
Item 5. Management of the Fund............ Management of the
Fund; General
Information
Item 6. Capital Stock and Other
Securities........................ Dividends,
Distributions and
Taxes; General
Information
Item 7. Purchase of Securities
Being Offered..................... Purchase and Sale of
Shares; General
Information
Item 8. Redemption or Repurchase.......... Purchase and Sale of
Shares; General
Information
Item 9. Pending Legal Proceedings......... Not Applicable
Location in Statement of
PART B Additional Information
______ (Caption)
________________________
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Cover Page
<PAGE>
Item 12. General Information
and History....................... Management of the
Fund; General
Information
Item 13. Investment Objectives and
Policies.......................... Description of the
Fund
Item 14. Management of the Registrant ..... Management of the
Fund
Item 15. Control Persons and
Principal Holders of
Securities ....................... Not Applicable
Item 16. Investment Advisory and
Other Services.................... Management of the
Fund, Expenses of
the Fund, General
Information
Item 17. Brokerage Allocation and
Other Practices................... Portfolio
Transactions
Item 18. Capital Stock and Other
Securities........................ General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered....... Purchase of Shares;
Redemption and
Repurchase of
Shares; Dividends,
Distributions and
Taxes; Shareholder
Services
Item 20. Tax Status........................ Description of the
Fund, Dividends,
Distributions and
Taxes
Item 21. Underwriters...................... General Information
Item 22. Calculation of Performance
Data.............................. General Information
Item 23. Financial Statements.............. Not Applicable
<PAGE>
ALLIANCE GREATER CHINA '97 FUND
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-
1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
[ ], 1997
Table of Contents..........................
Page
The Fund at a Glance....................................
Expense Information.....................................
Glossary................................................
Description of the Fund.................................
Investment Objectives and Policies...................
Additional Investment Practices......................
Certain Fundamental Investment
Policies..........................................
Certain Risk Considerations .........................
Purchase and Sale of Shares.............................
Management of the Fund..................................
Dividends, Distributions and Taxes......................
General Information.....................................
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
Consultant to Adviser
New-Alliance Asset Management (Asia) Limited
Hong Kong
Alliance Greater China '97 Fund, Inc. (the "Fund") seeks long
term capital appreciation by investing principally in equity
securities issued by Greater China companies .
The Fund is an open-end, non-diversified, management investment
company. This Prospectus sets forth concisely the information
that a prospective investor should know about the Fund before
investing. A "Statement of Additional Information" for the Fund
dated [ ], 1997, which provides further information
regarding certain matters discussed in this Prospectus and other
matters which may be of interest to some investors, has been
filed with the Securities and Exchange Commission and is
incorporated herein by reference. For a free copy, call or write
Alliance Fund Services, Inc. at the indicated address or call the
"For Literature" telephone number shown above.
The Fund offers three classes of shares through this Prospectus.
These shares may be purchased, at the investor's choice, at a
price equal to their net asset value (i) plus an initial sales
charge imposed at the time of purchase ("Class A shares"),
(ii) with a contingent deferred sales charge imposed on most
redemptions made within four years of purchase ("Class B
shares"), or (iii) without any initial or contingent deferred
sales charge, as long as the shares are held for one year or more
B("Class C shares"). See "Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation
of, or guaranteed or endorsed by, any bank and is not federally
insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to
retain it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[Alliance Logo] (R)/SM These are registered marks used under
license from the owner, Alliance Capital Management L.P.
2
The Fund At A Glance
The following summary is qualified in its entirety by the more
detailed information contained inside this Prospectus.
The Fund's Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global
investment adviser providing diversified services to institutions
and individuals through a broad line of investments including
more than 100 mutual funds. Since 1971, Alliance has earned a
reputation as a leader in the investment world with over $182
billion in assets under management as of December 31, 1996.
Alliance provides investment management services to employee
benefit plans for 34 of the FORTUNE 100 companies.
The Consultant to the Adviser Is . . .
New-Alliance Asset Management (Asia) Limited, a joint venture
company headquartered in China and formed by Alliance and Sun
Hung Kai Properties Limited, one of Hong Kong's largest
diversified property developers, which will provide Alliance with
expertise with respect to economic, financial, political,
technological and social conditions and trends in Greater China
countries.
The Fund
Seeks . . . Long-term capital appreciation.
Invests principally in . . . A non-diversified portfolio of
equity securities of Greater China companies .
A Word About Risk . . .
The price of shares of the Fund will fluctuate as the daily
prices of the individual stocks and other equity securities in
which it invests fluctuate, so that your shares, when redeemed,
may be worth more or less than their original cost. Because the
Fund will invest in foreign currency denominated securities,
these fluctuations may be magnified by changes in foreign
exchange rates. Investment in the Fund involves risks not
associated with funds that invest primarily in securities of U.S.
issuers. The Fund will invest substantially all of its assets in
Greater China companies. Investments in Greater China companies
entail certain risks which are different from, and in certain
cases, greater than, risks associated with investments in other
international markets. See "Certain Risk Considerations." In
addition, because at least 80% of the Fund's portfolio will be
invested in Greater China companies, the Fund is subject to
greater risk of being influenced by events impacting Greater
3
China countries and therefore Greater China companies than would
a fund with a more diversified portfolio. While the Fund invests
principally in common stocks and other equity securities, in
order to achieve its investment objectives the Fund may at times
use certain types of investment derivatives, such as options,
futures, forwards and swaps. These involve risks different from,
and, in certain cases, greater than, the risks presented by more
traditional investments. These risks are fully discussed in this
Prospectus. An investment in the Fund may be considered for
moderately aggressive long-term investors who may wish to
consider investing a portion of their overall equity portfolios
in the markets of Greater China countries.
Getting Started . . .
Shares of the Fund are available through your financial
representative and most banks, insurance companies and brokerage
firms nationwide. Shares can be purchased for a minimum initial
investment of $250, and subsequent investments can be made for as
little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition,
the Fund offers several time and money saving services to
investors. Be sure to ask your financial representative about:
AUTOMATIC DIVIDEND REINVESTMENT
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS
SHAREHOLDER COMMUNICATIONS
DIVIDEND DIRECTION PLANS
AUTO EXCHANGE
SYSTEMATIC WITHDRAWALS
A CHOICE OF PURCHASE PLANS
TELEPHONE TRANSACTIONS
24-HOUR INFORMATION
ALLIANCE LOGO
(R)/SM These are registered marks used under license from the
owner, Alliance Capital Management L.P.
4
_________________________________________________________________
EXPENSE INFORMATION
_________________________________________________________________
Shareholder Transaction Expenses are one of several factors to
consider when you invest in the Fund. The following table
summarizes your maximum transaction costs and estimated annual
expenses for each class of shares. The Example following the
table shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each class for the periods
specified.
Class A Shares Class B Shares Class C Shares
Maximum sales charge imposed
on purchases (as a percentage
of offering price)....... 4.25%(a) None None
Sales charge imposed on
dividend reinvestments... None None None
Deferred sales charge (as
a percentage of original
purchase price or
redemption proceeds,
whichever is lower)...... None(a) 4.0% during the 1% during the
first year, first year,
decreasing 1.0% 0% thereafter
annually to 0%
after the fourth
year(b)
Exchange fee............... None None None
____________________________________________________________
(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred
sales charge on redemption within one year of purchase. See "Purchase
and Sale of Shares--How to Buy Shares"--page __.
(b) Class B shares automatically convert to Class A shares after eight years.
See "Purchase and Sale of Shares--How to Buy Shares"--page __.
5
Operating Expenses Class A Class B Class C
Management fees 1.00% 1.00% 1.00%
12b-1 fees [ ]% [ ]% [ ]%
Other expenses(a) [ ]% [ ]% [ ]%
Total fund operating expenses [ ]% [ ]% [ ]%
Example Class A Class B+ Class B++ Class C+ Class C++
After 1 year $ $ $ $ $
After 3 years $ $ $ $ $
___________________________________________________________
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Fund for each shareholder account.
The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in
the Fund will bear directly or indirectly. Long-term
shareholders of the Fund may pay aggregate sales charges totaling
more than the economic equivalent of the maximum initial sales
charges permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc. See "Management of the
Fund--Distribution Services Agreement." The Rule 12b-1 fee for
each class comprises a service fee not exceeding .25% of the
aggregate average daily net assets of the Fund attributable to
the class and an asset-based sales charge equal to the remaining
portion of the Rule 12b-1 fee. "Other Expenses" are based on
estimated amounts for the Fund's current fiscal year. The
Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated
by Securities and Exchange Commission regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
6
_________________________________________________________________
GLOSSARY
_________________________________________________________________
The following terms are frequently used in this Prospectus.
Greater China company is an entity that (i) is organized under
the laws of a Greater China country and conducts business in a
Greater China country, (ii) derives 50% or more of its total
revenues from business in Greater China countries, or
(iii) issues equity or debt securities that are traded
principally on a stock exchange in a Greater China country. A
company of a particular Greater China country is a company that
meets any of these criteria with respect to that country.
Greater China countries are the People's Republic of China
(China), Hong Kong and the Republic of China (Taiwan).
Equity securities are common and preferred stocks, securities
convertible into common and preferred stocks and equity-linked
debt securities, but do not include rights, warrants and options
to subscribe for the purchase of common and preferred stocks.
Convertible securities are debt securities that are convertible
at a stated exchange rate into common stock.
Debt securities are bonds, debentures, notes, bills, repurchase
agreements and loans and other direct debt instruments, but do
not include convertible securities.
Investment grade securities are debt securities rated Baa and
above by Moody's Investors Service, Inc. ("Moody's") or BBB and
above by Standard & Poor's Ratings Services ("S&P"), Duff &
Phelps Credit Rating Co. ("Duff & Phelps") or Fitch Investors
Service, L.P. ("Fitch") or determined by Alliance to be of
equivalent quality.
Rule 144A securities are securities that may be resold pursuant
to Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act").
U.S. Government securities are securities issued or guaranteed by
the United States Government, its agencies or instrumentalities.
Depositary receipts include American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs") and other types of
depositary receipts.
7
Commission is the U.S. Securities and Exchange Commission.
Code is the Internal Revenue Code of 1986, as amended.
8
___________________________________________________________
DESCRIPTION OF THE FUND
___________________________________________________________
The Fund is a non-diversified investment company. The Fund's
investment objective is "fundamental" and cannot be changed
without a shareholder vote. Except as noted, the Fund's
investment policies are not fundamental and thus can be changed
without a shareholder vote. The Fund will not change these
policies without notifying its shareholders. There is no
guarantee that the Fund will achieve its investment objective.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek long-term capital
appreciation. In seeking to achieve its investment objective,
the Fund will invest at least 80% of its total assets in equity
securities issued by Greater China companies. The Fund may
invest up to 20% of its total assets in (i) debt securities
issued or guaranteed by Greater China companies or by Greater
China governments, their agencies or instrumentalities, and
(ii) equity or debt securities issued by issuers other than
Greater China companies. The Fund will not invest in debt
securities rated below investment grade. Should a debt security
in which the Fund is invested be downgraded below investment
grade or be determined by Alliance to have undergone a similar
credit quality deterioration, the Fund will dispose of that
security. The Fund expects to invest a significant portion,
which may be greater than 50%, of its assets in equity securities
of Hong Kong companies and may invest, from time to time, all of
its assets in companies of Hong Kong or either of the other
Greater China countries.
In recent years, China, Hong Kong and Taiwan have experienced
high levels of real economic growth. A particularly significant
factor has been the increasing influence which China has had in
the economic development of the region. Economic links among the
three countries have strengthened and developed to a significant
degree. Hong Kong's economic and political integration with
China following the transfer of sovereignty of Hong Kong from
Great Britain to China on July 1, 1997 may very well intensify
this trend.
China, with a population estimated at over 1.2 billion, has
been increasingly opening its economy to foreign investment,
notwithstanding its history of tight restrictions on trade and
centralized control. While China has had huge increases in
industrial production, the share of state sector industrial
output has shrunk significantly over the past two decades, and
the dynamism of China's economy now comes from the private,
9
foreign-invested and "collective" sectors. This has been coupled
with a demand-side combination of rapid growth in personal
consumption and high rates of fixed investment. Furthermore,
China has a more developed securities market. China's two
officially recognized securities exchanges, the Shanghai Stock
Exchange and the Shenzen Stock Exchange, are highly automated
with trading and settlement executed electronically. Companies
listed on the exchanges are subject to relatively strict
disclosure requirements, liquidity requirements and audits in
accordance with international accounting guidelines.
Hong Kong is China's largest trade partner and leading
outside investor, as well as a world financial center in its own
right. Hong Kong is considered to be the gateway to trade with
and investment in China, and a significant portion of Hong Kong's
investments in China are believed to be attributable to Hong
Kong-based subsidiaries of foreign multi-national companies. The
Basic Law, which embodies the Chinese implementation of the
agreement transferring Hong Kong sovereignty, calls for the
economic and social systems of Hong Kong to remain unchanged for
at least 50 years, and Hong Kong is to have a high degree of
autonomy except in foreign and defense matters.
In recent years, Taiwan has become an important investor in
China and China has become a significant market for Taiwanese
goods, despite, at times, extreme political tension between the
two countries. Currently, economic interaction between Taiwan
and China takes place through indirect channels (usually via Hong
Kong) due to official prohibitions on direct trade between the
two countries. The Taiwanese securities markets are relatively
well regulated, and have recently begun to open to foreign
institutional investors, although institutional investors are
still subject to certain investment restrictions.
The economies of Hong Kong and Taiwan have benefited from
China's economic liberalization. The interaction among China and
Hong Kong and Taiwan is expected to continue to intensify,
increasing investment opportunities in the region.
The Fund will invest in companies believed to possess rapid
growth potential. Thus, the Fund will invest in smaller,
emerging companies, but will also invest in larger, more
established companies in such growing economic sectors as capital
goods, telecommunications and consumer services.
INVESTMENT POLICIES
The Fund may also: (i) invest up to 25% of its net assets in
the convertible securities of companies whose common stocks are
eligible for purchase by the Fund; (ii) invest up to 20% of its
net assets in rights or warrants; (iii) invest in depositary
10
receipts, instruments of supranational entities denominated in
the currency of any country, securities of multinational
companies and "semi-governmental securities"; (iv) invest up to
25% of its net assets in equity-linked debt securities with the
objective of realizing capital appreciation; (v) invest up to 25%
of its net assets in loans and other direct debt securities;
(vi) write covered put and call options on securities of the
types in which it is permitted to invest and on exchange-traded
index options; (vii) enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices, including
any index of U.S. Government securities, securities issued by
foreign government entities, or common stock and may purchase and
write options on future contracts; (viii) purchase and write put
and call options on foreign currencies for hedging purposes;
(ix) purchase or sell forward contracts; (x) enter into interest
rate swaps and purchase or sell interest rate caps and floors;
(xi) enter into forward commitments for the purchase or sale of
securities; (xii) enter into standby commitment agreements;
(xiii) enter into currency swaps for hedging purposes;
(xiv) enter into repurchase agreements pertaining to U.S.
Government securities with member banks of the Federal Reserve
System or primary dealers in such securities; (xv) make short
sales of securities or maintain a short position, in each case
only if "against the box"; and (xvi) make secured loans of its
portfolio securities not in excess of 30% of its total assets to
entities with which it can enter into repurchase agreements. All
or some of the policies listed above may not be available to the
Fund in one or more of the Greater China countries, and the Fund
will utilize these policies only to the extent permissible. For
additional information on the use, risks and costs of these
policies and practices see "Additional Investment Policies and
Practices".
ADDITIONAL INVESTMENT PRACTICES
The Fund may engage in the following investment practices to
the extent described above.
Convertible Securities. Prior to conversion, convertible
securities have the same general characteristics as non-
convertible debt securities, which provide a stable stream of
income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a
convertible security will normally vary with changes in the price
of the underlying stock, although the higher yield tends to make
the convertible security less volatile than the underlying common
stock. As with debt securities, the market value of convertible
securities tends to decline as interest rates increase and
increase as interest rates decline. While convertible securities
generally offer lower interest or dividend yields than non-
11
convertible debt securities of similar quality, they enable
investors to benefit from increases in the market price of the
underlying common stock. Convertible debt securities that are
rated Baa by Moody's or BBB by S&P and comparable not rated
securities as determined by Alliance may share some or all of the
risks of debt securities with those ratings.
Rights and Warrants. The Fund will invest in rights or
warrants only if the equity securities themselves are deemed
appropriate by Alliance for inclusion in the Fund's portfolio.
Rights and warrants entitle the holder to buy equity securities
at a specific price for a specific period of time. Rights are
similar to warrants except that they have a substantially shorter
duration. Rights and warrants may be considered more speculative
than certain other types of investments in that they do not
entitle a holder to dividends or voting rights with respect to
the underlying securities nor do they represent any rights in the
assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying
securities, however, although the value of a right or warrant may
decline because of a decrease in the value of the underlying
stock, the passage of time or a change in perception as to the
potential of the underlying stock, or any combination thereof.
If the market price of the underlying stock is below the exercise
price set forth in the warrant on the expiration date, the
warrant will expire worthless. Moreover, a right or warrant
ceases to have value if it is not exercised prior to the
expiration date.
Depositary Receipts and Securities of Supranational Entities.
Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be
converted. In addition, the issuers of the stock of unsponsored
depositary receipts are not obligated to disclose material
information in the United States and, therefore, there may not be
a correlation between such information and the market value of
the depositary receipts. ADRs are depositary receipts typically
issued by a U.S. bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation. GDRs and
other types of depositary receipts are typically issued by
foreign banks or trust companies and evidence ownership of
underlying securities issued by either a foreign or a U.S.
company. Generally, depositary receipts in registered form are
designed for use in the U.S. securities markets and depositary
receipts in bearer form are designed for use in foreign
securities markets. For purposes of determining the country of
issuance, the investments of the Fund in depositary receipts are
deemed to be investments in the underlying securities.
A supranational entity is an entity designated or supported
by the national government of one or more countries to promote
12
economic reconstruction or development. Examples of
supranational entities include, among others, the World Bank
(International Bank for Reconstruction and Development) and the
European Investment Bank. "Semi-governmental securities," are
securities issued by entities owned by either a national, state
or equivalent government or are obligations of one of such
government jurisdictions which are not backed by its full faith
and credit and general taxing powers.
Illiquid Securities. Subject to any more restrictive
applicable fundamental investment policy, the Fund will not
maintain more than 15% of its net assets in illiquid securities.
Illiquid securities generally include (i) direct placements or
other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available
market (e.g. when trading in the security is suspended or, in the
case of unlisted securities, when market makers do not exist or
will not entertain bids or offers), and many individually
negotiated currency swaps and any assets used to cover currency
swaps and most privately negotiated investments in state
enterprises that have not yet conducted an initial equity
offering, (ii) over-the-counter options and assets used to cover
over-the-counter options, and (iii) repurchase agreements not
terminable within seven days.
Because of the absence of a trading market for illiquid
securities, the Fund may not be able to realize their full value
upon sale. Alliance will monitor the illiquidity of such
securities with respect to the Fund under the supervision of the
Directors of the Fund. To the extent permitted by applicable
law, Rule 144A securities will not be treated as "illiquid" for
purposes of the foregoing restriction so long as such securities
meet liquidity guidelines established by the Fund's Directors.
The Fund may not be able to readily sell securities for which
there is no ready market. To the extent that these securities
are foreign securities, there is no law in many of the countries
in which the Fund may invest similar to the Securities Act,
requiring an issuer to register the sale of securities with a
governmental agency or imposing legal restrictions on resales of
securities, either as to length of time the securities may be
held or manner of resale. However, there may be contractual
restrictions on resale of securities.
Equity-Linked Debt Securities. Equity-linked debt securities
are securities with respect to which the amount of interest
and/or principal that the issuer thereof is obligated to pay is
linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less
than payment obligations in respect of other types of debt
securities. Adverse changes in equity securities indices and
13
other adverse changes in the securities markets may reduce
payments made under, and/or the principal of, equity-linked debt
securities held by the Fund. Furthermore, as with any debt
securities, the values of equity-linked debt securities will
generally vary inversely with changes in interest rates. The
Fund's ability to dispose of equity-linked debt securities will
depend on the availability of liquid markets for such securities.
Investment in equity-linked debt securities may be considered to
be speculative. As with other securities, the Fund could lose
its entire investment in equity-linked debt securities.
Loans and other Direct Debt Instruments. Loans and other
direct debt instruments are interests in amounts owed by a
corporate, governmental or other borrower to another party. They
may represent amounts owed to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or
services (trade claims or other receivables), or to other
creditors. Direct debt instruments involve the risk of loss in
case of default or insolvency of the borrower and may offer less
legal protection to the Fund in the event of fraud or
misrepresentation than debt securities. In addition, loan
participations involve a risk of insolvency of the lending bank
or other financial intermediary. Direct debt instruments may
also include standby financing commitments that obligate the Fund
to supply additional cash to the borrower on demand. Loans and
other direct debt instruments are generally illiquid and may be
transferred only through individually negotiated private
transactions.
Purchasers of loans and other forms of direct indebtedness
depend primarily upon the creditworthiness of the borrower for
payment of principal and interest. Direct debt instruments may
not be rated by any nationally recognized rating service. If the
Fund does not receive scheduled interest or principal payments on
such indebtedness, the Fund's share price and yield could be
adversely affected. Loans that are fully secured offer the Fund
more protection than unsecured loans in the event of non-payment
of scheduled interest or principal. However, there is no
assurance that the liquidation of collateral from a secured loan
would satisfy the borrower's obligation, or that the collateral
can be liquidated. Indebtedness of borrowers whose
creditworthiness is poor may involve substantial risks, and may
be highly speculative.
Borrowers that are in bankruptcy or restructuring may never
pay off their indebtedness, or may pay only a small fraction of
the amount owed. Direct indebtedness of Greater China countries
will also involve a risk that the governmental entities
responsible for the repayment of the debt may be unable, or
unwilling, to pay interest and repay principal when due.
14
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve
additional risks to the Fund. For example, if a loan is
foreclosed, the Fund could become part owner of any collateral,
and would bear the costs and liabilities associated with owning
and disposing of the collateral. Direct debt instruments may
also involve a risk of insolvency of the lending bank or other
intermediary.
A loan is often administered by a bank or other financial
institution that acts as agent for all holders. The agent
administers the terms of the loan, as specified on the loan
agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower,
it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the
benefit of the Fund were determined to be subject to the claims
of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan
participation and could suffer a loss of principal or interest.
Direct indebtedness purchased by the Fund may include letters
of credit, revolving credit facilities, or other standby
financing commitments obligating the Fund to pay additional cash
on demand. These commitments may have the effect of requiring
the Fund to increase its investment in a borrower at a time when
it would not otherwise have done so, even if the borrower's
condition makes it unlikely that the amount will ever be repaid.
The Fund will set aside appropriate liquid assets in a segregated
custodial account to cover its potential obligations under
standby financing commitments.
Options. An option gives the purchaser of the option, upon
payment of a premium, the right to deliver to (in the case of a
put) or receive from (in the case of a call) the writer a
specified amount of a security on or before a fixed date at a
predetermined price. An option written by the Fund is "covered"
if the Fund owns the underlying security (in the case of a call)
or maintains cash and liquid high-grade debt securities in a
segregated account with its custodian ("segregated account
assets") with a value equal to the exercise price (in the case of
a put). A call option is also covered if the Fund has an
absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or
exchange of other securities held in the Fund's portfolio or 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 segregated
15
account assets. A put option written by the Fund is also covered
if the Fund 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. There are no specific limitations on the Fund's
writing and purchasing of options.
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. The Fund may write call
options for cross-hedging purposes. The Fund would write a call
option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge
transaction would exceed that which would be received from
writing a covered call option, while at the same time achieving
the desired hedge.
In purchasing a call option, the Fund would be in a position
to realize a gain if, during the option period, the price of the
underlying security increased (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 equal to
the premium paid for the option.
If an option written by the Fund were exercised, the Fund
would be obligated to purchase (in the case of a put) or sell (in
the case of a call) the underlying security at the exercise
price. The risk involved in writing an option is that, if the
option were exercised, the underlying security would then be
purchased or sold by the Fund at a disadvantageous price. These
risks could be reduced by entering into a closing transaction
(i.e., by disposing of the option prior to its exercise). The
Fund retains the premium received from writing a put or call
option whether or not the option is exercised. The writing of
covered call options could result in increases in the Fund's
portfolio turnover rate, especially during periods when market
prices of the underlying securities appreciate.
The Fund will purchase or write options on securities in
privately negotiated (i.e., over-the-counter) transactions only
with investment dealers and other financial institutions (such as
commercial banks or savings and loan institutions) deemed
creditworthy by Alliance, and Alliance 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 an advantageous time. See "Illiquid
Securities."
16
Options on Securities Indices. 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.
Futures Contracts and Options on Futures Contracts. A "sale"
of a futures contract means the acquisition of a contractual
obligation to deliver the securities or foreign currencies or
other commodity called for by the contract at a specified price
on a specified date. A "purchase" of a futures contract means
the incurring of an obligation to acquire the securities, foreign
currencies or other commodity called for by the contract at a
specified price on a specified date. The purchaser of a futures
contract on an index agrees to take or make delivery of an amount
of cash equal to the difference between a specified dollar
multiple of the value of the index on the expiration date of the
contract ("current contract value") and the price at which the
contract was originally struck. No physical delivery of the
securities underlying the index is made.
Options on futures contracts written or purchased by the Fund
will be traded on U.S. or foreign exchanges or over-the-counter.
These investment techniques will be used only to hedge against
anticipated future changes in market conditions and interest or
exchange rates which otherwise might either adversely affect the
value of the Fund's portfolio securities or adversely affect the
prices of securities which the Fund intends to purchase at a
later date.
The Fund will not enter into any futures contracts or options
on futures contracts 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.
Options on Foreign Currencies. As in the case of other kinds
of options the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations
in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction costs. See the Statement
of Additional Information of the Fund for further discussion of
the use, risks and costs of options on foreign currencies.
17
Forward Foreign Currency Exchange Contracts. The Fund will
purchase or sell forward contracts so as to minimize the risk to
it from adverse changes in the relationship between the U.S.
Dollar and other 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.
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. 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"). A Fund will not position hedge with respect to the
currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in that
particular foreign currency. Instead of entering into a position
hedge, the Fund may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S.
dollar amount where the Fund believes that the U.S. dollar value
of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the
currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). Unanticipated changes in currency
prices may result in poorer overall performance for the Fund than
if it had not entered into such forward contracts.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedge currency should rise. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates.
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
18
occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt
restructuring (i.e., a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the
price is fixed at the time the commitment is made, but delivery
and payment for the securities take place at a later date.
Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are
subject to market fluctuation, and no interest or dividends
accrue to the purchaser prior to the settlement date. At the
time the Fund intends to enter into a forward commitment, it
records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a "when, as and if
issued" security would be canceled in the event that the required
conditions did not occur and the trade was canceled.
The use of forward commitments enables the 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 Alliance 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. When-issued
securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward
commitments only with the intention of actually receiving
securities or delivering them, as the case may be. If the Fund
chose to dispose of the right to acquire a when-issued security
prior to its acquisition or dispose of its right to deliver or
receive against a forward commitment, it may incur a gain or
loss. Any significant commitment of Fund assets to the purchase
of securities on a "when, as and if issued" basis may increase
the volatility of the Fund's net asset value. No forward
commitments will be made by the Fund if, as a result, the Fund's
aggregate commitments under such transactions would be more than
30% of the Fund's total assets. 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.
19
Standby Commitment Agreements. Standby commitment agreements
commit the Fund, for a stated period of time, to purchase a
stated amount of a security that may be issued and sold to the
Fund at the option of the issuer. The price and coupon of the
security are fixed at the time of the commitment. At the time of
entering into the agreement the Fund is paid a commitment fee,
regardless of whether the security ultimately is issued,
typically equal to approximately 0.5% of the aggregate purchase
price of the security the Fund has committed to purchase. The
Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield
and price considered advantageous to the Fund and unavailable on
a firm commitment basis. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and will
limit its investment in such commitments so that the aggregate
purchase price of the securities subject to the commitments will
not exceed 50% of its assets taken at the time of making the
commitment. The Fund at all times maintains a segregated account
with its custodian of cash and/or liquid high grade debt
securities, denominated in U.S. dollars in an aggregate amount
equal to the purchase price of the securities underlying the
commitment.
There is no guarantee that the securities subject to a
standby commitment will be issued and the value of the security,
if issued, on the delivery date may be more or less than its
purchase price. Since the issuance of the security underlying
the commitment is at the option of the issuer, the Fund will bear
the risk of capital loss in the event the value of the security
declines and may not benefit from an appreciation in the value of
the security during the commitment period if the issuer decides
not to issue and sell the security to the Fund.
Currency Swaps. Currency swaps involve the individually
negotiated exchange by the Fund with another party of a series of
payments in specified currencies. A currency swap may involve
the delivery at the end of the exchange period of a substantial
amount of one designated currency in exchange for the other
designated currency. Therefore the entire principal value of a
currency swap is subject to the risk that the other party to the
swap will default on its contractual delivery obligations. The
net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each currency swap will be
accrued on a daily basis and an amount of cash or high-grade
liquid debt securities having an aggregate net asset value at
least equal to the accrued excess will be maintained in a
segregated account by the Fund's custodian. The Fund will not
enter into any currency swap unless the credit quality of the
unsecured senior debt or the claims-paying ability of the other
party thereto is rated in the highest rating category of at least
one nationally recognized rating organization at the time of
20
entering into the transaction. If there is a default by the
other party to such a transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transactions.
Interest Rate Transactions. Interest rate transactions are
entered into primarily to preserve a return or spread on a
particular investment or portion of the Fund's portfolio or to
protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund does not intend
to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed
rate payments). With respect to the Fund, the exchange
commitments can involve payments in the same currency or in
different currencies. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index
exceeds a predetermined interest rate, to receive payments of
interest on a contractually-based principal amount from the party
selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified
index falls below a predetermined interest rate, to receive
payments of interest on an agreed principal amount from the party
selling the interest rate floor.
The Fund may enter into interest rate swaps, caps and floors
on either an asset-based or liability-based basis, depending upon
whether it is hedging its assets or liabilities, and will usually
enter into interest rate swaps on a net basis (i.e., the two
payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two
payments). The net amount of the excess, if any, of the Fund's
obligations over its entitlements with respect to each interest
rate swap, cap or floor is accrued daily. Alliance will monitor
the creditworthiness of counterparties on an ongoing basis. The
swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become
relatively liquid. Caps and floors are more recent innovations
for which standardized documentation has not yet been developed
and, accordingly, they are less liquid than swaps.
The use of interest rate transactions is a highly specialized
activity that involves investment techniques and risks different
from those associated with ordinary portfolio securities
transactions. If Alliance incorrectly forecasts market values,
interest rates and other applicable factors, the investment
performance of the Fund would be adversely affected by the use of
these investment techniques. Moreover, even if Alliance is
21
correct in its forecasts, there is a risk that the transaction
position may correlate imperfectly with the price of the asset or
liability being hedged. There is no limit on the amount of
interest rate transactions that may be entered into by the Fund.
These transactions do not involve the delivery of securities or
other underlying assets of principal. Accordingly, the risk of
loss with respect to interest rate transactions is limited to the
net amount of interest payments that the Fund is contractually
obligated to make. If the other party to an interest rate
transaction defaults, the Fund's risk of loss consists of the net
amount of interest payments that the Fund contractually is
entitled to receive.
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. If a vendor goes bankrupt, the Fund might be
delayed in, or prevented from, selling the collateral for its
benefit. Alliance monitors the creditworthiness of the dealers
with which the Fund enters into repurchase agreements. There is
no percentage restriction on the Fund's ability to enter into
repurchase agreements.
Short Sales. A short sale is effected by selling a security
that the Fund does not own, or if the Fund does own such
security, it is not to be delivered upon consummation of the
sale. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain securities
identical to those sold short without payment. The Fund may make
short sales of securities or maintain short positions only for
the purpose of deferring realization of gain or loss for U.S.
federal income tax purposes, provided that at all times when a
short position is open the Fund owns an equal amount of
securities, or securities convertible, into or exchangeable,
without payment of any further consideration into securities of
the same issue as, and equal in amount to, the securities sold
short. In addition, the Fund may not make a short sale if as a
result more than 25% of the Fund's net assets would be held as
collateral for short sales. If the price of the security sold
short increases between the time of the short sale and the time
the Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a
capital gain. See "Certain Fundamental Investment Policies."
Certain special federal income tax considerations may apply to
short sales entered into by the Fund. See "Dividends,
22
Distributions and Taxes" in the Fund's Statement of Additional
Information.
Loans of Portfolio Securities. The risks in lending
portfolio securities, as with other extensions of credit, consist
of possible loss of rights in the collateral should the borrower
fail financially. In determining whether to lend securities to a
particular borrower, Alliance (subject to review by the Fund's
Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed upon amount of income from a borrower who has delivered
equivalent collateral. The Fund will have the right to regain
record ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to
dividends, interest or distributions. The Fund may pay
reasonable finders', administrative and custodial fees in
connection with a loan. The Fund will not lend portfolio
securities to any officer, director, employee or affiliate of the
Fund or Alliance.
General. The successful use of the foregoing investment
practices draws upon Alliance's special skills and experience
with respect to such instruments and usually depends on
Alliance's ability to forecast price movements or currency
exchange rate movements correctly. Should prices or exchange
rates move unexpectedly, the Fund may not achieve the anticipated
benefits of the transactions or may realize losses and thus be in
a worse position than if such strategies had not been used.
Unlike many exchange-traded futures contracts and options on
futures contracts, there are no daily price fluctuation limits
with respect to options on currencies and forward contracts, and
adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation
between movements in the prices of such instruments and movements
in the prices of the securities and currencies hedged or used for
cover will not be perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in futures
contracts, options and forward contracts depends on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of types of
securities and currencies are relatively new and still
developing, and there is no public market for forward contracts.
It is impossible to predict the amount of trading interest that
may exist in various types of futures contracts, options and
forward contracts. If a secondary market does not exist with
respect to an option purchased or written by the Fund, it might
not be possible to effect a closing transaction in the option
23
(i.e., dispose of the option) with the result that (i) an option
purchased by the Fund would have to be exercised in order for the
Fund to realize any profit and (ii) the Fund may not be able to
sell currencies or portfolio securities covering an option
written by the Fund until the option expires or it delivers the
underlying futures contract or currency upon exercise.
Therefore, no assurance can be given that the Fund will be able
to utilize these instruments effectively for the purposes set
forth above. Furthermore, the Fund's ability to engage in
options and futures transactions may be limited by tax
considerations. See "Dividends, Distributions and Taxes" in the
Statement of Additional Information of the Fund.
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 exceed those
involved in the activities described above.
Defensive Position. For temporary defensive purposes, the
Fund may reduce its position in equity securities and increase
without limit its position in short-term, liquid, high-grade debt
securities, which may include U.S. Government securities, bank
deposits, money market instruments, short-term debt securities,
including notes and bonds, and short-term foreign-currency
denominated high-grade debt securities issued by foreign
governmental entities, companies and supranational organizations.
For a complete description of the types of securities the Fund
may invest in while in a temporary defensive position, please see
the Fund's Statement of Additional Information.
Portfolio Turnover. Alliance anticipates that the Fund's
annual rate of turnover will not exceed 150%. A 150% annual
turnover rate would occur if all of the securities in the Fund's
portfolio are replaced one and one-half times in a period of one
year. A 150% portfolio turnover rate is greater than that of
most other investment companies, including those which emphasize
capital appreciation as a basic policy. A high rate of portfolio
turnover involves correspondingly greater brokerage and other
expenses than a lower rate, which must be borne by the Fund and
its shareholders. High portfolio turnover also may result in the
realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in the Fund's Statement of
Additional Information.
24
CERTAIN OTHER FUNDAMENTAL INVESTMENT POLICIES
The Fund has adopted certain fundamental investment policies
listed below, which may not be changed without the approval of
its shareholders. Additional investment restrictions with
respect to the Fund are set forth in its Statement of Additional
Information.
The Fund may not: (i) invest 25% or more of its total assets
in securities of issuers conducting their principal business
activities in the same industry; (ii) borrow money except from
banks for temporary or emergency purposes, including the meeting
of redemption requests that might require the untimely
disposition of securities; borrowing in the aggregate may not
exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5%, of the Fund's total assets
(including the amount borrowed) less liabilities (not including
the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the value of the Fund's
total assets will be repaid before any investments are made; or
(iii) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
CERTAIN RISK CONSIDERATIONS
Investment in the Fund involves the special risk consider-
ations described below.
Investment in Greater China Countries; Risks of Foreign
Investment. The securities markets of China 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 may
experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity 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 U.S. Securities settlements may in some
instances be subject to delays and related administrative
uncertainties.
Foreign investment in the securities markets of China
and Taiwan is restricted or controlled to varying degrees. These
restrictions or controls, which apply to the Fund, may at times
limit or preclude investment in certain securities and may
increase the cost and expenses of the Fund. China and Taiwan
require governmental approval prior to investments by foreign
persons or limit investment by foreign persons to only a
specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous
25
terms (including price) than securities of the company available
for purchase by nationals. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities
from China and Taiwan is controlled under regulations, including
in some cases the need for certain advance government
notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
The Fund could 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. The liquidity of the Fund's
investments in any country in which any of these factors exists
could be affected by any such factor or factors on the Fund's
investments. The limited liquidity in certain Greater China
markets may affect the Fund's ability to accurately value its
portfolio securities or to acquire or dispose of securities in
order to meet redemption requests at the price and time it wishes
to do so. [Transaction costs including brokerage commissions for
transactions both on and off the securities exchanges in China,
Hong Kong and Taiwan countries are generally higher than in the
U.S.]
Issuers of securities in China, Hong Kong and Taiwan 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 China, Hong Kong
and Taiwan 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.
The economies of the individual 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 the countries or the Fund's investments in such
country. In the event of expropriation, nationalization or other
confiscation, the Fund could lose its entire investment in the
country involved. In addition, laws in China, Hong Kong and
Taiwan governing business organizations, bankruptcy and
insolvency may provide less protection to securities holders such
as the Fund than that provided by U.S. laws.
26
Investment in smaller, emerging Greater China companies
involves greater risk than is customary associated with
securities of more established companies. The securities of
smaller companies may have relatively limited marketability and
may be subject to more abrupt or erratic market movements than
securities of larger companies or broad market indices.
Investment in Chinese, Hong Kong and Taiwanese Issuers.
Investment in securities of Chinese, Hong Kong and Taiwanese
issuers involves certain considerations not present with
investment in securities of U.S. issuers.
China. The economy of China differs, often unfavorable, from
the United States economy in such respects as general
development, wealth distribution, rate of inflation, volatility
of the rate of growth of gross national product, capital
reinvestment and balance of payments position, among others. The
central government has historically exercised substantial control
over virtually every sector of the Chinese economy through
administration, regulation and/or state ownership. However, as a
result of economic reform policies instituted in the 1980s and
1990s direct central and local government control over the
business and production activities of Chinese enterprises and
companies has diminished. Presently, state controlled
enterprises account for no greater then 50% of China's industrial
output. Current economic reforms, embodied in the "socialist
market economy" program of the Chinese Communist Party ("CCP"),
seek to further reduce state involvement in the Chinese economy.
While under this policy the state is suppose to remain the
backbone of the economy, in reality many parts of the Chinese
economy are no longer under central control. Consequently, the
business autonomy of many Chinese companies has increased
significantly and such companies are becoming responsible for
their own profits and losses. If these policies continue to be
implemented, many Chinese companies may apply for listings on
stock exchanges in China or, with state approval, apply for
listing on foreign exchanges. As noted above, there are
currently two official securities exchanges in China, the
Shanghai Stock Exchange and the Shenzen Stock Exchange, both of
which have been extremely volatile since their inception in 1990.
The exchanges have two categories of shares, "A" shares available
only to Chinese investors and "B" shares available to foreign
investors. China has also authorized 17 companies to issue "H"
shares, which are listed on the Hong Kong Stock Exchange, and is
in the process of further opening up its securities markets to
foreign investors. Recently, China decided to list 38 more
companies on oversea exchanges and has suggested that foreigners
will be permitted to purchase "A" shares in the near future.
While opening up Chinese markets to foreign investors, the
"socialist market economy" policy may lead to situations in which
27
some of these companies face potential or actual insolvency, as
comprehensive price de-regulations is also contemplated under the
"socialist market economy" program. It remains uncertain whether
and to what extent the Chinese government will continue to
implement the "socialist market economy" program.
Notwithstanding the economic reforms instituted by the
government, actions of both central and local government
authorities continue to have a substantial effect on economic
conditions in China, which could affect the public and private
sector companies in which the Fund invests. The government has
in the past taken, and may in the future take, actions that
influence the prices at which certain goods may be sold,
encourage companies to invest or concentrate in particular
industries, induce mergers between companies in certain
industries and induce private companies to publicly offer their
securities. Such actions and a variety of other centrally
planned or determined activities by the Chinese government could
have a significant adverse effect on economic conditions in
China, the economic prospects for, and the market prices and
liquidity of, the securities of Chinese companies and the
payments of dividends and interest by Chinese companies. In
addition, expropriation, including nationalization, confiscatory
taxation, political, economic or social instability or other
developments could adversely affect the assets of the Fund held
in China. The Chinese government has, in the past, expropriated
large amounts of private property. Since the CCP, which was
responsible for such prior expropriations, continues to be the
ruling party in China, there can be no assurance that further
expropriation will not occur again in the future. Such
expropriation could result in investors losing all or
substantially all of their investment in the Fund. For further
information on China, see the Statement of Additional
Information.
As Tiannamen square showed, the Chinese government has a
continuing policy of political repression, including limiting
personnel freedoms such, as freedom of the press and association.
While countries like the U.S. officially condemn Chinese
political repression, the economic policies of such countries,
including the U.S., are no longer tied to these political
concerns as China's importance as a trading partner continues to
grow. However, there can be no assurance that in the future the
U.S., or any other country, will not limit its economic activity
with China based upon China's continuing policy of political
repression of its citizenry.
Hong Kong. Unlike China and Taiwan, the economy of Hong Kong
has never been highly regulated by the government. While this
lack of government intervention allows foreign investors, such as
the Fund, complete access to the Hong Kong financial markets, it
28
has also resulted in the economy of Hong Kong being somewhat more
volatile than the economies of other countries, including the
United States. As with the other financial markets in Hong Kong,
the Hong Kong Stock Exchange ("HSC") is not highly regulated.
While the Securities and Futures Commission was set up by the
Hong Kong government to help regulate the HSC, the lack of
exchange controls in combination with other factors makes the HSC
more volatile than U.S. securities exchanges. Unlike in China
and Taiwan, the HSC treats foreign enterprises virtually the same
as domestic enterprises and there are no restrictions on exchange
of foreign currencies or on the repatriation of profits. Import
and export licenses are easy to obtain. There are no exchange
controls, investment restrictions or dividend withholding taxes.
However, there are no laws in Hong Kong which specifically
protect foreign investors against expropriation. The Hong Kong
stock market may remain volatile compared to U.S. markets,
especially as the market is expected to respond both favorably
and unfavorably to changing perceptions of political developments
in China.
Sovereignty over Hong Kong will be transferred from Great
Britain to China on July 1, 1997, at which time Hong Kong will
become a Special Administrative Region ("SAR") of China. Under
the agreement providing for such transfer and the Chinese law
implementing its commitments thereunder (the "Basic Law"), the
current economic and social systems in Hong Kong are to remain
unchanged for at least 50 years, and Hong Kong is to enjoy a high
degree of autonomy, except in foreign and defense affairs. The
SAR will be vested with executive, legislative and judicial
power. Laws currently in force, as they may be amended by the
SAR Legislature, are to remain in force except to the extent they
contravene the Basic Law. China may not levy taxes on the SAR,
the Hong Kong dollar is to remain fully convertible, and Hong
Kong is to remain a free port. Under the terms of the Basic Law,
Hong Kong's current social freedoms, including freedoms of
speech, press, assembly, travel, and religion, are not to be
affected. It is not clear how future developments in Hong Kong
and China may affect the implementation of the Basic Law and the
economy of Hong Kong after the transfer of sovereignty in 1997.
For further information on Hong Kong, see the Statement of
Additional Information.
Taiwan. Taiwan, much like China, has until recently
significantly limited direct foreign investment in its securities
markets. The Taiwan Stock Exchange (the "TSE"), the sole stock
exchange in Taiwan, is owned by government-controlled enterprises
and private banks. The securities market is regulated by the
Taiwan Securities and Exchange Commission (the "TSEC") which, in
turn, is supervised by the Ministry of Finance (the "MOF"). The
Central Bank of China (the "CBC") is also responsible for
supervising certain aspects of the Taiwan securities market.
29
While foreign individual investors have only recently been
permitted to invest directly in securities listed on the TSE,
since 1990 certain foreign institutional investors have been
permitted increasingly greater access to the Taiwanese securities
markets. Currently, foreign institutional investors who meet
certain guidelines promulgated by the TSEC and which are also
approved by the TSEC, the MOF and the CBC, are permitted to
invest in TSE listed securities. These procedures, which can be
burdensome, have kept levels of foreign investments below the
total levels of foreign investment permitted by the Taiwanese
government. [Presently, Taiwanese law limits qualifying foreign
institutional investors (such as the Fund) from owning more than
7.5% of the shares of a company listed on the TSE, and total
foreign ownership of any listed company is limited to 10%].
However, Taiwan is in the process of reducing the bureaucratic
procedures a foreign investor must follow prior to purchasing TSE
listed securities while, at the same time, increasing the limits
on foreign investment in TSE listed securities. For instance, the
TSEC recently raised the combined ceiling on foreign
institutional and private investments from 20% to 25% of total
market value. Alliance believes that over time restrictions on
investments in Taiwan may be relaxed further.
While political reunification of China and Taiwan is a highly
problematic issue that may not be settled in the near future, the
economic interaction between China and Taiwan continues to grow.
Historically, Taiwan's economic interaction with China could take
place only through indirect channels (generally via Hong Kong)
due to the official prohibitions on direct trade between China
and Taiwan. These prohibitions on direct trade are beginning to
be relaxed, as limited direct trade between China and Taiwan has
recently begun. Even with these trade restrictions, Taiwan has
become a significant investor in China and China has become one
of the largest markets for Taiwanese goods. While there can be
no assurance that the political tension between Taiwan and China
will not cause this trend to reverse, it is expected that the
economic interdependence between Taiwan and China will continue
to expand. For further information on Taiwan, see the Statement
of Additional Information.
Currency Considerations. Substantially all of the assets of
the Fund will be invested in securities denominated in foreign
currencies, and a corresponding portion of the Fund's revenues
will be received in such currencies. Therefore, the dollar
equivalent of its net assets and distributions will be adversely
affected by reductions in the value of certain foreign currencies
relative to the U.S. Dollar. Such changes will also affect its
income. The Fund will, however, attempt to protect itself
against adverse changes in the values of foreign currencies by
engaging in certain of the investment practices listed above.
While it has this ability, there is no certainty as to whether
30
and to what extent it will engage in these practices. If the
value of the foreign currencies in which the Fund receives its
income falls relative to the U.S. Dollar between receipt of the
income and the making of Fund distributions, the Fund may be
required to liquidate securities in order to make distributions
if it has insufficient cash in U.S. Dollars to meet distribution
requirements. Similarly, if an exchange rate declines between
the time the Fund incurs expenses in U.S. Dollars and the time
cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S.
Dollars could be greater than the equivalent amount of such
expenses in the currency at the time they were incurred.
Chinese Currency Considerations. Chinese currency, the
Renminbi ("RNB"), is not freely convertible. The exchange rate
of RNB against foreign currencies is regulated and published
daily by the State Administration of Exchange Control ("SAEC").
In 1986, to help solve the foreign exchange problems of foreign
investors, China established Foreign Exchange Adjustment Centers,
commonly referred to as "swap centers," in various cities. These
swap centers provide an official forum where foreign invested
enterprises may, under the supervision and control of SAEC and
its branch offices, engage in mutual adjustment of their foreign
exchange surpluses and shortfalls. More recently, regulations
have been relaxed to allow Chinese state enterprises and
individuals to participate in foreign exchange swap transactions.
Trading of RNB and foreign currencies at the swap centers is
conducted at a rate determined by supply and demand rather than
at the official exchange rate. Such market exchange rates can be
highly volatile and are subject to sharp fluctuations depending
on market conditions.
U.S. and Foreign Taxes. Foreign taxes paid by the Fund may
be creditable or deductible by U.S. shareholders for U.S. income
tax purposes. No assurance can be given that applicable tax laws
and interpretations will not change in the future. Moreover,
non-U.S. investors may not be able to credit or deduct such
foreign taxes. Investors should review carefully the information
discussed under the heading "Dividends, Distributions and Taxes"
and should discuss with their tax advisers the specific tax
consequences of investing in the Fund.
Non-Diversified Status. The Fund is a "non-diversified"
investment company, which means the Fund is not limited in the
proportion of its assets that may be invested in the securities
of a single issuer. However, the Fund intends to conduct its
operations so as to qualify to be taxed as a "regulated
investment company" for purposes of the Code, which will relieve
the Fund of any liability for federal income tax to the extent
its earnings are distributed to shareholders. See "Dividends,
Distributions and Taxes--U.S. Federal Income Taxes" in the Fund's
31
Statement of Additional Information. To so qualify, among other
requirements, the Fund will limit its investments so that, at the
close of each quarter of the taxable year, (i) not more than 25%
of the Fund's total assets will be invested in the securities of
a single issuer, and (ii) with respect to 50% of its total
assets, not more than 5% of its total assets will be invested in
the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer.
The Fund's investments in U.S. Government securities are not
subject to these limitations. Because the Fund, a non-
diversified investment company, may invest in a smaller number of
individual issuers than a diversified investment company, an
investment in the Fund may, under certain circumstances, present
greater risk to an investor than an investment in a diversified
investment company.
Foreign government securities are not treated like U.S.
Government securities for purposes of the diversification tests
described in the preceding paragraph, but instead are subject to
these tests in the same manner as the securities of non-
governmental issuers.
_________________________________________________________________
PURCHASE AND SALE OF SHARES
_________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of the Fund at a price based on
the next calculation of their net asset value after receipt of a
proper purchase order either through broker-dealers, banks or
other financial intermediaries, or directly through Alliance Fund
Distributors, Inc. ("AFD"), the Fund's principal underwriter.
The minimum initial investment in each Fund is $250. The minimum
for subsequent investments in each Fund is $50. Investments of
$25 or more are allowed under the automatic investment program of
each Fund. Share certificates are issued only upon request. See
the Subscription Application and Statement of Additional
Information for more information.
Existing shareholders may make subsequent purchases by
electronic funds transfer if they have completed the Telephone
Transactions section of the Subscription Application or the
Shareholder Options form obtained from Alliance Fund Services,
Inc. ("AFS"), the Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by
calling (800) 221-5672 and may not exceed $500,000.
The Fund offers three classes of shares through this
prospectus, Class A, Class B and Class C. The Fund may refuse
any order to purchase shares. In this regard, the Fund reserves
32
the right to restrict purchases of Fund shares (including through
exchanges) when they appear to evidence a pattern of frequent
purchases and sales made in response to short-term considerations
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus
an initial sales charge, as follows:
Initial Sales Charge
Commission to
as % of Dealer/Agent
Net Amount as % of as % of
Amount Purchased Invested Offering Price Offering Price
Less than $100,000 4.44% 4.25% 4.00%
$100,000
less than $250,000 3.36 3.25 3.00
$250,000 to
less than $500,000 2.30 2.25 2.00
$500,000 to
less than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales
charge but may pay a contingent deferred sales charge ("CDSC")
equal to 1% of the lesser of net asset value at the time of
redemption or original cost if you redeem within one year;
Alliance may pay the dealer or agent a fee of up to 1% of the
dollar amount purchased. Certain purchases of Class A shares may
qualify for reduced or eliminated sales charges in accordance
with the Fund's Combined Purchase Privilege, Cumulative Quantity
Discount, Statement of Intention, Privilege for Certain
Retirement Plans, Reinstatement Privilege and Sales at Net Asset
Value programs. Consult the Subscription Application and
Statement of Additional Information.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an
initial sales charge. However, you may pay a CDSC if you redeem
shares within four years after purchase. The amount of the CDSC
(expressed as a percentage of the lesser of the current net asset
value or original cost) will vary according to the number of
years from the purchase of Class B shares until the redemption of
those shares.
The amount of the CDSC for the Fund is as set forth below.
33
Year Since Purchase CDSC
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth NONE
Class B shares are subject to higher distribution fees than
Class A shares for a period (after which they convert to Class A
shares) of eight years. The higher fees mean a higher expense
ratio, so Class B shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares without any initial sales
charge. The Fund will thus receive the full amount of your
purchase, and, if you hold your shares for one year or more, you
will receive the entire net asset value of your shares upon
redemption. Class C shares incur higher distribution fees than
Class A shares and do not convert to any other class of shares of
the Fund. The higher fees mean a higher expense ratio, so Class
C shares pay correspondingly lower dividends and may have a lower
net asset value than Class A shares.
Class C shares redeemed within one year of purchase will be
subject to a CDSC equal to 1% of the lesser of their original
cost or net asset value at the t i me of redemption.
Application of the CDSC
Shares obtained from dividend or distribution reinvestment
are not subject to the CDSC. The CDSC is deducted from the
amount of the redemption and is paid to AFD. The CDSC will be
waived on redemptions of shares following the death or disability
of a shareholder, to meet the requirements of certain qualified
retirement plans or pursuant to a monthly, bimonthly or quarterly
systematic withdrawal plan. See the Statement of Additional
Information.
How the Fund Values its Shares
The net asset value of each Class of shares of the Fund is
calculated by dividing the value of the Fund's net assets
allocable to that Class by the outstanding shares of that Class.
Shares are valued each day the New York Stock Exchange (the
"Exchange") is open as of the close of regular trading (currently
4:00 p.m. Eastern time). The securities in the Fund are valued
at their current market value determined on the basis of market
quotations or, if such quotations are not readily available, such
34
other methods as the Fund's Directors believe would accurately
reflect fair market value.
General
The decision as to which Class of shares is more beneficial
to you depends on the amount and intended length of your
investment. If you are unsure of the length of your investment,
you might consider Class C shares because there is no initial
sales charge and no CDSC as long as the shares are held for one
year or more. Consult your financial agent. Dealers and agents
may receive differing compensation for selling Class A, Class B
or Class C shares. There is no size limit on purchases of
Class A shares. The maximum purchase of Class B shares is
$250,000. The maximum purchase of Class C shares is $1,000,000.
The Fund offers a fourth class of shares, Advisor Class
shares, by means of separate prospectus. Advisor Class shares
may be purchased and held solely by (i) accounts established
under a fee-based program sponsored and maintained by a
registered broker-dealer or other financial intermediary and
approved by AFD, (ii) a self-directed defined contribution
employee benefit plan (e.g., a 401(k) plan) that has at least
1,000 participants or $25 million in assets and (iii) certain
other categories of investors described in the prospectus for the
Advisor Class, including investment advisory clients of, and
certain other persons associated with, Alliance and its
affiliates or the Fund. Advisor Class shares are offered without
any initial sales charge or CDSC and without an ongoing
distribution fee and are expected, therefore, to have different
performance than Class A, Class B or Class C shares. You may
obtain more information about Advisor Class shares by contacting
AFS at 800-221-5672 or by contacting your financial
representative.
In addition to the discount or commission paid to dealers or
agents, AFD from time to time pays additional cash or other
incentives to dealers or agents, including EQ Financial
Consultants, Inc., an affiliate of AFD, in connection with the
sale of shares of the Fund. Such additional amounts may be
utilized, in whole or in part, in some cases together with other
revenues of such dealers or agents, to provide additional
compensation to registered representatives who sell shares of the
Fund. On some occasions, such 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 during
a specific period of time. Such incentives may take the form of
payment for attendance at seminars, meals sporting events or
theater performances, or payment: for travel, lodging and
entertainment incurred in connection with travel by persons
associated with a dealer or agent and their immediate family
35
members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in the Fund to the
Fund on any day the Exchange is open, either directly or through
your financial intermediary. The price you will receive is the
net asset value (less, any applicable CDSC) next calculated after
the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer,
the Fund will not send proceeds until it is reasonably satisfied
that the check or electronic funds transfer has been collected
(which may take up to 15 days).
Selling Shares Through Your Broker
Your broker must receive your request before 4:00 p.m.
Eastern time, and your broker must transmit your request to the
Fund by 5:00 p.m. Eastern time, for you to receive that days net
asset value (less any applicable CDSC). Your broker is
responsible for furnishing all necessary documentation to the
Fund and may charge you for this service.
Selling Shares Directly To The Fund
Send a signed letter of instruction or stock power form to
AFS along with certificates, if any, that represent the shares
you want to sell. For your protection, signatures must be
guaranteed by a bank, a member firm of a national stock exchange
or other eligible guarantor institution. Stock power forms are
available from your financial intermediary, AFS, and many
commercial banks. Additional documentation is required for the
sale of shares by corporations, intermediaries, fiduciaries and
surviving joint owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
Alternatively, a request for redemption of shares for which
no stock certificates have been issued can also be made by
telephone to 800-221-5672. Telephone redemption requests must be
made by 4 p.m. Eastern time on the Fund business day in order to
receive that day's net asset value, and, except for certain
omnibus accounts, may be made only once in any 30-day period. A
shareholder who has completed the Telephone Transactions section
of the Subscription Application, or the Shareholder Options form
36
obtained from AFS, can elect to have the proceeds of his or her
redemption sent to his or her bank via an electronic funds
transfer. Proceeds of telephone redemptions also may be sent by
check to a shareholder's address of record. Redemption requests
by electronic funds transfer may not exceed $100,000 and
redemption requests by check may not exceed $50,000. Telephone
redemption is not available for shares held in nominee or "street
name" accounts or retirement plan accounts or shares held by a
shareholder who has changed his or her address of record within
the previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal tax
purposes. Under unusual circumstances, the Fund may suspend
redemptions or postpone payment for up to seven days or longer,
as permitted by federal securities law. The Fund reserves the
right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days'
written notice to increase the account value before the account
is closed.
During drastic economic or market developments, you might
have difficulty reaching AFS by telephone, in which event you
should issue written instructions to AFS. AFS is not responsible
for the authenticity of telephonic requests to purchase, sell or
exchange shares. AFS will employ reasonable procedures to verify
that telephone requests are genuine, and could be liable for
losses resulting from unauthorized transactions if it failed to
do so. Dealers and agents may charge a commission for handling
telephonic requests. The telephone service may be suspended or
terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more
information about these services or your account, call AFS's
toll-free number, 800-221-5672. Some services are described in
the attached application. A shareholder's manual explaining all
available services will be provided upon request. To request a
shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of the Fund for shares of the
same class of other Alliance Mutual Funds (including AFD Exchange
Reserves, a money market fund managed by Alliance). Exchanges of
shares are made at the net asset values next determined, without
sales or service charges. Exchanges may be made by telephone or
written request. Telephone exchange requests must be received by
37
AFS by 4:00 p.m. Eastern time on the 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 purposes of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the Prospectus of the mutual fund into
which you are exchanging before submitting the request. Call AFS
at 800-221-5672 to exchange uncertificated shares. An exchange
is a taxable capital transaction for federal tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days' written notice.
GENERAL
A transaction, service, administrative or other similar fee
may be charged by your broker-dealer, agent, financial
intermediary or other financial representative with respect to
the purchase, sale or exchange of Class A, Class B or Class C
shares made through such financial representative. Such
financial intermediaries may also impose requirements with
respect to the purchase, sale or exchange of shares that are
different from, or in addition to, those imposed by the Fund,
including requirements as to the minimum initial and subsequent
investment amounts.
_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
ADVISER
Alliance, which is a Delaware limited partnership with
principal offices at 1345 Avenue of the Americas, New York, New
York 10105, has been retained under an advisory agreement (the
"Advisory Agreement") to provide investment advice and, in
general, to conduct the management and investment program of the
Fund, subject to the general supervision and control of the
Directors of the Fund.
Alliance is a leading international investment manager
supervising client accounts with assets as of March 31, 1997 of
more than $182 billion (of which more than $63 billion
represented the assets of investment companies). Alliance's
38
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundations and endowment funds. The 53 registered investment
companies managed by Alliance comprising more than 111 separate
investment portfolios currently have over one million
shareholders. As of December 31, 1997 Alliance was an investment
manager of employee benefit fund assets for 34 of the Fortune 100
companies.
Alliance Capital Management Corporation ("ACMC"), the
sole general partner of, and the owner of a 1% general
partnership interest in, Alliance, is an indirect wholly-owned
subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States, which is a wholly-owned subsidiary of The
Equitable Companies Incorporated, a holding company controlled by
AXA, a French insurance holding company. Certain information
concerning the ownership and control of Equitable by AXA is set
forth in the Fund's Statement of Additional Information under
"Management of the Fund."
Under the Advisory Agreement, the Fund pays Alliance a
fee at the annual rate of 1.00% of the Fund's average daily net
assets. The fee is higher than the management fees paid by most
U.S. registered investment companies, although Alliance believes
the fee is generally comparable to the management fees paid by
other open-end registered investment companies that invest in
securities similar to the Fund. The fee is accrued daily and
paid monthly.
The person primarily responsible for the day-to-day
management of the Fund's portfolio since inception is A. Rama
Krishna. Mr. Krishna is a Senior Vice President of ACMC and a
director of Asian Equity research. He has been associated with
Alliance since 1993. Prior thereto he was Chief Investment
Strategist and Director Equity Research for CS First Boston.
CONSULTANT TO THE ADVISER
In connection with its provision of advisory services to
the Fund, Alliance has retained at its expense as a consultant
New-Alliance Asset Management (Asia) Limited ("New Alliance"), a
joint venture company headquartered in Hong Kong formed in 1997
by Alliance and Sun Hung Kai Properties Limited ("SHKP"). New
Alliance is to provide to Alliance such statistical and factual
research and assistance with respect to economic, financial,
political, technological and social conditions and trends in
Greater China countries, including information on markets and
industries, as Alliance shall from time to time request. In
addition to its own staff of professionals, New-Alliance has
access to the expertise and personnel of SHKP, one of Hong Kong's
39
largest property developers for both the residential and
commercial sectors, where developments include office and
industrial properties, hotels and shopping centers, and selected
projects in China. SHKP is one of the largest enterprises in
Hong Kong measured by its market capitalization. Its activities
complementary to property development include insurance and
estate management, and SHKP is diversified as well into
telecommunications and infrastructure projects. New-Alliance
will not furnish investment advice or make recommendations
regarding the purchase or sale of securities by the Fund nor will
it be responsible for making investment decisions involving Fund
assets.
EXPENSES OF THE FUND
In addition to the payments to Alliance under the
Advisory Agreement described above, the Fund pays certain other
costs, including (i) custody, transfer and dividend disbursing
expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses, (iv) clerical,
accounting and other office costs, (v) costs of printing the
Fund's prospectuses and shareholder reports, (vi) costs of
maintaining the Fund's existence, (vii) interest charges, taxes,
brokerage fees and commissions, (viii) costs of stationery and
supplies, (ix) expenses and fees related to registration and
filing with the Commission and with state regulatory authorities,
(x) upon the approval of the Board of Directors, costs of
personnel of Alliance or its affiliates rendering clerical,
accounting and other office services and (xi) such promotional,
shareholder servicing and other expenses as may be contemplated
by the Distribution Services Agreement, described below.
DISTRIBUTION SERVICES AGREEMENT
Rule 12b-1 adopted by the Commission under the 1940 Act
permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a duly adopted
plan. The Fund has adopted a "Rule 12b-1 plan" (the "Plan") and
has entered into a Distribution Services Agreement (the
"Agreement") with AFD. Pursuant to the Plan, the Fund pays to
AFD a Rule 12b-1 distribution services fee, which may not exceed
an annual rate of .30% of the Fund's aggregate average daily net
assets attributable to the Class A shares, 1.00% of the Fund's
aggregate average daily net assets attributable to the Class B
shares and 1.00% of the Fund's aggregate average daily net assets
attributable to the Class C shares, for distribution expenses.
The Plan provides that a portion of the distribution services fee
in an amount not to exceed .25% of the aggregate average daily
net assets of the Fund attributable to each of Class A, Class B
and Class C shares constitutes a service fee used for personal
service and/or the maintenance of shareholder accounts.
40
The Plan provides that AFD will use the distribution
services fee received from the Fund in its entirety for payments
(i) to compensate broker-dealers or other persons for providing
distribution assistance, (ii) to otherwise promote the sale of
shares of the Fund, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for
providing administrative, accounting and other services with
respect to the Fund's shareholders. In this regard, some
payments under the Plan are used to compensate financial
intermediaries with trail or maintenance commissions in an amount
equal to .25%, annualized, with respect to Class A shares and
Class B shares, and 1.00%, annualized, with respect to Class C
shares, of the assets maintained in the Fund by their customers.
Distribution services fees received from the Fund with respect to
Class A shares will not be used to pay any interest expenses,
carrying charges or other financing costs or allocation of
overhead of AFD. Distribution services fees received from the
Fund with respect to Class B and Class C shares may be used for
these purposes. The Plan also provides that Alliance may use its
own resources to finance the distribution of the Fund's shares.
The Fund is not obligated under the Plan to pay any
distribution services fee in excess of the amounts set forth
above. 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 Plan is directly tied to the expenses
incurred by AFD. Actual distribution expenses for such Class B
and Class C shares for any given year, however, will probably
exceed the distribution services fees payable under the Plan and
payments received from CDSCs. The excess will be carried forward
by AFD and reimbursed from distribution services fees payable
under the Plan and payments subsequently received through CDSCs,
so long as the Plan and the Agreement are in effect.
The 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.
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
41
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. The State of Texas requires that
shares of the Fund may be sold in that state only by dealers or
other financial institutions that are registered there as broker-
dealers.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
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
such dividend or distribution. Thereafter, unless you otherwise
specify, you will be deemed to have elected to reinvest all
subsequent dividends and distributions in shares of the Fund.
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 in additional
shares of the Fund having an aggregate net asset value as of the
payment date of such dividend or distribution equal to the cash
amount of such income dividend or distribution. Election to
receive income dividends and distributions in cash or shares is
made at the time 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 and Class C shares will be calculated in the same manner
at the same time on the same day and will be in the same amount,
except that the higher distribution services fees applicable to
Class B and C shares and any incremental transfer agency costs
relating to Class B shares, will be borne exclusively by the
class to which they relate.
While it is the intention of 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
42
time of any such dividend or distribution must necessarily depend
upon the realization by the Fund of income and capital gains from
investments. There is no fixed dividend rate, and there can be
no assurance that the Fund will pay any dividends or realize any
capital gains.
If you buy shares just before the Fund deducts a
distribution from its net asset value, you will pay the full
price for the shares and then receive a portion of the price back
as a taxable distribution.
Foreign Income Taxes
Investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes
withheld at the source. To the extent that the Fund is liable
for 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
for foreign income taxes paid, but there can be no assurance that
the Fund will be able to do so.
U.S. Federal Income Taxes
The Fund intends to qualify to be taxed as a "regulated
investment company" under the Code. To the extent that the Fund
distributes its taxable income and net capital gain to its
shareholders, qualification as a regulated investment company
relieves the Fund of federal income and excise taxes on that part
of its taxable income including net capital gains which it pays
out to its shareholders. Dividends out of net ordinary income
and distributions of net short-term capital gains are taxable to
the recipient shareholders as ordinary income. In the case of
corporate shareholders, such dividends may be eligible for the
dividends-received deduction, except that the amount eligible for
the deduction is limited to the amount of qualifying dividends
received by the Fund. A corporation's dividends-received
deduction will be disallowed unless the corporation holds shares
in the Fund at least 46 days. Furthermore, the dividends-
received deduction will be disallowed to the extent a
corporation's investment in shares of the Fund is financed with
indebtedness.
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by the Fund to
its shareholders as capital gains distributions is taxable to the
shareholders as long-term capital gains, irrespective of the
length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above.
43
Any dividend or distribution received by a shareholder
on shares of the Fund will have the effect of reducing the net
asset value of such shares by the amount of such dividend or
distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular
shareholder, would be taxable to him or her as described above.
If a shareholder held shares six months or less and during that
period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term capital
loss to the extent of such distribution.
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, 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.
Distributions by the Fund may be subject to state and
local taxes.
The Fund will be required to withhold 31% of any
payments made to a shareholder if the shareholder has not
provided a certified taxpayer identification number to the Fund,
or the Secretary of the Treasury notifies the Fund that a
shareholder has not reported all interest and dividend income
required to be shown on the shareholder's federal income tax
return.
Under certain circumstances, if the Fund realizes losses
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. See "Dividends,
Distributions and Taxes" in the Statement of Additional
Information. Shareholders will be advised annually as to the
federal tax status of income dividends and capital gain and
return of capital distributions made by the Fund for the
preceding year. Distributions by the Fund may be subject to
state and local taxes. Shareholders are urged to consult their
tax advisers regarding their own tax situation.
44
__________________________________________________________________
GENERAL INFORMATION
__________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Fund may consider sales of its
shares as a factor in the selection of dealers to enter into
portfolio transactions with the Fund.
ORGANIZATION
Alliance Greater China '97 Fund, Inc. is a Maryland
corporation organized on April 30, 1997. It is anticipated that
annual shareholder meetings will not be held; shareholder
meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of
Directors.
A shareholder in the Fund will be entitled to his or her
share pro rata with other holders of the same class of shares of
all dividends and distributions arising from the Fund's assets
and, upon redeeming shares, will receive the then current net
asset value of the Fund represented by the redeemed shares less
any applicable CDSC. The Fund is empowered to establish, without
shareholder approval, additional portfolios, which may have
different investment objectives, and additional classes of
shares. If an additional portfolio or class were established in
the Fund, each share of the portfolio or class would normally be
entitled to one vote for all purposes. Generally, shares of each
portfolio and class would vote as a single series or class on
matters, such as the election of Directors, that affect each
portfolio or class in substantially the same manner. Class A,
Class B, Class C and Advisor Class shares have identical voting,
dividend, liquidation and other rights, except that each class
bears its own transfer agency expenses, each of Class A, Class B
and Class C shares bears its own distribution expenses, Class B
shares convert to Class A shares after eight years and Advisor
Class shares convert to Class A shares under certain
circumstances. Each class of shares 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 its Statement of Additional Information.
45
REGISTRAR, TRANSFER AGENT AND
DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance,
located at 500 Plaza Drive, Secaucus, New Jersey 07094, acts as
the Fund's registrar, transfer agent and dividend-disbursing
agent for a fee based upon the number of shareholder accounts
maintained for the Fund. The transfer agency fee with respect to
the Class B shares will be higher than the transfer agency fee
with respect to the Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance,
located at 1345 Avenue of the Americas, New York, New York 10105,
is the principal underwriter of shares of the Fund.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return,
which is computed separately for Class A, Class B and Class C
shares. Such advertisements disclose the Fund's average annual
compounded total return for the periods prescribed by the
Commission. The Fund's total return for each such period is
computed by finding, through the use of a formula prescribed by
the Commission, the average annual compounded rate of return over
the period that would equate an assumed initial amount invested
to the value of the investment at the end of the period. For
purposes of computing total return, income, dividends and capital
gains distributions paid on shares of the Fund are assumed to
have been reinvested when paid and the maximum sales charges
applicable to purchases and redemptions of the Fund's shares are
assumed to have been paid. The Fund's advertisements may quote
performance rankings or ratings of the Fund by financial
publications or independent organizations such as Lipper
Analytical Services, Inc. and Morningstar, Inc. or compare the
Fund's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do
not contain all the information set forth in the Registration
Statement filed by the Fund with the Commission under the
Securities Act. Copies of the Registration Statement may be
obtained at a reasonable charge from the Commission or may be
examined, without charge, at the offices of the Commission in
Washington, D.C.
46
This prospectus does not constitute an offering in any state in
which such offering may not lawfully be made.
Alliance Greater China '97 Fund
Goal: Long-term capital appreciation
through investment principally in
equity securities of Greater
China companies
Prospectus and Application
[ ], 1997
47
(LOGO) ALLIANCE GREATER CHINA '97 FUND, 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
[ ], 1997
____________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the current Prospectus for Alliance All-Asia Investment Fund,
Inc. (the "Fund") that offers the Class A, Class B and Class C
shares of the Fund and the current Prospectus for the Fund that
offers the Advisor Class shares of the Fund (the "Advisor Class
Prospectus" and, together with the Prospectus for the Fund 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
"Literature" telephone number shown above.
TABLE OF CONTENTS
Page
Description of the Fund
Management of the Fund
Expenses of the Fund
Purchase of Shares
Redemption and Repurchase of Shares
Shareholder Services
Net Asset Value
Dividends, Distributions and Taxes
Brokerage and Portfolio Transactions
General Information
Appendix A: Options A-1
Appendix B: Futures Contracts, Options
on Futures Contracts and
Options on Foreign Currencies B-1
Appendix C: Additional Information About China,
Hong Kong and Taiwan C-1
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
____________________________________________________________
DESCRIPTION OF THE FUND
____________________________________________________________
Except as otherwise indicated, the investment policies
of Alliance Greater China '97 Fund, Inc. (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
objective is fundamental and may not be changed without
shareholder approval. There can be, of course, no assurance that
the Fund will achieve its investment objective.
Investment Objective
The Fund is a non-diversified, open-end management
investment company whose investment objective is to seek long-
term capital appreciation. In seeking to achieve its investment
objective, the Fund will invest at least 80% of its total assets
in equity securities issued by Greater China companies. The Fund
may invest up to 20% of its total assets in (i) debt securities
issued or guaranteed by Greater China companies or by Greater
China governments, their agencies or instrumentalities, and
(ii) equity or debt securities issued by issuers other than
Greater China companies. The Fund will not invest in debt
securities rated below investment grade. Should a debt security
in which the Fund is invested be downgraded below investment
grade or be determined by Alliance to have undergone a similar
credit quality deterioration, the Fund will dispose of that
security. The Fund expects to invest a significant portion,
which may be greater than 50% of its assets in equity securities
of Hong Kong companies and] may invest, from time to time, all of
its assets in companies of Hong Kong or either of the other
Greater China countries.
The Fund defines Greater China company to be an entity
that (i) is organized under the laws of a Greater China country
and conducts business in a Greater China country, (ii) derives
50% or more of its total revenues from business in Greater China
countries, or (iii) issues equity or debt securities that are
traded principally on a stock exchange in a Greater China
country. A company of a particular Greater China country is a
company that meets any of these criteria with respect to that
country.
For purposes of this Statement of Additional Information, Greater
China countries are the People's Republic of China (China), Hong
Kong and the Republic of China (Taiwan).
2
How The Fund Pursues Its Objective
Investment in Greater China Countries. In recent years,
China, Hong Kong and Taiwan have experienced high levels of real
economic growth. A particularly significant factor has been the
increasing influence which China has had in the economic
development of the region. Economic links among the three
countries have strengthened and developed to a significant
degree. Hong Kong's economic and political integration with
China following the transfer of sovereignty of Hong Kong from
Great Britain to China on July 1, 1997 may very well intensify
this trend.
China, with a population estimated at over 1.2 billion,
has been increasingly opening its economy to foreign investment,
notwithstanding its history of tight restrictions on trade and
centralized control. While China has had huge increases in
industrial production, the share of state sector industrial
output has shrunk significantly over the past two decades, and
the dynamism of China's economy now comes from the private,
foreign-invested and "collective" sectors. This has been coupled
with a demand-side combination of rapid growth in personal
consumption and high rates of fixed investment. Furthermore,
China has a more developed securities market. China's two
officially recognized securities exchanges, the Shanghai Stock
Exchange and the Shenzen Stock Exchange, are highly automated
with trading and settlement executed electronically. Companies
listed on the exchanges are subject to relatively strict
disclosure requirements, liquidity requirements and audits in
accordance with international accounting guidelines.
Hong Kong is China's largest trade partner and leading
outside investor, as well as a world financial center in its own
right. Hong Kong is considered to be the gateway to trade with
and investment in China, and a significant portion of Hong Kong's
investments in China are believed to be attributable to Hong
Kong-based subsidiaries of foreign multi-national companies. The
Basic Law, which embodies the Chinese implementation of the
agreement transferring Hong Kong sovereignty, calls for the
economic and social systems of Hong Kong to remain unchanged for
at least 50 years, and Hong Kong is to have a high degree of
autonomy except in foreign and defense matters.
In recent years, Taiwan has become an important investor
in China and China has become a significant market for Taiwanese
goods, despite, at times, extreme political tension between the
two countries. Currently, economic interaction between Taiwan
and China takes place through indirect channels (usually via Hong
Kong) due to official prohibitions on direct trade between the
two countries. The Taiwanese securities markets are relatively
well regulated, and have recently begun to open to foreign
3
institutional investors, although institutional investors are
still subject to certain investment restrictions.
The economies of Hong Kong and Taiwan have benefited
from China's economic liberalization. The interaction among
China and Hong Kong and Taiwan is expected to continue to
intensify, increasing investment opportunities in the region.
The Fund will invest in companies believed to possess
rapid growth potential. Thus, the Fund will invest in smaller,
emerging companies, but will also invest in larger, more
established companies in such growing economic sectors as capital
goods, telecommunications and consumer services.
Additional Investment Policies and Practices
Except as otherwise noted, the Fund's investment
policies described below are not designated "fundamental
policies" within the meaning of the Investment Company Act of
1940, as amended (the "1940 Act") and, therefore, may be changed
by the Directors of the Fund without a shareholder vote. However,
the Fund will not change its investment policies without
contemporaneous written notice to shareholders. All or some of
the policies described below may not be available to the Fund in
one or more of the Greater China countries, and the Fund will
utilize these policies only to the extent permissible.
Rights and Warrants. The Fund may invest up to 20% of
its total assets in rights or warrants which entitle the holder
to buy equity securities at a specific price for a specific
period of time, but will do so only if the equity securities
themselves are deemed appropriate by the Adviser for inclusion in
the Fund's portfolio. Rights and warrants may be considered more
speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with
respect to the securities which may be purchased nor do they
represent any rights in the assets of the issuing company. Also,
the value of a right or warrant does not necessarily change with
the value of the underlying securities and a right or warrant
ceases to have value if it is not exercised prior to the
expiration date.
Convertible Securities. The Fund may invest up to 25%
of its total assets in convertible securities of issuers whose
common stocks are eligible for purchase by the Fund under the
investment policies described above. Convertible securities
include bonds, debentures, corporate notes and preferred stocks.
Convertible securities are such instruments that are convertible
at a stated exchange rate into common stock. Prior to their
conversion, convertible securities have the same general
characteristics as non-convertible securities which provide a
4
stable stream of income with generally higher yields than those
of equity securities of the same or similar issuers. The market
value of convertible securities tends to decline as interest
rates increase and, conversely, to increase as interest rates
decline. While convertible securities generally offer lower
interest yields than non-convertible debt securities of similar
quality, they do enable the investor to benefit from increases in
the market price of the underlying common stock.
When the market price of the common stock underlying a
convertible security increases, the price of the convertible
security increasingly reflects the value of the underlying common
stock and may rise accordingly. As the market price of the
underlying common stock declines, the convertible security tends
to trade increasingly on a yield basis, and thus may not
depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an
issuer's capital structure. They are consequently of higher
quality and entail less risk than the issuer's common stock,
although the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security
sells above its value as a fixed income security.
Depositary Receipts and Securities of Supranational
Entities. The Fund may invest in depositary receipts, securities
of supranational entities denominated in the currency of any
country, securities of multinational companies and "semi-
governmental securities". Depositary receipts may not
necessarily be denominated in the same currency as the underlying
securities into which they may be converted. In addition, the
issuers of the stock of unsponsored depositary receipts are not
obligated to disclose material information in the United States
and, therefore, there may not be a correlation between such
information and the market value of the depositary receipts.
ADRs are depositary receipts typically issued by a U.S. bank or
trust company that evidence ownership of underlying securities
issued by a foreign corporation. GDRs and other types of
depositary receipts are typically issued by foreign banks or
trust companies and evidence ownership of underlying securities
issued by either a foreign or a U.S. company. Generally,
depositary receipts in registered form are designed for use in
the U.S. securities markets and depositary receipts in bearer
form are designed for use in foreign securities markets. The
investments of the Fund in depositary receipts are deemed to be
investments in the underlying securities.
A supranational entity is an entity designated or
supported by the national government of one or more countries to
promote economic reconstruction or development. Examples of
supranational entities include, among others, the World Bank
(International Bank for Reconstruction and Development) and the
5
European Investment Bank. "Semi-governmental securities," are
securities issued by entities owned by either a national, state
or equivalent government or are obligations of one of such
government jurisdictions which are not backed by its full faith
and credit and general taxing powers.
Equity-Linked Debt Securities. The Fund may, with the
objective of realizing capital appreciation, invest up to 25% of
its net assets in equity-linked debt securities. Equity-linked
debt securities are securities with respect to which the amount
of interest and/or principal that the issuer thereof is obligated
to pay is linked to the performance of a specified index of
equity securities. Such amount may be significantly greater or
less than payment obligations in respect of other types of debt
securities. Adverse changes in equity securities indices and
other adverse changes in the securities markets may reduce
payments made under, and/or the principal of, equity-linked debt
securities held by the Fund. Furthermore, as with any debt
securities, the values of equity-linked debt securities will
generally vary inversely with changes in interest rates. The
Fund's ability to dispose of equity-linked debt securities will
depend on the availability of liquid markets for such securities.
Investment in equity-linked debt securities may be considered to
be speculative. As with other securities, the Fund could lose
its entire investment in equity-linked debt securities.
Loans and other Direct Debt Instruments. The Fund may
invest up to 25% of its net assets in loans and other direct debt
instruments. Loans and other direct debt instruments are
interests in amounts owed by a corporate, governmental or other
borrower to another party. They may represent amounts owed to
lenders or lending syndicates (loans and loan participations), to
suppliers of goods or services (trade claims or other
receivables), or to other creditors. Direct debt instruments
involve the risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to the Fund in the
event of fraud or misrepresentation than debt securities. In
addition, loan participations involve a risk of insolvency of the
lending bank or other financial intermediary. Direct debt
instruments may also include standby financing commitments that
obligate the Fund to supply additional cash to the borrower on
demand. Loans and other direct debt instruments are generally
illiquid and may be transferred only through individually
negotiated private transactions.
Purchasers of loans and other forms of direct
indebtedness depend primarily upon the creditworthiness of the
borrower for payment of principal and interest. Direct debt
instruments may not be rated by any nationally recognized rating
service. If the Fund does not receive scheduled interest or
principal payments on such indebtedness, the Fund's share price
6
and yield could be adversely affected. Loans that are fully
secured offer the Fund more protection than unsecured loans in
the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral
from a secured loan would satisfy the borrower's obligation, or
that the collateral can be liquidated. Indebtedness of borrowers
whose creditworthiness is poor may involve substantial risks, and
may be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of
Asian countries will also involve a risk that the governmental
entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a
financial institution's interests with respect to a loan may
involve additional risks to the Fund. For example, if a loan is
foreclosed, the Fund could become part owner of any collateral,
and would bear the costs and liabilities associated with owning
and disposing of the collateral. Direct debt instruments may also
involve a risk of insolvency of the lending bank or other
intermediary.
A loan is often administered by a bank or other
financial institution that acts as agent for all holders. The
agent administers the terms of the loan, as specified on the loan
agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower,
it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the
benefit of the Fund were determined to be subject to the claims
of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan
participation and could suffer a loss of principal or interest.
Direct indebtedness purchased by the Fund may include
letters of credit, revolving credit facilities, or other standby
financing commitments obligating the Fund to pay additional cash
on demand. These commitments may have the effect of requiring
the Fund to increase its investment in a borrower at a time when
it would not otherwise have done so, even if the borrower's
condition makes it unlikely that the amount will ever be repaid.
The Fund will set aside appropriate liquid assets in a segregated
custodial account to cover its potential obligations under
standby financing commitments.
The Fund will not invest in lower-rated loans and other
lower-rated direct debt instruments.
Interest Rate Transactions. The Fund may enter into
interest rate swaps and may purchase or sell interest rate caps
7
and floors. The use of interest rate swaps is a highly
specialized activity which involves investment techniques and
risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its
forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish
compared with what it would have been if these investment
techniques were not used. Moreover, even if the Adviser is
correct in its forecasts, there is a risk that the swap position
may correlate imperfectly with the price of the asset or
liability being hedged.
There is no limit on the amount of interest rate swap
transactions that may be entered into by the Fund. These
transactions do not involve the delivery of securities or other
underlying assets of principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount
of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the
Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive. The
Fund may purchase and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement
described in the Prospectus under "Description of the Fund -
Additional Investment Policies and Practices - Interest Rate
Transactions."
Options. The Fund may write covered put and call
options and purchase put and call options on securities of the
types in which it is permitted to invest that are traded on U.S.
and foreign securities exchanges and over-the-counter, including
options on market indices. The Fund will only write "covered"
put and call options, unless such options are written for cross-
hedging purposes. There are no specific limitations on the
Fund's writing and purchasing of options.
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
8
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 its 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 its custodian, or else holds a put on the same
security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The premium paid by
the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the
option, supply and demand and interest rates. 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 but seeks to provide a hedge
against a decline in value in another security which the Fund
owns or has the right to acquire. In such circumstances, the Fund
collateralizes its obligation under the option by maintaining in
a segregated account with the Fund's custodian 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 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.
9
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
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. The risk
involved in writing a call option is that there could be an
increase in the market value of the underlying security caused by
declining interest rates or other factors. If this occurred, the
option could be exercised and the underlying security would then
be sold by the Fund at a lower price than its current market
value. These risks could be reduced by entering into a closing
transaction prior to the option expiration dates if a liquid
market is available. The Fund retains the premium received from
writing a put or call option whether or not the option is
exercised. For additional information on the use, risk and costs
of options, see Appendix A.
The Fund may purchase or write options on securities of
the types in which it is permitted to invest in privately
negotiated (i.e., over-the-counter) transactions. The Fund will
effect such transactions only with investment dealers and other
financial institutions (such as commercial banks or savings and
loan institutions) deemed creditworthy by the Adviser, and the
Adviser has adopted procedures for monitoring the
creditworthiness of such entities. Options purchased or written
by the Fund in negotiated transactions are illiquid and it may
not be possible for the Fund to effect a closing transaction at a
time when the Adviser believes it would be advantageous to do so.
See "Illiquid Securities."
Options on Market Indices. An option on a securities
index is similar to an option on a security except that, rather
than the right to take or make delivery of a security at a
specified price, an option on a securities index gives the holder
the right to receive, upon exercises of the option, an amount of
cash if the closing level of the chosen index is greater than (in
the case of a call) or less than (in the case of a put) the
exercise price of the option. There are no specific limitations
on the Fund's purchasing and selling of options on securities
indices.
Futures Contracts and Options on Futures Contracts. The
Fund may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including any index of U.S.
Government Securities, securities issued by foreign government
10
entities, or common stocks ("futures contracts") and may purchase
and write put and call options to buy or sell futures contracts
("options on futures contracts"). A "sale" of a futures contract
means the acquisition of a contractual obligation to deliver the
securities or foreign currencies called for by the contract at a
specified price on a specified date. A "purchase" of a futures
contract means the incurring of a contractual obligation to
acquire the securities or foreign currencies called for by the
contract at a specified price on a specified date. The purchaser
of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified
dollar multiple of the value of the index on the expiration date
of the contract ("current contract value") and the price at which
the contract was originally struck. No physical delivery of the
securities underlying the index is made.
Options on futures contracts written or purchased by the
Fund will be traded on U.S. or foreign exchanges or over-the-
counter. These investment techniques will be used only to hedge
against anticipated future changes in market conditions and
interest or exchange rates which otherwise might either adversely
affect the value of the Fund's portfolio securities or adversely
affect the prices of securities which the Fund intends to
purchase at a later date.
The Fund will not enter into any futures contracts or
options on futures contracts if immediately thereafter the
aggregate of the market value of the outstanding futures
contracts of the Fund and the market value of the currencies and
futures contracts subject to outstanding options written by the
Fund would exceed 50% of the market value of the total assets of
the Fund.
The successful use of such instruments 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 and currency exchange rate movements
correctly. Should interest or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts or options on futures contracts or
may realize losses and thus will be in a worse position than if
such strategies had not been used. In addition, the correlation
between movements in the price of futures contracts or options on
futures contracts and movements in the price of the securities
and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses. The Fund's Custodian will
place liquid assets in a segregated account of the Fund having a
value equal to the aggregate amount of the Fund's commitments
under futures contracts.
11
For additional information on the use, risks and costs
of futures contracts and options on futures contracts, see
Appendix B.
Options on Foreign Currencies. The Fund may purchase
and write put and call options on foreign currencies for the
purpose of protecting against declines in the U.S. Dollar value
of foreign currency-denominated portfolio securities and against
increases in the U.S. Dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the
writing of an option on a foreign currency constitutes only a
partial hedge, up to the amount of the premium received, and the
Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although,
in the event of rate movements adverse to the Fund's position, it
may forfeit the entire amount of the premium plus related
transaction costs. Options on foreign currencies to be written
or purchased by the Fund are traded on U.S. and foreign exchanges
or over-the- counter. There is no specific percentage limitation
on the Fund's investments in options on foreign currencies. For
additional information on the use, risks and costs of options on
foreign currencies, see Appendix B.
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 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,
12
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"). To the extent
required by applicable law, the Fund's Custodian will place
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-hedges. If the value of the assets placed in a
segregated account declines, additional liquid assets 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. In addition, the Fund may use such other methods of
"cover" as are permitted by applicable law.
While these contracts are not presently regulated by the
Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate forward contracts. In
such event the Fund's ability to utilize forward contracts in the
manner set forth in the Prospectus may be restricted. Forward
contracts will reduce the potential gain from a positive change
in the relationship between the U.S. Dollar and foreign
currencies. Unanticipated changes in currency prices may result
in poorer overall performance for the Fund than if it had not
entered into such contracts. The use of foreign currency forward
contracts will not eliminate fluctuations in the underlying U.S.
Dollar equivalent value of the proceeds of or rates of return on
the Fund's foreign currency-denominated portfolio securities and
the use of such techniques will subject the Fund to certain
risks.
The matching of the increase in value of a forward
contract and the decline in the U.S. Dollar equivalent value of
the foreign-currency denominated asset that is the subject of the
hedge generally will not be precise. In addition, the Fund may
not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Fund's
ability to use such contracts to hedge or cross-hedge its assets.
Also, with regard to the Fund's use of cross-hedges, there can be
13
no assurance that historical correlations between the movement of
certain foreign currencies relative to the U.S. Dollar will
continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies
underlying the Fund's cross-hedges and the movements in the
exchange rates of the foreign currencies in which the Fund's
assets that are the subject of such cross-hedges are denominated.
For additional information on the use, risks and costs of forward
foreign currency exchange contracts, see Appendix B.
Forward Commitments. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions may include purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as
and if issued" trade).
When forward commitment transactions are negotiated, the
price, which generally is expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the
purchaser prior to the settlement date. At the time the Fund
intends to enter into a forward commitment, it will record the
transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a "when, as and if
issued" security would be canceled in the event that the required
conditions did not occur and the trade was canceled.
The 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. No forward
commitments will be made by the Fund if, as a result, the Fund's
14
aggregate commitments under such transactions would be more than
30% of the then current value of the Fund's total assets.
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
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.
Standby Commitment Agreements. The Fund may from time
to time enter into standby commitment agreements. Such
agreements commit the Fund, for a stated period of time, to
purchase a stated amount of a security which may be issued and
sold to the Fund at the option of the issuer. The price and
coupon of the security are fixed at the time of the commitment.
At the time of entering into the agreement the Fund is paid a
commitment fee, regardless of whether or not the security
ultimately is issued, which is typically approximately 0.5% of
the aggregate purchase price of the security which the Fund has
committed to purchase. The Fund will enter into such agreements
only for the purpose of investing in the security underlying the
commitment at a yield and price which are considered advantageous
to the Fund and which are unavailable on a firm commitment basis.
The Fund will not enter into a standby commitment with a
remaining term in excess of 45 days and will limit its investment
in such commitments so that the aggregate purchase price of the
securities subject to the commitments will not exceed 50% of its
assets taken at the time of acquisition of such commitment. The
Fund will at all times maintain a segregated account with its
custodian of liquid assets in an aggregate amount equal to the
purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to
a standby commitment will be issued and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund will bear the risk of capital loss in the event the value of
the security declines and may not benefit from an appreciation in
15
the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
The purchase of a security subject to a standby
commitment agreement and the related commitment fee will be
recorded on the date on which the security can reasonably be
expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net
asset value. The cost basis of the security will be adjusted by
the amount of the commitment fee. In the event the security is
not issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
Currency Swaps. The Fund may enter into currency swaps
for hedging purposes. Currency swaps involve the exchange by the
Fund with another party of a series of payments in specified
currencies. Since currency swaps are individually negotiated,
the Fund expects to achieve an acceptable degree of correlation
between its portfolio investments and its currency swaps
positions. A currency swap may involve the delivery at the end
of the exchange period of a substantial amount of one designated
currency in exchange for the other designated currency. Therefore
the entire principal value of a currency swap is subject to the
risk that the other party to the swap will default on its
contractual delivery obligations. The net amount of the excess,
if any, of the Fund's obligations over its entitlements with
respect to each currency swap will be accrued on a daily basis
and an amount of liquid assets having an aggregate value at least
equal to the accrued excess will be maintained in a segregated
accounting by the Fund's custodian. The Fund will not enter into
any currency swap unless the credit quality of the unsecured
senior debt or the claims- paying ability of the other party
thereto is rated in the highest rating category of at least one
nationally recognized rating organization at the time of entering
into the transaction. If there is a default by the other party to
such a transaction, the Fund will have contractual remedies
pursuant to the agreements related to the transactions.
Repurchase Agreements. The Fund may enter into
repurchase agreements pertaining to U.S. Government Securities
with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York)
in such securities. There is no percentage restriction on the
Fund's ability to enter into repurchase agreements. Currently,
the Fund intends to enter into repurchase agreements only with
its custodian and such primary dealers. A repurchase agreement
arises when a buyer purchases a security and simultaneously
agrees to resell it to the vendor at an agreed-upon future date,
normally one day or a few days later. The resale price is
greater than the purchase price, reflecting an agreed-upon
interest rate which is effective for the period of time the
16
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. This results in a fixed rate of return
insulated from market fluctuations during such period. Such
agreements permit the Fund to keep all of its assets at work
while retaining "overnight" flexibility in pursuit of investments
of a longer-term nature. The Fund requires continual maintenance
by its Custodian for its account in the Federal Reserve/Treasury
Book Entry System of collateral in an amount equal to, or in
excess of, the resale price. In the event a vendor defaulted on
its repurchase obligation, the Fund might suffer a loss to the
extent that the proceeds from the sale of the collateral were
less than the repurchase price. In the event of a vendor's
bankruptcy, the Fund might be delayed in, or prevented from,
selling the collateral for its benefit. The Fund's Board of
Directors has established procedures, which are periodically
reviewed by the Board, pursuant to which Alliance monitors the
creditworthiness of the dealers with which the Fund enters into
repurchase agreement transactions.
Illiquid Securities. 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 placement or other securities which are subject
to legal or contractual restrictions on resale or for which there
is no readily available market (e.g., many individually
negotiated currency swaps and any assets used to cover currency
swaps, most privately negotiated investments in state enterprises
that have not yet conducted initial equity offerings, 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), (b) over-the-counter options and all assets used
to cover over-the-counter options and (c) repurchase agreements
not terminable within seven days.
The Fund may not be able to readily sell illiquid
securities. Such securities are unlike securities which are
traded in the open market and which can be expected to be sold
immediately if the market is adequate. The sale price of
illiquid securities may be lower or higher than the Adviser's
most recent estimate of their fair value. Generally, less public
information is available with respect to the issuers of such
securities than with respect to companies whose securities are
traded on an exchange. Illiquid securities are more likely to be
issued by small businesses and therefore subject to greater
economic, business and market risks than the listed securities of
more well-established companies. Adverse conditions in the
public securities markets may at certain times preclude a public
offering of an issuer's securities. To the extent that the Fund
makes any privately negotiated investments in state enterprises,
such investments are likely to be in securities that are not
17
readily marketable. It is the intention of the Fund to make such
investments when the Adviser believes there is a reasonable
expectation that the Fund would be able to dispose of its
investment within three years. There is no law in a number of
the countries in which the Fund may invest similar to the U.S.
Securities Act of 1933, as amended (the "1933 Act") requiring an
issuer to register the public sale of securities with a
governmental agency or imposing legal restrictions on resales of
securities, either as to length of time the securities may be
held or manner of resale. However, there may be contractual
restrictions on resale of securities. In addition, many
countries do not have informational disclosure requirements
similar in scope to those required under the U.S. Securities
Exchange Act of 1934. The Adviser will monitor the illiquidity
of such securities under the supervision of the Board of
Directors.
Short Sales. The Fund may make short sales of
securities or maintain a short position only for the purpose of
deferring realization of gain or loss for U.S. federal income tax
purposes, provided that at all times when a short position is
open the Fund owns an equal amount of such securities of the same
issue as, and equal in amount to, the securities sold short. In
addition, the Fund may not make a short sale if as a result more
than 25% of the Fund's net assets (taken at market value) is held
as collateral for short sales at any one time. If the price of
the security sold short increases between the time of the short
sale and the time the Fund replaces the borrowed security, the
Fund will incur a loss; conversely, if the price declines, the
Fund will realize a capital gain. See "Investment Restrictions."
Certain special federal income tax considerations may apply to
short sales which are entered into by the Fund. See "Dividends,
Distributions and Taxes-United States Federal Income Taxation of
the Fund-Tax Straddles."
General. The successful use of the foregoing investment
practices draws upon the Adviser's special skills and experience
with respect to such instruments and usually depends on the
Adviser's ability to forecast price movements or currency
exchange rate movements correctly. Should exchange rates move in
an unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts, options or forward contracts or
may realize losses and thus be in a worse position than if such
strategies had not been used. Unlike many exchange-traded
futures contracts and options on futures contracts, there are no
daily price fluctuation limits with respect to options on
currencies and forward contracts, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. In addition, the correlation between movements in the
prices of such instruments and movements in the prices of the
18
securities and currencies hedged or used for cover will not be
perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of types of
securities and currencies are relatively new and still
developing, and there is no public market for forward contracts.
It is impossible to predict the amount of trading interest that
may exist in various types of futures contracts, options and
forward contracts. If a secondary market does not exist with
respect to an option purchased or written by the Fund over-the-
counter, it might not be possible to effect a closing transaction
in the option (i.e., dispose of the option) with the result that
(i) an option purchased by the Fund would have to be exercised in
order for the Fund to realize any profit and (ii) the Fund may
not be able to sell currencies or portfolio securities covering
an option written by the Fund until the option expires or it
delivers the underlying futures contract or currency upon
exercise. Therefore, no assurance can be given that the Fund
will be able to utilize these instruments effectively for the
purposes set forth above. Furthermore, the Fund's ability to
engage in options and futures transactions may be limited by tax
considerations. See "Dividends, Distributions and Taxes--U.S.
Federal Income Taxes."
Additional Investment Policies
Loans of Portfolio Securities. The Fund may make
secured loans of its portfolio securities to entities with which
it can enter into repurchase agreements, provided that liquid
assets equal to at least 100% of the market value of the
securities loaned are deposited and maintained by the borrower
with the Fund. See "Repurchase Agreements" above. The risks in
lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend
securities to a particular borrower, the Adviser (subject to
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 distributions. The Fund may pay
reasonable finders', administrative and custodial fees in
19
connection with a loan. The Fund will not lend portfolio
securities in excess of 30% of the value of its total assets, nor
will the Fund 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.
Future Developments. The Fund may, following written
notice to its shareholders, take advantage of other investment
practices which are not at present contemplated for use by the
Fund or which currently are not available but which may be
developed, to the extent such investment practices are both
consistent with the Fund's investment objective and legally
permissible for the Fund. Such investment practices, if they
arise, may involve risks which exceed those involved in the
activities described above.
Portfolio Turnover. Generally, the Fund's policy with
respect to portfolio turnover is to purchase securities with a
view to holding them for periods of time sufficient to assure
that the Fund will realize less than 30% of its gross income from
the sale or other disposition of securities held for less than
three months (see "Dividends, Distributions and Taxes-United
States Federal Income Taxation of Dividends and Distributions--
General") and to hold its securities for six months or longer.
However, it is also the Fund's policy to sell any security
whenever, in the judgment of the Adviser, its appreciation
possibilities have been substantially realized or the business or
market prospects for such security have deteriorated,
irrespective of the length of time that such security has been
held. The Adviser anticipates that the Fund's annual rate of
portfolio turnover will not exceed 150%. A 150% annual turnover
rate would occur if all the securities in the Fund's portfolio
were replaced one and one-half times within a period of one year.
The turnover rate has a direct effect on the transaction costs to
be borne by the Fund, and as portfolio turnover increases it is
more likely that the Fund will realize short-term capital gains.
For the period November 28, 1994 (commencement of operations)
through October 31, 1995 and for the fiscal year ended October
31, 1996, the Fund's portfolio turnover was 90% and 66%,
respectively.
Certain Risk Considerations
Investment in the Fund involves the special risk
considerations described below.
Investment in Greater China Countries; Risks of Foreign
Investment. The securities markets of China are relatively
small, with the majority of market capitalization and trading
20
volume concentrated in a limited number of companies representing
a small number of industries. Consequently, the Fund may
experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity 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 U.S. Securities settlements may in some
instances be subject to delays and related administrative
uncertainties.
Foreign investment in the securities markets of China
and Taiwan is restricted or controlled to varying degrees. These
restrictions or controls, which apply to the Fund, may at times
limit or preclude investment in certain securities and may
increase the cost and expenses of the Fund. China and Taiwan
require governmental approval prior to investments by foreign
persons or limit investment by foreign persons to only a
specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous
terms (including price) than securities of the company available
for purchase by nationals. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities
from China and Taiwan is controlled under regulations, including
in some cases the need for certain advance government
notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
The Fund could 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. The liquidity of the Fund's
investments in any country in which any of these factors exists
could be affected by any such factor or factors on the Fund's
investments. The limited liquidity in certain Greater China
markets may affect the Fund's ability to accurately value its
portfolio securities or to acquire or dispose of securities in
order to meet redemption requests at the price and time it wishes
to do so. [Transaction costs including brokerage commissions for
transactions both on and off the securities exchanges in China,
Hong Kong and Taiwan countries are generally higher than in the
U.S.]
Issuers of securities in China, Hong Kong and Taiwan 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 China, Hong Kong
and Taiwan may differ, in some cases significantly, from U.S.
21
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
U.S. issuers.
The economies of the individual 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 the countries or the Fund's investments in such
country. In the event of expropriation, nationalization or other
confiscation, the Fund could lose its entire investment in the
country involved. In addition, laws in China, Hong Kong and
Taiwan governing business organizations, bankruptcy and
insolvency may provide less protection to securities holders such
as the Fund than that provided by U.S. laws.
Investment in smaller, emerging Greater China companies
involves greater risk than is customary associated with
securities of more established companies. The securities of
smaller companies may have relatively limited marketability and
may be subject to more abrupt or erratic market movements than
securities of larger companies or broad market indices.
Currency Considerations. Because substantially all of
the Fund's assets will be invested in securities denominated in
foreign currencies and a corresponding portion of the Fund's
revenues will be received in such currencies, the dollar
equivalent of the Fund's net assets and distributions will be
adversely affected by reductions in the value of certain foreign
currencies relative to the U.S. dollar. Such changes will also
affect the Fund's income. The Fund will, however, have the
ability to attempt to protect itself against adverse changes in
the values of foreign currencies by engaging in certain of the
investment practices listed above. While the Fund has this
ability, there is no certainty as to whether and to what extent
the Fund will engage in these practices. If the value of the
foreign currencies in which the Fund receives its income falls
relative to the U.S. dollar between receipt of the income and the
making of Fund distributions, the Fund may be required to
liquidate securities in order to make distributions if the Fund
has insufficient cash in U.S. dollars to meet distribution
requirements. Similarly, if an exchange rate declines between
the time the Fund incurs expenses in U.S. dollars and the time
cash expenses are paid, the amount of the currency required to be
converted into U.S. dollars in order to pay expenses in U.S.
22
dollars could be greater than the equivalent amount of such
expenses in the currency at the time they were incurred.
Chinese Currency Considerations. Chinese currency, the
Renminbi ("RNB"), is not freely convertible. The exchange rate
of RNB against foreign currencies is regulated and published
daily by the State Administration of Exchange Control ("SAEC").
In 1986, to help solve the foreign exchange problems of foreign
investors, China established Foreign Exchange Adjustment Centers,
commonly referred to as "swap centers," in various cities. These
swap centers provide an official forum where foreign invested
enterprises may, under the supervision and control of SAEC and
its branch offices, engage in mutual adjustment of their foreign
exchange surpluses and shortfalls. More recently, regulations
have been relaxed to allow Chinese state enterprises and
individuals to participate in foreign exchange swap transactions.
Trading of RNB and foreign currencies at the swap centers is
conducted at a rate determined by supply and demand rather than
at the official exchange rate. Such market exchange rates can be
highly volatile and are subject to sharp fluctuations depending
on market conditions.
U.S. and Foreign Taxes. Foreign taxes paid by the Fund
may be creditable or deductible by U.S. shareholders for U.S.
income tax purposes. No assurance can be given that applicable
tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct
such foreign taxes. Investors should review carefully the
information discussed under the heading "Dividends, Distributions
and Taxes" and should discuss with their tax advisers the
specific tax consequences of investing in the Fund.
Securities Ratings. The ratings of debt securities by
S&P and Moody's are a generally accepted barometer of credit
risk. They are, however, subject to certain limitations from an
investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between
the time a rating is assigned and the time it is updated. In
addition, there may be varying degrees of difference in credit
risk of securities within each rating category. Securities rated
BBB by S&P or Baa by Moody's are considered to be investment
grade. Securities rated BBB by S&P or Baa by Moody's are
considered to have speculative characteristics. Sustained
periods of deteriorating economic conditions or rising interest
rates are more likely to lead to a weakening in the issuer's
capacity to pay interest and repay principal than in the case of
higher-rated securities.
Non-Diversified Status. The Fund is a "non-
diversified" investment company, which means the Fund is not
23
limited in the proportion of its assets that may be invested in
the securities of a single issuer. However, the Fund intends to
conduct its operations so as to qualify to be taxed as a
"regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code"), which will relieve
the Fund of any liability for federal income tax to the extent
its earnings are distributed to shareholders. See "Dividends,
Distributions and Taxes-U.S. Federal Income Taxes." To so
qualify, among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the market value of the Fund's
total assets will be invested in the securities of a single
issuer and (ii) with respect to 50% of the market value of its
total assets, not more than 5% of the market value of its total
assets will be invested in the securities of a single issuer and
the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. Investments in U.S. Government
Securities are not subject to these limitations. Because the
Fund, as a non-diversified investment company, may invest in a
smaller number of individual issuers than a diversified
investment company, an investment in the Fund may, under certain
circumstances, present greater risk to an investor than an
investment in a diversified investment company.
Securities issued or guaranteed by foreign governments
are not treated like U.S. Government Securities for purposes of
the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the
securities of non-governmental issuers.
Certain Fundamental Investment Policies. The following
restrictions, which supplement those set forth in the Fund's
Prospectus, may not be changed without approval by the vote of a
majority of the Fund's outstanding voting securities, which means
the affirmative vote of the holders of (i) 67% or more or the
shares represented at a meeting at which more than 50% of the
outstanding shares are represented, or (ii) more than 50% of the
outstanding shares, whichever is less. 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:
24
(i) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests
which might require the untimely disposition of securities;
borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the
value of the Fund's total assets (including the amount borrowed)
less liabilities (not including the amount borrowed) at the time
the borrowing is made; outstanding borrowings in excess of 5% of
the value of the Fund's total assets will be repaid before any
investments are made;
(ii) pledge, hypothecate, mortgage or otherwise encumber
its assets, except to secure permitted borrowings;
(iii) make loans except through (i) the purchase of debt
obligations in accordance with its investment objectives and
policies; (ii) the lending of portfolio securities; or (iii) the
use of repurchase agreements;
(iv) participate on a joint or joint and several basis
in any securities trading account;
(v) invest in companies for the purpose of exercising
control;
(vi) issue any senior security within the meaning of the
Act;
(vii) make short sales of securities or maintain a short
position, unless at all times when a short position is open an
equal amount of such securities or securities convertible into or
exchangeable for, without payment of any further consideration,
securities of the same issue as, and equal in amount to, the
securities sold short ("short sales against the box") and unless
not more than 25% of the Fund's net assets (taken at market
value) is held as collateral for such sales at any one time (it
is the Fund's present intention to make such sales only for the
purpose of deferring realization of gain or loss for Federal
income tax purposes);
(viii) (a)purchase or sell commodities or commodity
contracts including futures contracts (except foreign currencies,
foreign currency options and futures, options and futures on
securities and securities indices and forward contracts or
contracts for the future acquisition or delivery of securities
and foreign currencies and related options on futures contracts
and similar contracts); (b) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions; and (c) act as an underwriter of securities,
except that the Fund may acquire restricted securities under
circumstances in which, if such securities were sold, the Fund
25
might be deemed to be an underwriter for purposes of the
Securities Act;
___________________________________________________________
MANAGEMENT OF THE FUND
___________________________________________________________
Directors and Officers
The Directors and principal officers of the Fund, their
ages and their primary 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
[ To Be Inserted ]
Officers
[ to Be Inserted ]
The aggregate compensation to be paid by the Fund to
each of the Directors during the fiscal period ended
[ ], 1997, the aggregate compensation paid to each of
the Directors during calendar year 1996 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 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.
26
Total Number
of Funds in
the Alliance
Total Fund Complex,
Compensation Including the
From the Fund, as to
Alliance Fund which the
Name of Aggregate Complex, Director is a
Director Compensation Including the Director or
of the Fund From the Fund* Fund Trustee
___________ ____________ ______________ _____________
_______________
* estimated
As of [ ], the Directors and officers of the
Fund as a group owned [ ]% of the Class [ ] shares of the
Fund.
Adviser
Alliance Capital Management L.P., a New York Stock
Exchange listed company 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 and control of the Fund's Board of Directors.
The Adviser is a leading international investment
manager supervising client accounts with assets as of March 31,
1997 of more than $[ ] billion (of which more than $[ ]
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 and included as of March 31,
1997, 3[4] of the FORTUNE 100 companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,450
employees who operated out of domestic offices and the offices of
subsidiaries in Bombay, Istanbul, London, Paris, Sao Paolo,
Sydney, Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The
53 registered investment companies comprising 111 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
27
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1996,
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 ("Units"). As of June 30, 1996, approximately 33% and
10% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
As of March 1, 1997 AXA-UAP and its subsidiaries owned
60.7% of the issued and outstanding shares of the capital stock
of ECI. ECI is a public company with shares traded on the New
York Stock Exchange, Inc. ("NYSE"). ECI owns all of the shares
of Equitable.
AXA-UAP, a French company, is the holding company for an
international group of insurance and related financial services
companies. AXA-UAP's insurance operations include activities in
life insurance, property and casualty insurance and reinsurance.
The insurance operations are diverse geographically with
activities, principally in Western Europe, North America, and the
Asia/Pacific area. AXA-UAP is also engaged in asset management,
investment banking, securities trading, brokerage, real estate
and other financial services activities principally in the United
States, as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA-UAP, on March 1,
1997, 22.5% of the issued ordinary shares (representing 33.0% of
the voting power) of AXA-UAP were controlled directly and
indirectly by Finaxa, a French holding company. As of March 1,
1997, 61.4% of the shares (representing 72.0% of the voting
power) of Finaxa were owned by four French mutual insurance
companies (the "Mutuelles AXA") (one of which, AXA Assurances
I.A.R.D. Mutuelle, owned 34.9% of the shares, representing 40.0%
of the voting power), and 23.7% of the shares of Finaxa
(representing 14.6% of the voting power) were owned by Banque
Paribas, a French bank ("Paribas"). Including the ordinary
shares owned by Finaxa, on March 1, 1997, the Mutuelles AXA
directly or indirectly controlled 26.0% of the issued ordinary
shares (representing 38.1% of the voting power) of AXA-UAP.
Acting as a group, the Mutuelles AXA control AXA-UAP and Finaxa.
In November 1996, AXA offered (the "Exchange Offer") to
acquire 100% of the ordinary shares ("UAP Shares") of FF 10 each
of Compagnie UAP, a societe anonyme organized under the laws of
France ("UAP"), in exchange for ordinary shares ("Shares") and
Certificates of Guaranteed Value ("Certificates") of AXA. Each
28
UAP shareholder that tendered UAP Shares in the Exchange Offer
received two Shares and two Certificates for every five UAP
Shares so tendered. On January 24, 1997, AXA acquired 91.37% of
the outstanding UAP Shares. AXA-UAP currently intends to merge
(the "Merger") with UAP at some future date in 1997. It is
anticipated that approximately 11,706,826 additional Shares will
be issued in connection with the Merger to UAP shareholders who
did not tender UAP Shares in the Exchange Offer. If the Merger
had been completed at March 1, 1997, Finaxa would have
beneficially owned (directly and indirectly) approximately 21.7%
of the Shares (representing approximately 32.0% of the voting
power), and the Mutuelles AXA would have controlled (directly or
indirectly through their interest in Finaxa) 25.1% of the issued
ordinary shares (representing 36.8% of the voting power) of
AXA-UAP.
On January 17, 1997, AXA announced its intention to
redeem its outstanding 6% Bonds (the "Bonds"). Between
February 14, 1997 and May 14, 1997, holders of the Bonds will
have the option to convert each Bond into 5.15 Shares. On
May 15, 1997, each Bond still outstanding will be redeemed into
cash at FF 1,285 plus FF 9.29 accrued interest. Finaxa currently
owns 418,118 Bonds which it intends to convert into 2,153,308
Shares. Assuming all outstanding Bonds are converted into Shares
and after giving effect to the Merger as if it had been completed
at March 1, 1997, Finaxa would have beneficially owned (directly
and indirectly) approximately 21.4% of the Shares (representing
31.3% of the voting power), and the Mutuelles AXA would have
controlled (directly or indirectly through their interest in
Finaxa) 24.7% of the issued ordinary shares (representing 36.0%
of the voting power) of AXA-UAP.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
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
29
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Fund
prospectuses and other reports to shareholders and fees related
to registration with the Securities and Exchange Commission and
with state regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may employ its own personnel.
For such services, it also may utilize personnel employed by the
Adviser or by other subsidiaries of Equitable. In such event,
the services will be provided to the Fund at cost and the
payments specifically approved by the Fund's Board of Directors.
Under the Advisory Agreement, the Fund pays the Adviser
a fee at the annual rate of 1.00% of the value of the average
daily net assets of the Fund. This fee is higher than the
management fees paid by most U.S. registered investment companies
investing exclusively in securities of U.S. issuers, although the
Adviser believes the fee is generally comparable to the
management fees paid by other open-end registered investment
companies that invest in the securities of foreign issuers and it
is justified by the special care that must be given to the
selection and supervision of the particular types of securities
in which the Fund will invest. The fee is accrued daily and paid
monthly.
The Advisory Agreement became effective on
[ ] having been approved by the unanimous vote, cast
in person, of the Fund's Directors, including the Directors who
are not parties to the Advisory Agreement or interested persons
as defined in the 1940 Act of any such party, at a meeting called
for that purpose and held on [ ], and by the Fund's
initial shareholder on [ ].
The Advisory Agreement will remain in force for
successive twelve-month periods (computed from each [July 1]),
provided that such continuance is approved at least annually by a
vote of a majority of the Fund's outstanding voting securities or
30
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 Act.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
or by a vote of a majority of the Fund's Directors on 60 days'
written notice, or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, The Alliance Fund, Inc., Alliance All-Asia
Investment Fund, Inc., Alliance Balanced Shares, Inc., Alliance
Bond Fund, Inc., Alliance Capital Reserves, Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Government Reserves, Alliance Growth
and Income Fund, Inc., Alliance High Yield Fund, Inc., Alliance
Income Builder Fund, Inc., Alliance International Fund, Alliance
Money Market Fund, Alliance Mortgage Securities Income Fund,
Inc., Alliance Limited Maturity Government Fund, Inc., Alliance
Multi-Market Strategy Trust, Inc., Alliance Municipal Income
Fund, Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance Technology
Fund, Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust, Inc.,
Alliance Worldwide Privatization Fund, Inc., The Alliance
Portfolios, Fiduciary Management Associates and The Hudson River
Trust, all registered 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 Dollar Income Fund, Inc., ACM
Managed Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance World
Dollar Government Fund, Inc., Alliance World Dollar Government
Fund II, Inc., The Austria Fund, Inc., The Korean Investment
Fund, Inc., The Southern Africa Fund, Inc. and The Spain Fund,
Inc., all registered closed-end investment companies.
31
Consultant
In connection with its provision of advisory services to
the Fund, Alliance has retained at its expense as a consultant
New-Alliance Asset Management (Asia) Limited ("New Alliance"), a
joint venture company headquartered in Hong Kong formed in 1997
by Alliance and Sun Hung Kai Properties Limited ("SHKP"). New
Alliance is to provide to Alliance such statistical and factual
research and assistance with respect to economic, financial,
political, technological and social conditions and trends in
Greater China countries, including information on markets and
industries, as Alliance shall from time to time request. In
addition to its own staff of professionals, New-Alliance has
access to the expertise and personnel of SHKP, one of Hong Kong's
largest property developers for both the residential and
commercial sectors, where developments include office and
industrial properties, hotels and shopping centers, and selected
projects in China. SHKP is one of the largest enterprises in
Hong Kong measured by its market capitalization. Its activities
complementary to property development include insurance and
estate management, and SHKP is diversified as well into
telecommunications and infrastructure projects. New-Alliance
will not furnish investment advice or make recommendations
regarding the purchase or sale of securities by the Fund nor will
it be responsible for making investment decisions involving Fund
assets.
___________________________________________________________
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 to pay distribution services fees to defray expenses
associated with 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").
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
32
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 distribution services
fee with respect to the Class A shares in that in each case the
sales charge and/or distribution services fee provide for the
financing of the distribution of the relevant class of the Fund's
shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the
Fund on a quarterly basis. Also, the Agreement provides that the
selection and nomination of Directors who are not "interested
persons" of the Fund, as defined in the 1940 Act, are committed
to the discretion of such disinterested Directors then in office.
The Agreement was initially approved by the Directors of the Fund
at a meeting held on [ ], and by the Fund's initial
shareholder on [ ].
The Agreement became effective on [ ] with
respect to Class A shares, Class B shares and Class C shares and
Advisor Class shares. The Agreement will continue in effect for
successive twelve- month periods (computed from each July 1),
provided, however, that such continuance is specifically approved
at least annually by the Directors of the Fund or by vote of the
holders of a majority of the outstanding voting securities (as
defined in the 1940 Act) of that class, and, in either case, by a
majority of the Directors of the Fund who are not parties to the
Agreement or interested persons, as defined in the 1940 Act, of
any such party (other than as directors of the Fund) and who have
no direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
33
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that the Fund may bear pursuant to
the Agreement without the approval of a majority of the holders
of the outstanding voting shares of the class or classes
affected. The Agreement may be terminated (a) by the Fund
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Fund, voting separately
by class or by a majority vote of the Directors who are not
"interested persons" as defined in the 1940 Act, or (b) by the
Principal Underwriter. To terminate the Agreement, any party
must give the other parties 60 days' written notice; to terminate
the Rule 12b-1 Plan only, the Fund need give no notice to the
Principal Underwriter. The Agreement will terminate
automatically in the event of its assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly- owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of each of the Class A shares, Class B shares,
Class C shares and Advisor Class shares of the Fund, plus
reimbursement for out-of-pocket expenses. The transfer agency
fee with respect to the Class B shares and Class C shares is
higher than the transfer agency fee with respect to the Class A
and Advisor Class shares.
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- How To Buy Shares."
General
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares") without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
34
("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, (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 Koll
Real Estate Services. 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
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.
35
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 value of
the Class A and Advisor Class shares, as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
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
36
applicable. If the selected dealer, agent or financial
representatives, as applicable, receives the order after the
close of regular trading on the Exchange, the price will be based
on the net asset value determined as of the close of regular
trading on the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day. Full and
fractional shares are credited to a subscriber's account in the
amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to the Fund, stock
certificates representing shares of the Fund are not issued
except upon written request to the Fund by the shareholder or his
or her authorized selected dealer or agent. This facilitates
later redemption and relieves the shareholder of the
responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
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
37
associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
Class A, Class B, 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 shareholders and
Advisor Class shareholders and the Class A shareholders, the
Class B shareholders 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.
Alternative Retail Purchase Arrangements -- Class A, Class B
and Class C Shares1
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 purchase, the length of
time the investor expects to hold the shares, and other
_________________________
1. Advisor Class shares are sold only to investors described
above in this section under "General."
38
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) for more than $250,000 for Class B
shares. Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject
any order for more than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a 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
39
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.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price 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
40
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 and agents for selling
Class A Shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
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 of 1933, as amended.
41
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but 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
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
42
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
43
(ii) the net asset value (at the close of business
on the previous day) of (a) all shares of the
Fund held by the investor and (b) all shares
of any other Alliance Mutual Fund held by the
investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with
that of the investor into a single "purchase"
(see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction
of the dollar amount indicated in the Statement of Intention. At
the investor's option, a Statement of Intention may include
purchases of shares of the Fund or any other Alliance Mutual Fund
made not more than 90 days prior to the date that the investor
signs 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 be necessary to invest
44
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
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 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.
45
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction.
Investors may exercise the reinstatement privilege by written
request sent to the Fund at the address shown on the cover of
this Statement of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without any 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 descendent (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);
46
(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 other
financial intermediaries who charge a
management, consulting or other fee for
their service and who purchase shares
through a broker or agent approved by 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 other financial
intermediary, or its affiliates or
agents, for services in the nature of
investment advisory or administrative
services;
(vi) persons who establish to the Principal
Underwriter's satisfaction that they are
investing within such time period as may
be designated by the Principal
Underwriter, proceeds of redemption of
shares of such other registered
investment companies as may be designated
from time to time by the Principal
Underwriter; and
(vii) employer-sponsored qualified pensions or
profit- sharing plans (including Section
401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7)
retirement plans and individual
47
retirement accounts (including individual
retirement accounts to which simplified
employee pension (SEP) contributions are
made), if such plans or accounts are
established or administered under
programs sponsored by administrators or
other persons that have been approved by
the Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge 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
charge because of dividend reinvestment. With respect to the
48
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 3.0% (the
applicable rate in the second year after purchase).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a
Years Since Purchase % of Dollar Amount Subject to Charge
____________________ ____________________________________
Less than one 4.0%
One 3 0%
Two 2.0%
Three 1.0%
Four or more 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 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
49
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
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.
50
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares." In determining the contingent deferred
sales charge applicable to a redemption of Class C shares, it
will be assumed that the redemption is, first, of any shares that
are not subject to a contingent deferred sales charge (for
example, because the shares have been held beyond the period
during which the charge applies or were acquired upon the
reinvestment of dividends or distributions) and, second, of
shares held longest during the time they are subject to the sales
charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares 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; 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
51
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his Advisor Class shares, which would constitute a taxable
event under federal income tax law.
_______________________________________________________________
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
52
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
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 shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no 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
53
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer, once in any 30-day period, (except for certain
omnibus accounts) of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request 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. Except for certain
omnibus accounts or as noted below, 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. 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. 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
54
redemption service at any time without notice. Neither the Fund
nor the Adviser, the Principal Underwriter or Alliance Fund
Services, Inc. will be responsible for the authenticity of
telephone requests for redemptions that the Fund reasonably
believes to be genuine. The Fund will employ reasonable
procedures in order to verify that telephone requests for
redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers or agents may charge a commission for handling
telephone requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. 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.
55
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
_______________________________________________________________
SHAREHOLDER SERVICES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set forth
below are applicable to Class A, Class B, Class C and Advisor
Class shares unless otherwise indicated. If you are an Advisor
Class shareholder through an account established under a fee-
based program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing Electronic Funds Transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
56
Exchange Privilege
You may exchange your investment in the Fund for
shares of the same class of other Alliance Mutual Funds
(including AFD Exchange Reserves, a money market fund managed by
the Adviser). In addition, (i) present officers and full-time
employees of the Adviser, (ii) present Directors or Trustees of
any Alliance Mutual Fund and (iii) certain employee benefit plans
for employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may on a tax-free basis,
exchange Class A shares of the Fund for Advisor Class shares of
the Fund. Exchanges of shares are made at the net asset value
next determined and without sales or 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 purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call 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
57
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments (such as the market break of
October 1987) it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
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 following
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
58
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
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 shares or
59
Class C shares of the Fund held by the plan can be exchanged, at
the plan's request, without any sales charge, for Class A shares
of the Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on his or her 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.
60
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B and Class C Shares. Under a
systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
61
quarterly of the value at the time of redemption of the Class B
or Class C shares in a shareholder's account may be redeemed free
of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemption 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.
_______________________________________________________________
NET ASSET VALUE
_______________________________________________________________
Securities listed or traded on the Exchange or other
United States or foreign securities exchanges are valued at the
last quoted sales prices on such exchanges prior to the time when
assets are valued. Securities listed or traded on certain
foreign exchanges whose operations are similar to the United
States over-the-counter market are valued at the price within the
limits of the latest available current bid and asked prices
deemed best to reflect a fair value. A security which is listed
or traded on more than one exchange is valued at the quotations
on the exchange determined to be the primary market for such
security by the Trustees or their delegates. Listed securities
that are not traded on a particular day, and securities regularly
traded in the over-the-counter market, are valued at the price
within the limits of the latest available current bid and asked
prices deemed best to reflect a fair value. In instances where
62
the price of a security determined above is deemed not to be
representative, the security is valued in such a manner as
prescribed by the Trustees to reflect its fair value. All other
assets and securities are valued in a manner determined in good
faith by the Trustees to reflect their fair value. For purposes
of determining the Fund's net asset value per share, all assets
ad liabilities initially expressed in foreign currencies will be
converted into United States dollars at the mean of the bid and
asked prices of such currencies against the United States dollar
lasted quoted by any major bank. If such quotations are not
available as of the close of the Exchange, the rate of exchange
will be determined in accordance with the policies established in
good faith by the Trustees. On an ongoing basis, the Trustees
monitor the Fund's method of valuation.
Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each business day
in New York (i.e., a day on which the Exchange is open). In
addition, European or Far Eastern securities trading generally or
in a particular country or countries may not take place on all
business days in New York. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign
markets on days which are not business days in New York and on
which the Fund's net asset value is not calculated. The Fund
calculates net asset value per share, and therefore effects
purchases and redemptions of its shares, as of the next close of
regular trading on the Exchange following receipt of a purchase
or redemption order (and on such other days as the Trustees of
the Fund deem necessary in order to comply with Rule 22c-1 under
the Act.) Such calculation does not take place contemporaneously
with the determination of the prices of the majority of the
portfolio securities used in such calculation. Events affecting
the values of portfolio securities that occur between the time
their prices are determined and and the close of the Exchange
will not be reflected in the Fund's calculation of net asset
value unless the Fund's Trustees deem that the particular event
would materially affect net asset value, in which case an
adjustment will be made.
_______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________
United States Federal Income Taxation
Of Dividends and Distributions
General. The Fund qualified for the fiscal year ended
in 1996 and intends to continue to qualify and elect to be
treated as a "regulated investment company" under sections 851
through 855 of the Code. To so qualify, the Fund must, among
63
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) derive less than
30% of its gross income in each taxable year from the sale or
other disposition within three months of their acquisition by the
Fund of stocks, securities, options, futures or forward contracts
(other than options, futures, or forward contracts on foreign
currencies) and foreign currencies (or options, futures or
forward contracts on foreign currencies) that are not directly
related to the Fund's principal business of investing in stock or
securities (or options and futures with respect to stocks or
securities); and (iii) diversify its holdings so that, at the end
of each quarter of its taxable year, the following two conditions
are met: (a) at least 50% of the value of the Fund's assets is
represented by cash, U.S. Government Securities, securities of
other regulated investment companies and other securities with
respect to which the Fund's investment is limited, in respect of
any one issuer, to an amount not greater than 5% of the Fund's
assets and 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than
U.S. Government Securities or securities of other regulated
investment companies). These requirements, among other things,
may limit the Fund's ability to write and purchase options,
futures and forward foreign currency contracts.
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 intends to also avoid the 4% federal excise tax
that would otherwise apply to certain undistributed income for a
given calendar year if it makes timely distributions to the
shareholders equal to at least the sum of (i) 98% of its ordinary
income for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 of that year; and (iii) any ordinary income or capital
gain net income from the preceding calendar year that was not
distributed during that year. For this purpose, income or gain
retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared
64
and payable to shareholders of record as of a date in October,
November or December of a given year but actually paid during the
immediately following January will be treated as if paid by the
Fund on December 31 of that calendar year, and will be taxable to
these shareholders for the year declared, and not for the year in
which the shareholders actually receive the dividend.
The Fund intends to make timely distributions of the
Fund's taxable income (including any net capital gain) so that
the Fund will not be subject to federal income or excise taxes.
However, exchange control or other regulations on the
repatriation of investment income, capital or the proceeds of
securities sales, if any exist or are enacted in the future, may
limit the Fund's ability to make distributions sufficient in
amount to avoid being subject to one or both of such federal
taxes.
Dividends and Distributions. Dividends of the Fund's
net ordinary income and distributions of any net realized short-
term capital gain are taxable to shareholders as ordinary income.
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by the Fund to
its shareholders will be taxable to the shareholders as long-term
capital gains, irrespective of the length of time a shareholder
may have held his Fund shares. Any dividend or distribution
received by a shareholder on shares of the Fund will have the
effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend
or distribution made shortly after the purchase of such shares by
a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him as described
above. Dividends are taxable in the manner discussed regardless
of whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
It is the present policy of the Fund to distribute to
shareholders all net investment income and to distribute realized
capital gains, if any, annually. There is no fixed dividend rate
and there can be no assurance that the Fund will pay any
dividends. The amount of any dividend or distribution paid on
shares of the Fund must necessarily depend upon the realization
of income and capital gains from the Fund's investments.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of a dealer or a financial
65
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. However, if a shareholder has held shares
in the Fund for six months or less and during that period has
received a distribution taxable to the shareholder as a long-term
capital gain, any loss recognized by the shareholder on the sale
of those shares during the six-month period will be treated as a
long-term capital loss to the extent of the distribution. In
determining the holding period of such shares for this purpose,
any period during which a shareholder's risk of loss is offset by
means of options, short sales or similar transactions is not
counted.
Any loss realized by a shareholder on a sale or exchange
of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Foreign Taxes. Income received by the Fund may also be
subject to foreign income taxes, including withholding taxes. The
United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of such taxes
or exemption from taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance since the
amount of the Fund's assets to be invested within various
countries is not known. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal
Revenue Service to pass through to its shareholders the amount of
foreign taxes paid by the Fund. However, there can be no
assurance that the Fund will be able to do so. Pursuant to this
election a United States shareholder will be required to
(i) include in gross income (in addition to taxable dividends
actually received) his pro rata share of foreign taxes paid by
the Fund, (ii) treat his pro rata share of such foreign taxes as
having been paid by him, and (iii) either deduct such pro rata
share of foreign taxes in computing his taxable income or treat
such foreign taxes as a credit against United States federal
income taxes. Shareholders who are not liable for federal income
taxes, such as retirement plans qualified under section 401 of
the Code, will not be affected by any such pass through of taxes
by the Fund. No deduction for foreign taxes may be claimed by an
individual United States shareholder who does not itemize
deductions. In addition, certain United States shareholders may
be subject to rules which limit or reduce their ability to fully
66
deduct, or claim a credit for, their pro rata share of the
foreign taxes paid by the Fund. Each shareholder will be
notified within 60 days after the close of the Fund's taxable
year whether the foreign taxes paid by the Fund will pass through
for that year and, if so, such notification will designate
(i) the shareholder's portion of the foreign taxes paid to each
such country and (ii) the portion of dividends that represents
income derived from sources within each such country.
Backup Withholding. The Fund may be required to
withhold United States federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to
provide the Fund with their correct taxpayer identification
numbers or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to
backup withholding. Corporate shareholders and certain other
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a United States
shareholder's United States federal income tax liability or
refunded.
United States Federal Income Taxation of the Fund
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
Passive Foreign Investment Companies. If the Fund owns
shares in a foreign corporation that constitutes a "passive
foreign investment company" (a "PFIC") for federal income tax
purposes and the Fund does not elect to treat the foreign
corporation as a "qualified electing fund" within the meaning of
the Code, the Fund may be subject to United States federal income
taxation on a portion of any "excess distribution" it receives
from the PFIC or any gain it derives from the disposition of such
shares, even if such income is distributed as a taxable dividend
by the Fund to its shareholders. The Fund may also be subject to
additional interest charges in respect of deferred taxes arising
from such distributions or gains. Any tax paid by the Fund as a
result of its ownership of shares in a PFIC will not give rise to
any deduction or credit to the Fund or to any shareholder. A
PFIC means any foreign corporation if, for the taxable year
involved, either (i) it derives at least 75% of its gross income
from "passive income" (including, but not limited to, interest,
dividends, royalties, rents and annuities), or (ii) on average,
at least 50% of the value (or adjusted tax basis, if elected) of
the assets held by the corporation produce "passive income." The
67
Treasury has issued proposed regulations which would provide a
"marked to market" election solely with respect to gain inherent
in PFIC stock held by a regulated investment company, such as the
Fund, which does not elect to treat the PFIC as a "qualified
electing fund." If the proposed regulations are adopted in final
form and the election provided therein were to be made by the
Fund, the Fund would recognize a gain as of the last business day
of its taxable year equal to the excess of the fair market value
of each share of stock in the PFIC over the Fund's adjusted tax
basis in that share. This gain, which would be treated as
derived from securities held by the Fund for at least three
months, generally would not be subject to the deferred tax and
interest charge amounts to which it might otherwise be subject,
as discussed above, in the event of an "excess distribution" or
gain with regard to shares of a PFIC. If the Fund purchases
shares in a PFIC and the Fund does elect to treat the foreign
corporation as a "qualified electing fund" under the Code, the
Fund may be required to include in its income each year a portion
of the ordinary income and net capital gains of the foreign
corporation, even if this income is not distributed to the Fund.
Any such income would be subject to the 90% and calendar year
distribution requirements described above.
Currency Fluctuations-"Section 988" Gains or Losses.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of foreign currencies, from
the disposition of debt securities denominated in a foreign
currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. If such
distributions exceed such shareholder's basis, such excess will
be treated as a gain from the sale of shares.
68
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
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
69
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, forward
foreign currency contract, currency swap, or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's
gains and losses with respect to straddle positions by requiring,
among other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
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.
70
Taxation of Foreign Stockholders
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders who are United
States citizens or residents or United States corporations. The
effects of federal income tax law on shareholders who are non-
resident alien individuals or foreign corporations may be
substantially different. Foreign investors should therefore
consult their counsel for further information as to the United
States tax consequences of receipt of income from the Fund.
Other Taxation
As noted above, the Fund may be subject to other state
and local taxes.
_______________________________________________________________
BROKERAGE AND PORTFOLIO TRANSACTIONS
_______________________________________________________________
The management of the Fund has the responsibility for
allocating its brokerage orders and may direct orders to any
broker. It is the Fund's general policy to seek favorable net
prices and prompt reliable execution in connection with the
purchase or sale of all portfolio securities. In the purchase
and sale of over-the-counter securities, it is the Fund's policy
to use the primary market makers except when a better price can
be obtained by using a broker. The Board of Directors has
approved, as in the best interests of the Fund and the
shareholders, a policy of considering, among other factors, sales
of the Fund's shares as a factor in the selection of
broker-dealers to execute portfolio transactions, subject to best
execution. The Adviser is authorized under the Advisory
Agreement to place brokerage business with such brokers and
dealers. The use of brokers who supply supplemental research and
analysis and other services may result in the payment of higher
commissions than those available from other brokers and dealers
who provide only the execution of portfolio transactions. In
addition, the supplemental research and analysis and other
services that may be obtained from brokers and dealers through
which brokerage transactions are effected may be useful to the
Adviser in connection with advisory clients other than the Fund.
Investment decisions for the Fund are made independently
from those for other investment companies and other advisory
accounts managed by the Adviser. It may happen, on occasion,
that the same security is held in the portfolio of the Fund and
one or more of such other companies or accounts. Simultaneous
transactions are likely when several funds or accounts are
managed by the same Adviser, particularly when a security is
71
suitable for the investment objectives of more than one of such
companies or accounts. When two or more companies or accounts
managed by the Adviser are simultaneously engaged in the purchase
or sale of the same security, the transactions are allocated to
the respective companies or accounts both as to amount and price,
in accordance with a method deemed equitable to each company or
account. In some cases this system may adversely affect the
price paid or received by the Fund or the size of the position
obtainable for the Fund.
Allocations are made by the officers of the Fund or of
the Adviser. Purchases and sales of portfolio securities are
determined by the Adviser and are placed with broker-dealers by
the order department of the Adviser.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Fund; but, on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in serving the Fund. Consistent with the Conduct Rules of
the National Association of Securities Dealers, Inc., and subject
to seeking best execution, the Fund may consider sales of shares
of the Fund or other investment companies managed by the Adviser
as a factor in the selection of brokers to execute portfolio
transactions for the Fund.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
an affiliate of the Adviser, and with brokers which may have
their transactions cleared or settled, or both, by the Pershing
Division of DLJ, for which DLJ may receive a portion of the
brokerage commissions. In such instances, the placement of
orders with such brokers would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser.
Many of the Fund's portfolio transactions in equity
securities will occur on foreign stock exchanges. Transactions
on stock exchanges involve the payment of brokerage commissions.
On many foreign stock exchanges these commissions are fixed.
Securities traded in foreign over-the-counter markets (including
most fixed-income securities) are purchased from and sold to
dealers acting as principal. Over-the-counter transactions
72
generally do not involve the payment of a stated commission, but
the price usually includes an undisclosed commission or markup.
The prices of underwritten offerings, however, generally include
a stated underwriter's discount. The Adviser expects to effect
the bulk of its transactions in securities of companies based in
foreign countries through brokers, dealers or underwriters
located in such countries. U.S. Government or other U.S.
securities constituting permissible investments will be purchased
and sold through U.S. brokers, dealers or underwriters.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Capitalization
The authorized capital stock of the Fund currently
consists of [ ] shares of Class A Common Stock,
[ ] shares of Class B Common Stock, [ ]
shares of Class C Common Stock and [ ] shares of
Advisor Class Common Stock, each having a par value of $[ ]
per share. All shares of the Fund, when issued, are fully paid
and non-assessable. The Directors are authorized to reclassify
and issue any unissued shares to any number of additional series
and classes without shareholder approval. Accordingly, the
Directors in the future, for reasons such as the desire to
establish one or more additional portfolios with different
investment objectives, policies or restrictions, may create
additional classes or series of shares. Any issuance of shares
of another class or series would be governed by the 1940 Act and
the law of the State of Maryland. If shares of another series
were issued in connection with the creation of a second
portfolio, each share of either portfolio would normally be
entitled to one vote for all purposes. Generally, shares of both
portfolios would vote as a single series on matters, such as the
election of Directors, that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Investment
Advisory Contract and changes in investment policy, shares of
each portfolio would vote as a separate series. Procedures for
calling a shareholders' meeting for the removal of Directors of
the Fund, similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of the Fund. The rights of
the holders of shares of a series may not be modified except by
the vote of a majority of the outstanding shares of such series.
73
Custodian
Brown Brothers Harriman & Co. ("Brown Brothers"), 40
Wall Street, Boston, Massachusetts, will act as the Fund's
custodian. The Fund's securities and cash are held under a
custodian agreement by Brown Brothers. Rules adopted under the
1940 Act permit the Fund to maintain its securities and cash in
the custody of certain eligible banks and securities
depositories. Pursuant to those rules, the Fund's portfolio of
securities and cash, when invested in securities of foreign
countries, will be held by its subcustodians, subject to approval
by the Board of Directors of the Fund as and when appropriate in
accordance with the rules of the Securities and Exchange
Commission. Selection of the subcustodians will be made by the
Board of Directors of the Fund following a consideration of a
number of factors, including, but not limited to, the reliability
and financial stability of the institution, the ability of the
institution to capably perform custodial services of the Fund,
the reputation of the institution in its national market, the
political and economic stability of the countries in which the
subcustodians will be located, and risks of potential
nationalization or exportation of Fund assets. In addition, the
1940 Act requires that foreign bank subcustodians, among other
things, have shareholder equity in excess of $200,000,000, have
no lien on the Fund's asset and maintain adequate and accessible
records.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Under the 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 of 1933, as amended.
Counsel
Legal matters in connection with the issuance of the
shares offered hereby are passed upon by Seward & Kissel, New
York, New York. Seward & Kissel has relied upon the opinion of
Venable, Baetjer and Howard, LLP, Baltimore, Maryland, for
matters relating to Maryland law.
74
Independent Auditors
Ernst & Young LLP, New York, New York, has been
appointed as independent auditors for the Fund.
Performance Information
From time to time the Fund advertises its "total
return." Computed separately for each class, the Fund's "total
return" is its average annual compounded total return for its
most recently completed one, five, and ten-year periods (or the
period since the Fund's inception). The Fund's total return for
such a period is computed by finding, through the use of a
formula prescribed by the Securities and Exchange Commission, the
average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of
such investment at the end of the period. For purposes of
computing total return, income dividends and capital gains
distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charge applicable to
purchases of Fund shares is assumed to have been paid.
The Fund's total return is computed separately for
Class A, Class B, Class C and Advisor Class shares. The Fund's
total return is not fixed and will fluctuate in response to
prevailing market conditions or as a function of the type and
quality of the securities in the Fund's portfolio and its
expenses. Total return information is useful in reviewing the
Fund's performance but such information may not provide a basis
for comparison with bank deposits or other investments which pay
a fixed yield for a stated period of time. An investor's
principal invested in the Fund is not fixed and will fluctuate in
response to prevailing market conditions.
Advertisements quoting performance ratings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc., and
Morningstar, Inc. and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers,
magazines such as 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
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
75
forth in the Registration Statement filed by the Fund with the
Securities and Exchange Commission under the Securities Act 1933.
Copies of the Registration Statement may be obtained at a
reasonable charge from the Securities and Exchange Commission or
may be examined, without charge, at the offices of the Securities
and Exchange Commission in Washington, D.C.
76
__________________________________________________________
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 cancelled 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 in any particular situation.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any
A-1
securities subject to the option to be used for other Fund
investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing
transaction if the price of the transaction is less than the
premium received from writing the option or is more than the
premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is
more than the premium received from writing the option or is less
than the premium paid to purchase the option. Because increases
in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing
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 ("National 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 National Exchange, (v) the facilities of an
National Exchange or the Options Clearing Corporation may not at
all times be adequate to handle current trading volume, or
(vi) one or more National 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
National Exchange (or in that class or series of options) would
cease to exist, although outstanding options on that National
Exchange that had been issued by the Options Clearing Corporation
as a result of trades on that National 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
A-2
then write a call option against that security. The exercise
price of the call the Fund determines to write will depend upon
the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"),
equal to ("at-the-money") or above ("out-of-the-money") the
current value of the underlying security at the time the option
is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during
the option period. Buy-and-write transactions using at-the-money
call options may be used when it is expected that the price of
the underlying security will remain fixed or advance moderately
during the option period. Buy-and-write transactions using out-
of-the-money call options may be used when it is expected that
the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone. If the call options are
exercised in such transactions, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted
upwards or downwards by the difference between the Fund's
purchase price of the security and the exercise price. If the
options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
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 price of the underlying
A-3
security rises sufficiently, the option may expire worthless to
the Fund.
A-4
_______________________________________________________________
APPENDIX B: FUTURES CONTRACTS, OPTIONS ON FUTURES CONTRACTS
AND OPTIONS ON FOREIGN CURRENCIES
_______________________________________________________________
Futures Contracts
The Fund may enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices including any
index of U.S. Government Securities, securities issued by foreign
government entities or common stocks. U.S. futures contracts
have been designed by exchanges which have been designated
"contracts markets" by the Commodity Futures Trading Commission
("CFTC"), and must be executed through a futures commission
merchant, or brokerage firm, which is a member of the relevant
contract market. Futures contracts trade on a number of exchange
markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing
members of the exchange.
At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2% to 5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or
increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different price or
interest rate from that specified in the contract. In some (but
not many) cases, securities called for by a futures contract may
not have been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
B-1
contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
Stock Index Futures
The Fund may purchase and sell stock index futures as a
hedge against movements in the equity markets. There are several
risks in connection with the use of stock index futures by the
Fund as a hedging device. One risk arises because of the
imperfect correlation between movements in the price of the stock
index futures and movements in the price of the securities which
are the subject of the hedge. The price of the stock index
futures may move more than or less than the price of the
securities being hedged. If the price of the stock index futures
moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had
not hedged at all. If the price of the securities being hedged
has moved in a favorable direction, this advantage will be
partially offset by the loss on the index future. If the price
of the future moves more than the price of the stock, the Fund
will experience either a loss or gain on the future which will
not be completely offset by movements in the price of the
securities which are subject to the hedge. To compensate for the
imperfect correlation of movements in the price of securities
being hedged and movements in the price of the stock index
futures, the Fund may buy or sell stock index futures contracts
in a greater dollar amount than the dollar amount of securities
being hedged if the volatility over a particular time period of
the prices of such securities has been greater than the
volatility over such time period of the index, or if otherwise
deemed to be appropriate by the Adviser. Conversely, the Fund
may buy or sell fewer stock index futures contracts if the
volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such
time period of the stock index, or it is otherwise deemed to be
appropriate by the Adviser. It is also possible that, when the
Fund has sold futures to hedge its portfolio against a decline in
the market, the market may advance and the value of securities
held in the Fund may decline. If this occurred, the Fund would
lose money on the futures and also experience a decline in value
in its portfolio securities. However, over time the value of a
diversified portfolio should tend to move in the same direction
as the market indices upon which the futures are based, although
there may be deviations arising from differences between the
composition of the Fund and the stocks comprising the index.
Where futures are purchased to hedge against a possible
increase in the price of stock before the Fund is able to invest
its cash (or cash equivalents) in stocks (or options) in an
B-2
orderly fashion, it is possible that the market may decline
instead. If the Fund then concludes not to invest in stock or
options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss
on the futures contract that is not offset by a reduction in the
price of securities purchased.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in the stock index futures and the portion of the
portfolio being hedged, the price of stock index futures may not
correlate perfectly with movement in the stock index due to
certain market distortions. Rather than meeting additional
margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the
normal relationship between the index and futures markets.
Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortion in the futures market, and because of the imperfect
correlation between the movements in the stock index and
movements in the price of stock index futures, a correct forecast
of general market trends by the investment adviser may still not
result in a successful hedging transaction over a short time
frame.
Positions in stock index futures may be closed out only
on an exchange or board of trade which provides a secondary
market for such futures. Although the Fund intends to purchase
or sell futures only on exchanges or boards of trade where there
appear to be active secondary markets, there is no assurance that
a liquid secondary market on any exchange or board of trade will
exist for any particular contract or at any particular time. In
such event, it may not be possible to close a futures investment
position, and in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not
be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if
any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee
that the price of the securities will in fact correlate with the
price movements in the futures contract and thus provide an
offset on a futures contract.
B-3
Options on Futures Contracts
The Fund intends to purchase and write options on
futures contracts for hedging purposes. The Fund is not a
commodity pool and all transactions in futures contracts and
options on futures contracts engaged in by the Fund must
constitute bona fide hedging or other permissible transactions in
accordance with the rules and regulations promulgated by the
CFTC. The purchase of a call option on a futures contract is
similar in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which
it is based or the price of the underlying debt securities, it
may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested it may
purchase a call option on a futures contract to hedge against
adverse market conditions.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract or securities comprising an index. If
the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline
that may have occurred in the Fund's portfolio holdings. The
writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or
foreign currency which is deliverable upon exercise of the
futures contract or securities comprising an index. If the
futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any
increase in the price of securities which the Fund intends to
purchase. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree
of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Fund may
purchase a put option on a futures contract to hedge the Fund's
portfolio against the risk of rising interest rates.
B-4
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
Options on Foreign Currencies
The Fund may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in
which futures contracts on foreign currencies, or forward
contracts, will be utilized. For example, a decline in the
dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities,
even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of
portfolio securities, the Fund may purchase put options on the
foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the
adverse effect on its portfolio which otherwise would have
resulted. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the
Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. Options on foreign currencies to
be written or purchased by the Fund are traded on U.S. and
foreign exchanges or over-the-counter.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from
purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund
anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs,
B-5
the option will most likely not be exercised, and the diminution
in value of portfolio securities will be offset by the amount of
the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If
this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at
a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund
also may be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable movements
in exchange rates.
The Fund intends to write covered call options on
foreign currencies. A call option written on a foreign currency
by the Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option
is also covered if the Fund has a call on the same foreign
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities and
other high-grade liquid debt securities in a segregated account
with its Custodian.
The Fund also intends to write call options on foreign
currencies for cross-hedging purposes. An option that is cross-
hedged is not covered, but is designed to provide a hedge against
a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
Custodian, cash or other high-grade liquid debt securities in an
amount not less than the value of the underlying foreign currency
in U.S. dollars marked to market daily.
B-6
Additional Risks of Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies
Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the SEC. To
the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency
options are also traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board
Options Exchange, subject to SEC regulation. Similarly, options
on securities may be traded over-the-counter. In an
over-the-counter trading environment, many of the protections
afforded to exchange participants will not be available. Although
the purchaser of an option cannot lose more than the amount of
the premium plus related transaction costs, this entire amount
could be lost. Moreover, the option writer and a trader of
forward contracts could lose amounts substantially in excess of
their initial investments, due to the margin and collateral
requirements associated with such positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency
B-7
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.
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.
B-8
___________________________________________________________
APPENDIX C: ADDITIONAL INFORMATION ABOUT
CHINA, HONG KONG & TAIWAN
___________________________________________________________
ADDITIONAL INFORMATION ABOUT THE PEOPLE'S REPUBLIC OF CHINA
With a population of approximately 1.2 billion people,
China is home to approximately 22% of the world's population.
China is the world's third largest nation in terms of land area
with 9.56 million square kilometers and shares borders with 13
nations, including Russia, India, North Korea and Vietnam. The
terrain of this vast nation includes the Himalayan Mountains, the
Gobi Desert and tropical areas in the southeast. Politically,
China is divided into 22 provinces, five autonomous regions and
three municipalities.
Government
China is officially a "people's republic" which is
defined by the Chinese government as a dictatorship of the
working classes. In reality China is an oligarchy. The
government framework consists of the National People's Congress
("NPC"), a 3000 person strong legislature supplemented by the
Standing Committee which does much of the work of the NPC when
the NPC is out of session. Historically the NPC has had little
real power, as real power lies in the Communist party structure
ruled by the seven member Politburo Standing Committee. The
Chinese Communist Party currently consists of approximately 57
million members. The day to day operations of the party are run
by the Central Committee which is elected by the full Party.
This 188 member Committee with 127 alternates, elects the seven
member Politburo Standing Committee. These seven people, who in
actuality govern China, include the prime minister, Li Peng, the
president, Jiang Zemin, and military leaders. Since Deng's death
Jiang Zemin has taken over as the leader of the Communist party.
Jiang's has not completely consolidated his power however, and it
is uncertain if he can retain control of the party.
History and Politics
China claims to be the oldest continuous civilization,
first unified as a nation in 221 B.C. In this century China has
experienced its first republic (1924-1949), invasion by Japan
(1931-1945), and a civil war, with the eventual victory by the
Chinese Communists in 1949 leading to the establishment by the
Communists of the People's Republic of China. The country was
led, until 1976, by the Communist revolutionary leader Mao
Zedong. China's continuing transition to a capitalist economy
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can be traced back to the late 1970s when Deng Xaioping, took
over as head of Communist government after Mao's death. Deng
encouraged capitalism and private ownership, albeit in an
authoritarian framework, which eventually caused the Chinese
economy to grow at spectacular rates, a trend that has continued
today. With economic liberalism, however, has come a desire in
some circles, for political freedom. This desire was expressed
in the student protests in the capital Beijing in 1989 which
ended in the Tiananmen Square massacre. Earlier this year Deng
died at age 92, raising questions concerning the continued
Chinese economic liberalism with the passing of the movement's
earliest and most influential proponent.
Economy and Trade
In some ways, the Chinese economy of today is similar to
the United States economy in the latter part of the 19th Century:
a rural agricultural country experiencing an "industrial
revolution" transforming it into a modern manufacturing nation.
China's economy has seen rapid growth in recent years, with
double digit percent increases in the growth of the Gross
Domestic Product ("GDP") from 1990 to 1995. In 1996 the economy
grew at approximately 9.7%, which is within China's target of 8-
9% growth per year between 1996 and 2000.
Increasingly, China's industry is becoming privately
owned with a large portion collectively owned. This collective
sector includes township and village enterprises often combined
with some measure of foreign investment or privately owned
enterprises registering under this official registration. The
state, which formerly controlled the vast majority of economic
production is now responsible for less than half of China's
industrial output. In 1996, the collective sector led all
industrial output with a growth rate of 23.4% compared with only
a 7.2% increase by state-owned enterprises. The "other" sector,
made up of foreign investors and privately owned enterprises,
showed a 19.2% growth rate in industrial output. Many state run
enterprises ("SOEs") are unprofitable and are kept afloat by
generous government subsidies which help to increase China's
budget deficit. According to the Chinese press, 45% of SOEs
reported losses amounting to 8.3 billion U.S. dollars (official
figures from China put the figure at 34%) in 1996.
Manufacturing in China has also been rapidly moving into
private hands, as private enterprises set up in the five Special
Economic Zones (the largest being Guangdong Province which
borders Hong Kong) where tax incentives among other factors, have
encouraged investment in and the growth of private industry.
China has taken manufacturing jobs from other Asian economies in
recent years, as foreign companies have taken advantage of
China's low wages and ample supply of workers. These advantages
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have caused a rise in foreign investment in China, with Hong Kong
and Taiwan as the largest foreign investors. A constraint to
growth that China is experiencing, and a constraint most other
developing nations experience, is a lag in infrastructure (such
as communications and transportation) development as compared to
growth in general. The government (financed in part by Japan and
the World Bank) is investing heavily in infrastructure, but with
China's infrastructure already being used at near capacity,
continued development will be necessary if China's high
industrialization growth rate is to continue.
China's foreign trade grew 3.2% in 1996, with a trade
surplus of $12.2 billion U.S. dollars. However, this growth rate
has been slower than in past years while at the same time China's
reliance upon imports rose by 7.8% in 1996. With this slow down
in growth of the trade surplus, in combination with a deficit in
services and a large deficit income, China is expected to run an
overall account deficit of 9.2 billion U.S. dollars in 1996.
Despite this large current account deficit, China's external
payment position is sound. China's debt service ratio of 11% is
well below the 20% safety threshold and China boasts the second
largest foreign capital reserve in the world.
A downside to China's recent economic boom has been
double digit inflation, which has averaged 11.4% in the years
1991-1995. China, however, has kept inflation at rates below GDP
growth rates in the 1990s and kept inflation in the single digits
in 1996. Inflation has been kept under control by tough
austerity measures (such as a tighter money policy and price
controls on certain commodities such as coal, oil and certain
foodstuffs) imposed in 1994 after inflation exceeded 20%. While
some of these measures were lifted in mid-1996, many remain in
place and are enforced to differing degrees to keep inflation
under control. Inflation has contributed to a reduction in the
standard of living for many rural Chinese who do not live in the
particular provinces where the economy is growing, mainly in the
Eastern Seaboard cities. The government tariffs on imports also
contributes to higher prices for certain goods. China, however,
has been reducing its tariffs in recent years (the latest
reduction was in 1996 when the average tariff rate was lowered to
23%, and further plans to lower the tariffs to 15% by 2000 were
announced in November of 1996) in an effort to qualify for
membership in the World Trade Organization.
Banking and Finance
Banking in China is controlled by the People's Bank of
China ("PBC"), the central bank of China. The bank is subject to
control by the State Council, which forces 60-80% of the bank's
lending to be in the form of policy loans which are essentially
government expenditures. China's fiscal problems have been
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exacerbated by the PBC's continued forced subsidization of
government programs, especially the SOE's. China is planning to
reform the banking system, with an attempt to make the PBC more
like the U.S. Federal Reserve and less, as it has been now and in
the past, a deep pocket to finance the unprofitable SOEs. The
government has plans to offset the huge losses the PBC and other
state controlled banks have been bearing due to SOE bankruptcies
by having the SOEs and banks work together to come to agreements
on restructuring the debt, rather than having the SOEs simply
write them off.
The monetary unit of China is the Renminbi and in recent
years has been exchanged for U.S. Dollars at an 8 to 12 per
dollar ratio. The Renminbi is not fully convertible into US
Dollars. The government exchanges money at an official rate, but
there exist "swap" markets which set the price nearer to market
levels. The effect of the "swap" markets, which are allowed by
the government, is a devaluation of the Renminbi. However, in
December of 1996 the government officially set the exchange rate
at 8.3 Renminbi per dollar, closer to the market rate, to comply
with the rules of the International Monetary Fund. China set up
an interbank market to handle foreign exchange in 1993 and it is
difficult to say what effect this and the government plan of
setting the exchange rate nearer to market levels will have on
the "swap" markets long term, although in recent years traders
have still used the "swap" markets to supplement their use of
Chinese banks.
China has two officially recognized stock exchanges, the
Shanghai and the Shenzhen Exchanges (the "Exchanges"). These
securities markets have been very volatile since their inception
in 1990. The Exchanges allow for only two types of shares to be
traded. "A" shares, denominated in Renminbi, which may only be
purchased by Chinese investors and "B" shares open only to
foreign investors, which are also denominated in Renminbi, but
are traded in U.S. and Hong Kong dollars by foreigners. By
November of 1996, the two exchanges listed 472 stocks with a
total capitalization of 949 billion Renminbi. While full merger
of "A" and "B" share markets is not likely in the near future, it
is anticipated that joint ventures between foreign financial
houses are Chinese investors to purchase "A" shares will soon be
allowed as well as allowing Chinese investors access to the "B"
market. The Chinese government has also allowed certain Chinese
companies to list shares on the Hong Kong Stock Exchange, such
shares designated as "H" shares. Presently 17 "H" shares are
listed on the Hong Kong Stock Exchange with plans to add another
14. China also plans to allow 38 additional companies to list
shares on foreign exchanges.
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ADDITIONAL INFORMATION ABOUT HONG KONG
Territory and Population
Hong Hong, under the control of Great Britain until
June 30, 1997, is a small territory located on the southeastern
coast of China. It is approximately 1,075 square miles with a
population of 6.3 million people, the vast majority of which are
ethnic Chinese. The territory is divided into three regions,
Hong Kong island, the New Territories (less populated suburbs)
and Kowloon. Kowloon and Hong Kong Island lie across Victoria
Harbor from each other and are the most densely populated parts
of Hong Kong.
Government
Hong Kong, is presently a colony of the British crown,
with Queen Elizabeth II as the Head of State and her appointed
governor, Chris Patten, as her representative. The legislature,
referred to as the Legco, has 60 members, most indirectly elected
by certain constituencies (such as professionals) and 20 members
directly elected by the people. The executive committee,
referred to as the Exco, are twelve members appointed by the
governor from the Hong Kong elite. They advise the governor
concerning legislation to be debated in the Legco.
Politics
Britain took control of Hong Kong Island during the
First Opium War in 1841, with the hopes of using the island as a
colony from which it could open up the Chinese market. In 1860
Britain extended its possession to include Kowloon and in 1898
Britain forced China to turn over to it the New Territories under
a 99 year lease, due to expire this June 30th. Except for
Japanese occupation during World War II, Great Britain has
continually ruled Hong Kong since 1841. In 1984 Britain and
China signed an agreement (the "Joint Declaration") which
provides that Hong Kong will be turned over to China on July 1,
1997. In this Joint Declaration, China agreed that Hong Kong
would become a Special Administrative Region ("SAR") of China,
and retain its present capitalist structure for the next 50
years.
In 1992, Chris Patten became the governor of Hong Kong.
In light of the Tiananmen Square massacre, Mr. Patten proposed a
plan to develop a more democratic political system in Hong Kong
before British departure. The Chinese government strongly
believes that Patten's proposal violates the Basic Law, the mini-
constitution for the SAR that Hong Kong will become. The Chinese
and British negotiated Patten's proposal but could not come to an
agreement on the issue of Patten's Plan, which provided for
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expanded suffrage, increasing the number of directly elected
seats in the Legislative Council, and introducing the "first-past
the post" (winner take all) voting system. After negotiations
between China and Britain failed, Patten implemented his plan.
The 1995 elections, which were the first elections under this new
system, was seen as a victory for pro-democracy candidates. In
the elections the pro-democracy parties (including the dominant
Democratic Party) won 25 of the contested seats in the Legco,
while the pro-Chinese Democratic Alliance for the Betterment of
Hong Kong (DAB), won just two. It is expected that these
political changes introduced by Patten will be abolished by China
once it takes over control of China. In fact, the Standing
Committee of the NPC voted unanimously to abolish Hong Kong's
political structure on June 30, 1997. China has also appointed a
Preparatory Committee ("PC") which in turn will select
Hong Kong's first chief executive of the SAR and the provisional
legislature which will replace the Legco. It is expected that
the PC, like the NPC in China, will be a rubber stump of policies
enacted by Beijing. While the people of Hong Kong do not have
the right to vote for members of this transitional legislature,
general elections are required according to the Basic Law once
this transitional period has ended.
The continuation of the move toward democracy in Hong
Kong after the transition is questionable. The Basic Law holds
that the Chief Executive must be acceptable to China, only a
minority of Legco will be directly elected and China will be
responsible for defense and foreign affairs. There has also been
recent indications that certain basic freedoms, such as the
Freedom of Association will limited by China once Hong Kong
becomes a SAR.
Economics and Trade
The economy of Hong Kong is heavily dependent on trade.
Foreign trade in goods and services was 255.2% of GDP in 1995.
Hong Kong's growth, like so many of the "Asian Tigers", began
with manufacturing of low-cost consumer goods, particularly
textiles (still Hong Kong's most important export industry) and
electronics. As Hong Kong's standard of living increased,
production costs also rose. While other "Tigers" such as South
Korea moved to high-tech industry from consumer goods, Hong Kong
transformed itself into a financial and trade center. Currently,
the services sector employs 60% of the population and accounts
for 83% of Hong Kong's GDP, while manufacturing accounts for only
9.3% of GDP. The economy has been growing at a respectable pace
for the last few years, only dropping below 4.7% once since 1991.
Hong Kong's economy, however, has not kept up with growth in
Taiwan, China, or Singapore.
C-6
With the movement of manufacturing jobs to China, Hong
Kong has shifted its manufacturing base to the re-exporting of
goods manufactured in China. As much of Hong Kong's industry is
now involved in packaging, presenting, selling and shipping goods
produced in China, the measure of Hong Kong's continued
industrial growth is tied to China. From 1990 to 1995 re-exports
rose by 152.7%, compared to a 4.2% drop in exports produced in
Hong Kong. Hong Kong's role as a re-exporter is expected to
decrease, however, as China continues to modernize its own port
facilities and direct trade with Taiwan, where port costs are 40%
lower than in Hong Kong, is becoming a possibility. Hong Kong
role in transshipments is expected to increase as its role in re-
exports decreases as Hong Kong is not expected to remain the
vital Chinese port it once was with competition coming from less
developed but cheaper Chinese ports. Shipping is still expected
to growth as container throughput in Hong Kong is still growing
(up 13.4% in 1996), and the Chinese have made plans to directly
connect Hong Kong's ports to China's main railway lines.
In contrast to Hong Kong's large seaport, its airport is
woefully inadequate, hindering the growth of both tourism and the
rapidly expanding air-cargo industry. Political disagreements
with China have delayed the opening of the new airport until
1998. Tourism which earned HK$72.9 billion in 1995, as 21.4
million international passengers flew into Hong Kong, is expected
to remain stagnant until the new airport opens. The new airport
is expected to be able to handle 35 million passengers annually
once the second runway is built, presently expected in 2000.
While tourism has been increasing, hotel space has been
declining, as the need for need for retail office space has
grown. This trend is expected to continue.
Money, Banking and Finance
Hong Kong has established itself as one of the import
financial centers in the world. Unlike many Asian economies,
Hong Kong does not actively attract or dissuade foreign
investment, and is known as one of the freest markets in the
world. Given Hong Kong's low taxes and quality infrastructure,
many business looking to set up regional headquarters or a
foothold to do business in China have set up offices in
Hong Kong. While Hong Kong does not have a central bank, in 1993
the Hong Kong Monetary Authority ("HKMA") was set up to assume
certain central bank type duties. These duties include monetary
management and supervising the banking industry. Hong Kong has
380 authorized banking institutions (including licensed banks,
restricted-license banks and "deposit-taking companies"). While
government regulation is kept to a minimum, all banks are
required to be members of the Hong Kong Association of Banks
which supervises banking standards and regulates charge and
deposit interest rates. The HKMA does not, however, set interst
C-7
rates, as in 1983 the Hong Kong dollar was pegged to the U.S.
dollar at a rate of US$1:HK$7.8. This has effectively taken much
of monetary and interest rate policy away from the Hong Kong
government, and put it into the hands of U.S. Federal Reserve.
This policy has left Hong Kong ill equipped to deal with
inflation rates, and has contributed to surges of money into the
stock and property markets. According to the Basic Law, this
policy is to continue under Chinese rule.
Like its other financial markets, the Hong Kong Stock
Exchange ("HKSE") is completely open to foreign investors with
minimal regulations. The HKSE has expanded from 310 listed
companies with a market capitalization of HK$805 billion in 1991
to 542 listed companies with a market capitalization of HK$2.4
trillion in 1996. Despite this growth, the HKSE seems to be
showing signs of investor tensions over the upcoming transition
of power to China. The market has recently seen some listed
companies move their domicile to other tax-friendly
jurisdictions, such as Bermuda, while other companies have
obtained secondary listings on the London or Shanghai exchanges,
or have de-listed altogether for fear of the Chinese takeover.
These departures have been replaced, at least in part, by Chinese
companies meeting the stringent listing requirements of the
exchange and issuing "H" shares. More recently, investors have
been turning to the so called "red chips", Chinese controlled
companies listed on both the Hong Kong and Chinese stock
exchanges, which are believed to better managed then the "H"
share listed companies.
Since the HKSE is not highly regulated, the market is
prone to wide fluctuations, as the exchange does not impose
trading restrictions when the market becomes erratic. The Hang
Seng index of the HKSE has risen from 4,297 in 1991 when the
exchange was created from the four existing Hong Kong exchanges,
to over 13,000 in November of 1996. However, this growth has
been marked by eratic movements. In 1993, the year-end Hang Seng
index was up 116% from the previous year (in constant prices),
but experienced a 31% drop in 1994, followed by a 23% gain in
1995 and the previously mentioned rise in 1996.
According to the Basic Law, the Chinese government will
continue to apply a "hands-off" approach to the Hong Kong
economy. Everything from the stock market, to the principle of
free trade, to the ownership of property is to be protected. The
Basic Law explicitly holds that socialism will not be practiced
in Hong Kong.
C-8
ADDITIONAL INFORMATION ABOUT TAIWAN
Taiwan is an island located off the southeastern coast
of The People's Republic of China. It's land mass is 36,000
square kilometers and has a population of approximately 21.3
million, 98% of which are ethnic Chinese. Half of the
island is covered by forests and the terrain is mountainous,
especially inland.
Government
Taiwan is a constitutional republic with a bi-cameral
legislature. The National Assembly, which is partially
elected and partially nominated by the parties, formerly
selected the president, but is now limited to amending the
constitution. The Legislative Yuan is more of a traditional
elected parliament. The president, considered part of the
Executive Yuan, is directly elected. There is also the
Judicial Yuan which is responsible for overseeing the court
system, the Control Yuan which is responsible for security
matters and impeachment and the Examination Yuan,
responsible for recruiting civil servants. The Provincial
legislature, still in existence from the days when Taiwan
was a province of China, is largely redundant but has some
power to block legislation of the Yuans. In December of
1996 the KMT and DPP parties agreed to eliminate the
Provincial legislature and governor and take away the
National Assembly's power to amend the constitution,
although the Legislative Yuan has yet to approve these
measures.
Politics
Formerly a province of China, Taiwan became independent
from mainland China in 1949 after the Chinese Civil War when
the Nationalist leader Chiang-Kai-Shek and the remnants of
his Nationalist forces fled to the island and set up a
provisional government. For much of the first ten years the
Nationalist or Kuomintang Party (KMT) aimed at retaking the
mainland rather than concentrating on Taiwan. After
pressure from the United States however, the KMT began to
look inward towards developing Taiwan. The KMT imposed
marital law from 1949 until 1987, when political scandals
weakened the KMT government to the point where elections and
the formation of opposition parties were allowed. This
trend toward democracy has continued since 1987. Opposition
parties such as the pro-independence Democratic Progressive
Party (DPP) and the "old-guard" New Party have been allowed
to participate in the political process. In the
legislative elections of 1995 the once-dominant KMT party
failed to attain a majority of the vote (although it still
C-9
held a majority in the legislature) and in 1996 Taiwan
elected its president directly for the first time.
China is adamant that Taiwan is not an independent
country but a province of China, while Taiwan's official
position is that it is the rightful government of China.
While Taiwan has attempted to be recognized as an official
government, all but 31 nations (including the United States)
recognize The People's Republic of China as the only
official government representing China. While there is a
growing movement in Taiwan towards declaring independence
from China, the Taiwanese government has been wary of
declaring independence out of fear of Chinese reprisals.
For instance, China expressed great anger over the June 1995
visit to Cornell University by the Taiwanese president Lee
Teng-hui and in early 1996 conducted a series of missile
tests off the Taiwanese coast in an effort to scare voters
away from voting for the DPP in the March election. While
China flexed its military muscle in the hopes of effecting
the election, the threat of an actual invasion from China is
remote, as China does not presently have a navy capable of
launching an invasion against Taiwan.
Banking and Finance
The monetary unit of Taiwan is the New Taiwan Dollar,
which for the past few years has hovered near 26 per United
States dollar. Unlike in Hong Kong, the Taiwanese financial
markets, including both the banking and securities markets,
have historically been highly regulated by the Taiwanese
government. Beginning in 1989 with the passage of a revised
banking law after a series of scandals, Taiwanese financial
markets began to be liberalized. Initially, interest rate
restrictions were lifted followed by removal of certain
restrictions on bank branches which has allowed foreign
banks to open more than one branch in Taiwan. The central
bank of Taiwan is the Central Bank of China ("CBC"). Some
of the major Taiwanese banks besides the CBC are the
International Commercial Bank of China which is privately
owned, the Bank of Taiwan and the Cooperative Bank of Taiwan
both of which the government holds large stakes in.
In 1990 Taiwan announced a goal of becoming a regional
financial center. The original goal of achieving this by
1996 was too optimistic as may restrictions still limit
foreign capital investments. Taiwan has recently announced
that measures are being taken to further liberalize the
financial markets by lifting restrictions on foreign
capital, raising the limits on capital inflows and outflows
by Taiwanese firms and allowing foreign banks greater
freedom to operate.
C-10
The Taipei Stock Exchange, the only stock exchange in
Taiwan, is the sixth largest exchange in the world is terms
of average trading volume and fifteenth in terms of overall
capitalization. Unlike markets in the U.S., the Taipei
exchange is used more as vehicle for speculating with excess
liquidity than as a means to raise funds. Historically, the
market has been extremely volatile. Beginning in 1989, the
market rose from approximately 5,000 points, to just below
12,500 points by February 1990 and thereafter fell to 2,500
points by September. Since this collapse, the market has
been less erratic, but still prone to wide fluctuations. As
of January, 1997 the exchange was up to 7,150 points from
6,934 points at the end of December, 1996.
While Taiwan is in the process of opening up its
financial markets to foreign investors, restrictions still
exist on the Taipei Stock Exchange. Although recently
raised from 20%, there is still a limit on total foreign
investment in the exchange of 25% of the market
capitalization of the exchange. Individual foreign
institutional investors are limited to 10% of the market
capitalization while individual foreign investors are
limited to a maximum investment of US$5 million. Because of
burdensome procedures that must be followed prior to
investing in the exchange, foreign investment has never
reached the maximum limits. The Taiwanese government, aware
that these bureaucratic procedures are limiting foreign
investment, have stated that these procedures will be
streamlined.
Taiwan has also announced certain plans to expand
foreign access to the bond markets (both corporate and
government) and plans on opening a commodity futures
exchange in October of 1997. However, futures and options
of Taiwanese securities have been traded in Chicago and
Singapore since January 9, 1997, thus getting a jump on
Taiwanese traders. Taiwan has restricted investment on the
Chicago or Singapore exchanges from the Taiwanese stock
market, but investors can still do so by using Hong Kong's
exchange. The Taiwanese bond markets are improving with
NT$52 billion of corporate debt instruments issued in 1995
and NT$117 billion in the first seven months of 1996.
Economy and Trade
Taiwan is know as one of the "Asian Tigers", the newly
prosperous, fast growing economies of the Asian Pacific Rim.
Like other Asian Tigers, Taiwan enjoyed spectacular
economic growth in the 1960s to 1970s when cheap labor and
government tax breaks allowed Taiwanese bottom-end consumer
goods exports to soar. However, similar to the experience
C-11
of other emerging Asian economies in the 1980s, prosperity
brought higher labor costs and uncompetitiveness in the
cheap consumer goods market. Taiwan, however, managed to
retool by switching to production of capital-intensive
technology goods such as chemicals (particularly
petrochemicals) and computers (particularly laptop PCs).
Today, Taiwan is the nineteenth largest economy in the world
and the thirteenth largest exporter. Recent statistics show
strong GDP growth over the last several years. Trade,
especially exports, is increasing, which has given Taiwan
large trade surpluses for the last several years and one of
the highest levels of foreign reserves in the world
(US$86.68 billion worth by the 3rd quarter of 1996). Taiwan
has reduced its reliance on manufacturing with services now
accounting for more than 60% of the GDP. Inflation has also
been kept low in recent years at 3.7% in 1995 and averaging
about 3% for the first 3 quarters of 1996.
The government continues to actively encourage growth
and development. One plan implemented by the government has
been the Six-Year National Development plan to make Taiwan a
"regional operations center" for multinational business. To
date, the plan has fallen short of its goal. A December
1996 survey in the Far Eastern Economic Review, named
Taipei, the capital of Taiwan, next to last in its rankings
of the best major cities in Asia to do business. This
ranking was due mostly to Taipei's comparatively weak
infrastructure and strict government regulations of its
financial markets.
A more successful initiative has been the government's
investment in the port of Kaohsiung, on the southwest coast
of the island. Taiwan opened the port as the world's first
"export processing zone" in the 1960s. Cargo handled by the
port has expanded an average of 8.6% a year in the 1990s.
If planned expansion goes forward, Kaohsiung should become
one of the largest container ports in the world in terms of
capacity. By being located on the opposite side of Taiwan
from Taipei, the port's growth has fostered more
geographically even growth across Taiwan. Taiwan hopes to
use Kaohsiung when direct trading routes with China are
opened, which Taiwan hopes will occur in the near future.
Generous tax breaks for businesses, nearly universal
health coverage and heavy government investment in
infrastructure has caused a large government budget deficit
in recent years. From 1992 to 1995, budget deficits were in
the range of 5 to 7.1% of GDP. While this deficit is being
combated by cutbacks in spending, debt-service payments will
still be 13.9% of government spending for fiscal year 1996-
97. Budgetary expansion was to rise by only 6.8 in 1996-
C-12
1997, but Taiwan still run a deficit of 7.6% of GDP for the
first 3 quarters of 1996.
Economic relations with China.
Taiwan and China, while still separated geographically
and politically, are coming closer together economically
despite government warnings of becoming too overdependent on
China and removing to much of Taiwanese industry to the
mainland. Cheap Chinese labor is the main draw for
Taiwanese investors, but a common language and culture also
make China a desirable place to invest. There are still
bans on direct trade and investment in China, but Taiwanese
capitalists manage to get around this by investing in Hong
Kong firms which can then do the investing for them. An
estimated US$20 to 30 billion has been invested by Taiwanese
businesses in China. The government has been encouraging
Taiwanese firms to invest in other cheap labor markets such
as The Philippines and Vietnam, and this encouragement has
had some effect. Taiwan, however, still accounts for 8.7%
of all foreign investment in The People's Republic of China,
more than either the United States or Japan, although its
share of the expanding market has declined in recent years.
C-13
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Financial Statements
No financial statements are included in this
Registration Statement since, on the date of filing, the
Registrant, being a newly organized corporation, has no
assets or known liabilities and has sold no shares of common
stock. Prior to the effective date of this Registration
Statement, the necessary financial statements will be filed
by amendment hereto.
(b) Exhibits
(1) Copy of Articles of Incorporation - filed
herewith.
(2) Copy of By-Laws of the Registrant - filed
herewith.
(3) Not applicable.
(4) Not applicable.
(5) Copy of proposed Advisory Agreement between
the Registrant and Alliance Capital Management L.P.*
(6) (a) Copy of proposed Distribution Services
Agreement between the Registrant and Alliance Fund
Distributors, Inc.*
(b) Form of Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected dealers
offering shares of Registrant.*
____________________
C-1
(c) Form of Selected Agent Agreement between
Alliance Fund Distributors, Inc. and selected agents making
available shares of Registrant.*
(7) Not applicable.
(8) Copy of proposed Custodian Contract between
the Registrant and [ ].*
(9) Copy of proposed Transfer Agency Agreement
between the Registrant and Alliance Fund Services, Inc.*
(10) (a) Opinion and Consent of Seward & Kissel.*
(b) Opinion and Consent of Venable, Baetjer
and Howard, LLP.*
(11) Consent of Independent Accountants.*
(12) Not applicable.
(13) Investment representation letter of Alliance
Capital Management L.P.*
(14) Not applicable.
(15) Rule 12b-1 Plan.*
(16) Schedule for computation of performance
quotations.**
(18) Rule 18f-3 Plan.*
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None. The Registrant is a recently organized
corporation and has no outstanding shares of common stock.
___________________________
* To be filed in a subsequent pre-effective amendment
** To be filed in a post-effective amendment.
C-2
ITEM 26. Number of Holders of Securities.
None. The Registrant is a recently organized
corporation and has not issued any securities as of the
date of this Registration Statement.
ITEM 27. Indemnification.
It is the Registrant's policy to indemnify its directors
and officers, employees and other agents to the maximum
extent permitted by Section 2-418 of the General
Corporation Law of the State of Maryland, which is
incorporated by reference herein, and as set forth in
Article EIGHTH of Registrant's Articles of
Incorporation, filed as Exhibit 1 hereto, Article VII
and Article VIII of Registrant's By-Laws, filed as
Exhibit 2 hereto, and Section 10 of the proposed
Distribution Services Agreement, to be filed by Pre-
Effective Amendment as Exhibit 6(a) hereto. 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, to be filed by Pre-
Effective Amendment as Exhibit 5 hereto.
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
C-3
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
directors"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters
in defending a proceeding, upon the undertaking by or on
behalf of the indemnitee to repay the advance unless it
is ultimately determined that he is entitled to
indemnification and, as a condition to the advance,
(1) the indemnitee shall provide a security for his
undertaking, (2) the Registrant shall be insured against
losses arising by reason of any lawful advances, or
(3) a majority of a quorum of disinterested, non-party
directors of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on
a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found
entitled to indemnification.
The Registrant participates in a joint
trustees/directors and officers liability insurance
policy issued by the ICI Mutual Insurance Company.
Coverage under this policy has been extended to
directors, trustees and officers of the investment
companies managed by Alliance Capital Management L.P.
Under this policy, outside trustees and directors are
covered up to the limits specified for any claim against
them for acts committed in their capacities as trustee
or director. A pro rata share of the premium for this
coverage is charged to each investment company and to
the Adviser.
ITEM 28. Business and Other Connections of Investment Adviser.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Fund" in the
Prospectus and in the Statement of Additional
Information constituting Parts A and B, respectively, of
C-4
this Registration Statement are incorporated by
reference herein.
The information as to the directors and executive
officers of Alliance Capital Management Corporation, the
general partner of Alliance Capital Management L.P., set
forth in Alliance Capital Management L.P.'s Form ADV
filed with the Securities and Exchange Commission on
April 21, 1988 (File No. 801-32361) and amended through
the date hereof, is incorporated by reference.
ITEM 29. Principal Underwriters.
(a) Alliance Fund Distributors, Inc. is the
Registrant's Principal Underwriter in
connection with the sale of shares of the
Registrant. Alliance Fund Distributors, Inc.
also acts as Principal Underwriter or
Distributor for the following investment
companies:
ACM Institutional Reserves, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government
Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Regent/Sector Opportunity Fund
C-5
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and officers of Alliance
Fund Distributors, Inc., the principal place of business
of which is 1345 Avenue of the Americas, New York, New
York, 10105.
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
Michael J. Laughlin Chairman
Robert L. Errico President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel
and Secretary
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Richard A. Davies Senior Vice President
Anne S. Drennan Senior Vice President
and Treasurer
Mark J. Dunbar Senior Vice President
Bradley F. Hanson Senior Vice President
Geoffrey L. Hyde Senior Vice President
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
C-6
Daniel D. McGingley Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Richard K. Sacculo Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Beth Cahill Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
Sohaila S. Farsheed Vice President
Leon M. Fern Vice President
William C. Fisher Vice President
Gerard J. Friscia Vice President & Controller
Andrew L. Gangolf Vice President and Assistant Secretary
C-7
Assistant General Counsel
Mark D. Gersten Vice President Treasurer and
Chief Financial Officer
Joseph W. Gibson Vice President
William B. Hanigan Vice President
Alan Halfenger Vice President
Daniel M. Hazard Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Scott Hutton Vice President
Thomas K. Intoccia Vice President
Larry P. Johns Vice President
Richard D. Keppler Vice President
Donna M. Lamback Vice President
Thomas Leavitt, III Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Lori E. Master Vice President
Shawn P. McClain Vice President
Maura A. McGrath Vice President
Matthew P. Mintzer Vice President
Thomas F. Monnerat Vice President
Joanna D. Murray Vice President
Jeanette M. Nardella Vice President
C-8
Nicole Nolan-Koester Vice President
John J. O'Connor Vice President
Daniel J. Phillips Vice President
Robert T. Pigozzi Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant Secretary
Assistant General Counsel
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Karen C. Satterberg Vice President
Raymond S. Sclafani Vice President
Robert C. Schultz Vice President
Richard J. Sidell Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Martha Volcker Vice President
Patrick E. Walsh Vice President
William C. White Vice President
Emilie D. Wrapp Vice President and Assistant Secretary
Special Counsel
Maria L. Carreras Assistant Vice President
John W. Cronin Assistant Vice President
Ralph A. DiMeglio Assistant Vice President
Faith C. Dunn Assistant Vice President
John C. Endahl Assistant Vice President
John C. English Assistant Vice President
C-9
Duff C. Ferguson Assistant Vice President
John Grambone Assistant Vice President
Brian S. Hanigan Assistant Vice President
James J. Hill Assistant Vice President
Edward W. Kelly Assistant Vice President
Nicholas J. Lapi Assistant Vice President
Patrick Look Assistant Vice President and
Assistant Treasurer
Catherine N. Peterson Assistant Vice President
Carol H. Rappa Assistant Vice President
Clara Sierra Assistant Vice President
Vincent T. Strangio Assistant Vice President
Wesley S. Williams Assistant Vice President
Christopher J. Zingaro Assistant Vice President
Mark R. Manley Assistant Secretary
(c) Not applicable. Registrant is a newly organized
corporation.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder
are maintained as follows: journals, ledgers,
securities records and other original records are
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey,
07094 and at the offices of [ ] the
Registrant's custodian, [ ]. 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.
C-10
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
(b) Registrant undertakes to file a Post-Effective
Amendment, using financial statements which need not be
certified, within four to six months from the effective
date of its Securities Act of 1933 Registration
Statement.
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.
C-11
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 Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in The City of New York and the State
of New York, on the 30th day of April, 1997.
Alliance High Yield
Fund, Inc.
/s/ John D. Carifa
__________________________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
1933, as amended, this 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 April 30, 1997
______________________ President
John D. Carifa
(2) Principal Financial
and Accounting Officer:
/s/ Mark D. Gersten Treasurer April 30, 1997
_____________________ and Chief
Mark D. Gersten Financial
Officer
(3) Sole Director:
/s/ Edmund P. Bergan, Jr.
_________________________ April 30, 1997
Edmund P. Bergan, Jr.
C-12
Index To Exhibits
(1) Articles of Incorporation
(2) By-Laws of the Registrant
C-13
00250235.AB4
<PAGE>
ARTICLES OF INCORPORATION
OF
ALLIANCE GREATER CHINA `97 FUND, INC.
FIRST: (1) The name of the incorporator is MeYoung
Cho.
(2) The incorporator's post office address is
One Battery Park Plaza, New York, New York 10004.
(3) The incorporator is over eighteen years
of age.
(4) The incorporator is forming the
corporation named in these Articles of Incorporation under the
general laws of the State of Maryland.
SECOND: The name of the corporation (hereinafter
called the Corporation) is Alliance Greater China `97 Fund, Inc.
THIRD: (1) The purposes for which the Corporation is
formed is to conduct, operate and carry on the business of an
investment company.
(2) The Corporation may engage in any other
business and shall have all powers conferred upon or permitted to
corporations by the Maryland General Corporation Law.
FOURTH: The post office address of the principal
office of the Corporation within the State of Maryland is 32
South Street, Baltimore, Maryland 21202 in care of The
Corporation Trust, Incorporated. The resident agent of the
Corporation in the State of Maryland is The Corporation Trust,
Incorporated, 32 South Street, Baltimore, Maryland 21202, a
Maryland Corporation.
FIFTH: (1) The total number of shares of capital
stock which the Corporation shall have authority to issue is
twelve billion (12,000,000,000), all of which shall be Common
Stock having a par value of one-tenth of one cent ($.001) per
share and an aggregate par value of twelve million dollars
($12,000,000). Until such time as the Board of Directors shall
provide otherwise in accordance with paragraph (1)(d) of
Article SEVENTH hereof, three billion (3,000,000,000) of the
authorized shares of Common Stock of the Corporation are
designated as Class A Common Stock, three billion (3,000,000,000)
of such shares are designated as Class B Common Stock, three
billion (3,000,000,000) of such shares are designated as Class C
<PAGE>
Common Stock and three billion (3,000,000,000) of such shares are
designated as Advisor Class Common Stock.
(2) As more fully set forth hereafter, the
assets and liabilities and the income and expenses of each class
of the Corporation's stock shall be determined separately from
those of each other class of the Corporation's stock and,
accordingly, the net asset value, the dividends and distributions
payable to holders, and the amounts distributable in the event of
dissolution of the Corporation to holders of shares of the
Corporation's stock may vary from class to class. Except for
these differences and certain other differences hereafter set
forth or provided for, each class of the Corporation's stock
shall have the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of and rights to require
redemption of each other class of the Corporation's stock except
as otherwise provided for by the Board of Directors pursuant to
paragraph (1)(d) of Article SEVENTH hereof.
(3) All consideration received by the
Corporation for the issue or sale of shares of a class of the
Corporation's stock, together with all funds derived from any
investment and reinvestment thereof, shall irrevocably remain
attributable to that class for all purposes, subject only to any
automatic conversion of one class of stock into another, as
hereinafter provided for, and the rights of creditors, and shall
be so recorded upon the books of account of the Corporation. The
assets attributable to the Class A Common Stock, the assets
attributable to the Class B Common Stock, the assets attributable
to the Class C Common Stock and the assets attributable to
Advisor Class Common Stock shall be invested in the same
investment portfolio of the Corporation.
(4) The allocation of investment income and
capital gains and expenses and liabilities of the Corporation
among the Class A Common Stock, Class B Common Stock, Class C
Common Stock and Advisor Class Common Stock shall be determined
by the Board of Directors in a manner that is consistent with the
Investment Company Act of 1940, the rules and regulations
thereunder, and the interpretations thereof, in each case as from
time to time amended, modified or superseded. The determination
of the Board of Directors shall be conclusive as to the
allocation of investment income or capital gains, expenses and
liabilities (including accrued expenses and reserves) and assets
to a particular class or classes.
(5) Shares of each class of stock shall be
entitled to such dividends or distributions, in stock or in cash
or both, as may be declared from time to time by the Board of
Directors with respect to such class. Specifically, and without
2
<PAGE>
limiting the generality of the foregoing, the dividends and
distributions of investment income and capital gains with respect
to the Class A Common Stock, Class B Common Stock, Class C Common
Stock and Advisor Class Common Stock may vary with respect to
each such class to reflect differing allocations of the expenses
of the Corporation among the holders of the four classes and any
resultant differences between the net asset values per share of
the four classes, to such extent and for such purposes as the
Board of Directors may deem appropriate. The Board of Directors
may provide that dividends shall be payable only with respect to
those shares of stock that have been held of record continuously
by the stockholder for a specified period, not to exceed 72
hours, prior to the record date of the dividend.
(6) On each matter submitted to a vote of the
stockholders, each holder of stock shall be entitled to one vote
for each share standing in his or her name on the books of the
Corporation. Subject to any applicable requirements of the
Investment Company Act of 1940, as from time to time in effect,
or rules or orders of the Securities and Exchange Commission or
any successor thereto, or other applicable law, all holders of
shares of stock shall vote as a single class except with respect
to any matter which affects only one or more (but less than all)
classes of stock, in which case only the holders of shares of the
classes affected shall be entitled to vote. Without limiting the
generality of the foregoing, and subject to any applicable
requirements of the Investment Company Act of 1940, as from time
to time in effect, or rules or orders of the Securities and
Exchange Commission or any successor thereto, or other applicable
law, the holders of each of the Class A Common Stock, Class B
Common Stock, Class C Common Stock and Advisor Class Common Stock
shall have, respectively, with respect to any matter submitted to
a vote of stockholders (i) exclusive voting rights with respect
to any such matter that only affects the class of Common Stock of
which they are holders, including, without limitation, the
provisions of any distribution plan adopted by the Corporation
pursuant to Rule 12b-1 under the Investment Company Act of 1940
(a "Plan") with respect to the class of which they are holders
and (ii) no voting rights with respect to the provisions of any
Plan that affects one or more of such other classes of Common
Stock, but not the class of which they are holders, or with
respect to any other matter that does not affect the class of
Common Stock of which they are holders.
(7) In the event of the liquidation or
dissolution of the Corporation, stockholders of each class of the
Corporation's stock shall be entitled to receive, as a class, out
of the assets of the Corporation available for distribution to
stockholders, but other than general assets not attributable to
any particular class of stock, the assets attributable to the
class less the liabilities allocated to that class; and the
3
<PAGE>
assets so distributable to the stockholders of any class of stock
shall be distributed among such stockholders in proportion to the
number of shares of the class held by them and recorded on the
books of the Corporation. In the event that there are any
general assets not attributable to any particular class of stock,
and such assets are available for distribution, the distribution
shall be made to the holders of all classes in proportion to the
net asset value of the respective classes or as otherwise
determined by the Board of Directors.
(8) (a) Each holder of stock may require the
Corporation to redeem all or any part of the stock owned by that
holder, upon request to the Corporation or its designated agent,
at the net asset value of the shares of stock next determined
following receipt of the request in a form approved by the
Corporation and accompanied by surrender of the certificate or
certificates for the shares, if any, less the amount of any
applicable redemption charge or deferred sales charge or other
amount imposed by the Board of Directors (to the extent
consistent with applicable law). The Board of Directors may
establish procedures for redemption of stock.
(b) The proceeds of the redemption of a
share (including a fractional share) of any class of capital
stock of the Corporation shall be reduced by the amount of any
contingent deferred sales charge, redemption fee or other amount
payable on such redemption pursuant to the terms of issuance of
such share.
(c) (i) The term "Minimum Amount" when
used herein shall mean two hundred dollars ($200) unless
otherwise fixed by the Board of Directors from time to time,
provided that the Minimum Amount may not in any event exceed
twenty-five thousand dollars ($25,000). The Board of Directors
may establish differing Minimum Amounts for categories of holders
of stock based on such criteria as the Board of Directors may
deem appropriate.
(ii) If the net asset value of the
shares of a class of stock held by a stockholder shall be less
than the Minimum Amount then in effect with respect to the
category of holders in which the stockholder is included, the
Corporation may redeem all of those shares, upon notice given to
the holder in accordance with paragraph (iii) of this
subsection (c), to the extent that the Corporation may lawfully
effect such redemption under the laws of the State of Maryland.
(iii) The notice referred to in
paragraph (ii) of this subsection (c) shall be in writing
personally delivered or deposited in the mail, at least thirty
days (or such other number of days as may be specified from time
4
<PAGE>
to time by the Board of Directors) prior to such redemption. If
mailed, the notice shall be addressed to the stockholder at his
post office address as shown on the books of the Corporation, and
sent by first class mail, postage prepaid. The price for shares
acquired by the Corporation pursuant to this subsection (c) shall
be an amount equal to the net asset value of such shares.
(d) Payment by the Corporation for
shares of stock of the Corporation surrendered to it for
redemption shall be made by the Corporation within seven days of
such surrender out of the funds legally available therefor,
provided that the Corporation may suspend the right of the
stockholders to redeem shares of stock and may postpone the right
of those holders to receive payment for any shares when permitted
or required to do so by applicable statutes or regulations.
Payment of the aggregate price of shares surrendered for
redemption may be made in cash or, at the option of the
Corporation, wholly or partly in such portfolio securities of the
Corporation as the Corporation shall select.
(9) At such times as may be determined by the
Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) in accordance with
the Investment Company Act of 1940, applicable rules and
regulations thereunder and applicable rules and regulations of
the National Association of Securities Dealers, Inc. and from
time to time reflected in the registration statement of the
Corporation (the "Corporation's Registration Statement"), shares
of a particular class of stock of the Corporation or certain
shares of a particular class of stock of the Corporation may be
automatically converted into shares of another class of stock of
the Corporation based on the relative net asset values of such
classes at the time of conversion, subject, however, to any
conditions of conversion that may be imposed by the Board of
Directors (or with the authorization of the Board of Directors,
by the officers of the Corporation) and reflected in the
Corporation's Registration Statement. The terms and conditions
of such conversion may vary within and among the classes to the
extent determined by the Board of Directors (or with the
authorization of the Board of Directors, by the officers of the
Corporation) and set forth in the Corporation's Registration
Statement.
(10) For the purpose of allowing the net
asset value per share of a class of the Corporation's stock to
remain constant, the Corporation shall be entitled to declare and
pay and/or credit as dividends daily the net income (which may
include or give effect to realized and unrealized gains and
losses, as determined in accordance with the Corporation's
accounting and portfolio valuation policies) of the Corporation
attributable to the assets attributable to that class. If the
5
<PAGE>
amount so determined for any day is negative, the Corporation
shall be entitled, without the payment of monetary compensation
but in consideration of the interest of the Corporation and its
stockholders in maintaining a constant net asset value per share
of that class, to redeem pro rata from all the holders of record
of shares of that class at the time of such redemption (in
proportion to their respective holdings thereof) sufficient
outstanding shares of that class, or fractions thereof, as shall
permit the net asset value per share of that class to remain
constant.
(11) The Corporation may issue shares of
stock in fractional denominations to the same extent as its whole
shares, and shares in fractional denominations shall be shares of
stock having proportionately to the respective fractions
represented thereby all the rights of whole shares, including,
without limitation, the right to vote, the right to receive
dividends and distributions, and the right to participate upon
liquidation of the Corporation, but excluding the right to
receive a stock certificate representing fractional shares.
(12) No stockholder shall be entitled to any
preemptive right other than as the Board of Directors may
establish.
SIXTH: The number of directors of the Corporation
shall be one. The number of directors of the Corporation may be
changed pursuant to the By-Laws of the Corporation. The name of
the person who shall act as director of the Corporation until the
first annual meeting or until his successor is chosen and
qualified is Edmund P. Bergan, Jr.
SEVENTH: The following provisions are inserted for the
purpose of defining, limiting and regulating the powers of the
Corporation and of the Board of Directors and stockholders.
(1) In addition to its other powers explicitly or
implicitly granted under these Articles of Incorporation, by law
or otherwise, the Board of Directors of the Corporation:
(a) is expressly authorized to make, alter,
amend or repeal the By-Laws of the Corporation;
(b) may from time to time determine whether,
to what extent, at what times and places, and under what
conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of
the stockholders, and no stockholder shall have any right to
inspect any account, book or document of the Corporation except
as conferred by statute or as authorized by the Board of
Directors of the Corporation;
6
<PAGE>
(c) is empowered to authorize, without
stockholder approval, the issuance and sale from time to time of
shares of stock of the Corporation whether now or hereafter
authorized and securities convertible into shares of stock of the
Corporation of any class or classes, whether now or hereafter
authorized, for such consideration as the Board may deem
advisable.
(d) is authorized to classify or to
reclassify, from time to time, any unissued shares of stock of
the Corporation, whether now or hereafter authorized, by setting,
changing or eliminating the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms and conditions of or rights to require
redemption of the stock. The provisions of these Articles of
Incorporation (including those in Article FIFTH hereof) shall
apply to each class of stock unless otherwise provided by the
Board of Directors prior to issuance of any shares of that class;
and
(e) is authorized to adopt procedures for
determination of and to maintain constant the net asset value of
shares of any class of the Corporation's stock.
(2) Notwithstanding any provision of the Maryland
General Corporation Law requiring a greater proportion than a
majority of the votes of all classes or of any class of the
Corporation's stock entitled to be cast in order to take or
authorize any action, any such action may be taken or authorized
upon the concurrence of a majority of the aggregate number of
votes entitled to be cast thereon subject to any applicable
requirements of the Investment Company Act of 1940, as from time
to time in effect, or rules or orders of the Securities and
Exchange Commission or any successor thereto.
(3) The presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes
entitled to be cast (without regard to class) shall constitute a
quorum at any meeting of the stockholders, except with respect to
any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more
classes of stock, in which case the presence in person or by
proxy of the holders of shares entitled to cast one-third of the
votes entitled to be cast by each class entitled to vote as a
class on the matter shall constitute a quorum.
(4) Any determination made in good faith by or
pursuant to the direction of the Board of Directors, as to the
amount of the assets, debts, obligations, or liabilities of the
Corporation as to the amount of any reserves or charges set up
and the propriety thereof, as to the time of or purpose for
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creating such reserves or charges, as to the use, alteration or
cancellation of any reserves or charges (whether or not any debt,
obligation, or liability for which such reserves or charges shall
have been created shall be then or thereafter required to be paid
or discharged), as to the value of or the method of valuing any
investment owned or held by the Corporation, as to market value
or fair value of any investment or fair value of any other asset
of the Corporation, as to the allocation of any asset of the
Corporation to a particular class or classes of the Corporation's
stock, as to the charging of any liability of the Corporation to
a particular class or classes of the Corporation's stock, as to
the number of shares of the Corporation outstanding, as to the
estimated expense to the Corporation in connection with purchases
of its shares, as to the ability to liquidate investments in
orderly fashion, or as to any other matters relating to the
issue, sale, redemption or other acquisition or disposition of
investments or shares of the Corporation, shall be final and
conclusive and shall be binding upon the Corporation and all
holders of its shares, past, present and future, and shares of
the Corporation are issued and sold on the condition and
understanding that any and all such determinations shall be
binding as aforesaid.
EIGHTH: (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 that 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,
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gross negligence or reckless disregard of the duties involved in
the conduct of his or her office.
(4) References to the Maryland General
Corporation Law in this Article are to that law as from time to
time amended. No amendment to the Charter of the Corporation
shall affect any right of any person under this Article based on
any event, omission or proceeding prior to the amendment.
NINTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in its Charter in
the manner now or hereafter prescribed by the laws of the State
of Maryland, including any amendment which alters the contract
rights, as expressly set forth in the Charter, of any outstanding
stock, and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the
incorporator of the Corporation, has adopted and signed these
Articles of Incorporation and does hereby acknowledge that the
adoption and signing are his act.
/s/ MeYoung Cho
_______________________________
Dated: April 29, 1997
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00250235.AA8
<PAGE>
BY-LAWS
OF
ALLIANCE GREATER CHINA `97 FUND, INC.
________________
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The
Corporation shall have a principal office in the City of
Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have
offices also at such other places within and without the State of
Maryland as the Board of Directors may from time to time
determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders
shall be held at such place, either within the State of Maryland
or at such other place within the United States, as shall be
fixed from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of
stockholders shall be held on a date fixed from time to time by
the Board of Directors not less than ninety nor more than one
hundred twenty days following the end of each fiscal year of the
Corporation, for the election of directors and the transaction of
any other business within the powers of the Corporation;
<PAGE>
provided, however, that the Corporation shall not be required to
hold an annual meeting in any year in which the election of
directors is not required to be acted on by stockholders under
the Investment Company Act of 1940.
Section 3. Notice of Annual Meeting. Written or
printed notice of the annual meeting, stating the place, date and
hour thereof, shall be given to each stockholder entitled to vote
thereat and each other stockholder entitled to notice thereof not
less than ten nor more than ninety days before the date of the
meeting.
Section 4. Special Meetings. Special meetings of
stockholders may be called by the chairman, the president or by
the Board of Directors and shall be called by the secretary upon
the written request of holders of shares entitled to cast not
less than twenty-five percent of all the votes entitled to be
cast at such meeting. Such request shall state the purpose or
purposes of such meeting and the matters proposed to be acted on
thereat. In the case of such request for a special meeting, upon
payment by such stockholders to the Corporation of the estimated
reasonable cost of preparing and mailing a notice of such
meeting, the secretary shall give the notice of such meeting.
The secretary shall not be required to call a special meeting to
consider any matter which is substantially the same as a matter
acted upon at any special meeting of stockholders held within the
preceding twelve months unless requested to do so by holders of
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shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting. Notwithstanding the
foregoing, special meetings of stockholders for the purpose of
voting upon the question of removal of any director or directors
of the Corporation shall be called by the secretary upon the
written request of holders of shares entitled to cast not less
than ten percent of all the votes entitled to be cast at such
meeting.
Section 5. Notice of Special Meeting. Written or
printed notice of a special meeting of stockholders, stating the
place, date, hour and purpose thereof, shall be given by the
secretary to each stockholder entitled to vote thereat and each
other stockholder entitled to notice thereof not less than ten
nor more than ninety days before the date fixed for the meeting.
Section 6. Business of Special Meetings. Business
transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice thereof.
Section 7. Quorum. The holders of shares entitled to
cast one-third of the votes entitled to be cast thereat, present
in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business,
except with respect to any matter which, under applicable
statutes or regulatory requirements, requires approval by a
separate vote of one or more classes of stock, in which case the
presence in person or by proxy of the holders of one-third of the
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shares of stock of each class required to vote as a class on the
matter shall constitute a quorum.
Section 8. Voting. When a quorum is present at any
meeting, the affirmative vote of a majority of the votes cast,
or, with respect to any matter requiring a class vote, the
affirmative vote of a majority of the votes cast of each class
entitled to vote as a class on the matter, shall decide any
question brought before such meeting (except that directors may
be elected by the affirmative vote of a plurality of the votes
cast), unless the question is one upon which by express provision
of the Investment Company Act of 1940, as from time to time in
effect, or other statutes or rules or orders of the Securities
and Exchange Commission or any successor thereto or of the
Articles of Incorporation a different vote is required, in which
case such express provision shall govern and control the decision
of such question.
Section 9. Proxies. Each stockholder shall at every
meeting of stockholders be entitled to one vote in person or by
proxy for each share of the stock having voting power held by
such stockholder, but no proxy shall be voted after eleven months
from its date, unless otherwise provided in the proxy.
Section 10. Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, to
express consent to corporate action in writing without a meeting,
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or to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date which shall be not more than
ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be
taken. In lieu of fixing a record date, the Board of Directors
may provide that the stock transfer books shall be closed for a
stated period, but not to exceed, in any case, twenty days. If
the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least
ten days immediately preceding such meeting. If no record date
is fixed and the stock transfer books are not closed for the
determination of stockholders: (1) The record date for the
determination of stockholders entitled to notice of, or to vote
at, a meeting of stockholders shall be at the close of business
on the day on which notice of the meeting of stockholders is
mailed or the day thirty days before the meeting, whichever is
the closer date to the meeting; and (2) The record date for the
determination of stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of
business on the day on which the resolution of the Board of
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Directors, declaring the dividend or allotment of rights, is
adopted, provided that the payment or allotment date shall not be
more than sixty days after the date of the adoption of such
resolution.
Section 11. Inspectors of Election. The directors, in
advance of any meeting, may, but need not, appoint one or more
inspectors to act at the meeting or any adjournment thereof. If
an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an
inspector fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at
the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best
of his ability. The inspectors, if any, shall determine the
number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such
acts as are proper to conduct the election or vote with fairness
to all stockholders. On request of the person presiding at the
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<PAGE>
meeting or any stockholder, the inspector or inspectors, if any,
shall make a report in writing of any challenge, question or
matter determined by him or them and execute a certificate of any
fact found by him or them.
Section 12. Informal Action by Stockholders. Except to
the extent prohibited by the Investment Company Act of 1940, as
from time to time in effect, or rules or orders of the Securities
and Exchange Commission or any successor thereto, any action
required or permitted to be taken at any meeting of stockholders
may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to
vote on the subject matter thereof and any other stockholders
entitled to notice of a meeting of stockholders (but not to vote
thereat) have waived in writing any rights which they may have to
dissent from such action, and such consent and waiver are filed
with the records of the Corporation.
Section 13. Adjournment. Any meeting of the
stockholders may be adjourned from time to time, without notice
other than by announcement at the meeting at which the
adjournment was taken. In the absence of a quorum, the
stockholders present in person or by proxy, by majority vote of
those present and without notice other than by announcement at
the meeting, may adjourn the meeting from time to time as
provided for in this Section 13 of Article II. At any adjourned
meeting at which a quorum shall be present, any action may be
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<PAGE>
taken that could have been taken at the meeting originally
called. A meeting of the stockholders may not be adjourned
without further notice to a date more than 120 (one hundred and
twenty) days after the original record date determined pursuant
to Section 10 of this Article II.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of
directors constituting the entire Board of Directors (which
initially was fixed at one in the Corporation's Articles of
Incorporation) may be increased or decreased from time to time by
the vote of a majority of the entire Board of Directors within
the limits permitted by law but at no time may be more than
twenty, but the tenure of office of a director in office at the
time of any decrease in the number of directors shall not be
affected as a result thereof. The directors shall be elected to
hold offices at the annual meeting of stockholders, except as
provided in Section 2 of this Article, and each director shall
hold office until the next annual meeting of stockholders or
until his successor is elected and qualified. Any director may
resign at any time upon written notice to the Corporation. Any
director may be removed, either with or without cause, at any
meeting of stockholders duly called and at which a quorum is
present by the affirmative vote of the majority of the votes
entitled to be cast thereon, and the vacancy in the Board of
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<PAGE>
Directors caused by such removal may be filled by the
stockholders at the time of such removal. Directors need not be
stockholders.
Section 2. Vacancies and Newly-Created Directorships.
Any vacancy occurring in the Board of Directors for any cause
other than by reason of an increase in the number of directors
may be filled by a majority of the remaining members of the Board
of Directors although such majority is less than a quorum. Any
vacancy occurring by reason of an increase in the number of
directors may be filled by a majority of the entire Board of
Directors then in office. A director elected by the Board of
Directors to fill a vacancy shall be elected to hold office until
the next annual meeting of stockholders or until his successor is
elected and qualifies.
Section 3. Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the
Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these By-Laws
conferred upon or reserved to the stockholders.
Section 4. Meetings. The Board of Directors of the
Corporation or any committee thereof may hold meetings, both
regular and special, either within or without the State of
Maryland. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time
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<PAGE>
to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the chairman,
the president or by two or more directors. Notice of special
meetings of the Board of Directors shall be given by the
secretary to each director at least three days before the meeting
if by mail or at least 24 hours before the meeting if given in
person or by telephone or by telegraph. The notice need not
specify the business to be transacted.
Section 5. Quorum and Voting. During such times when
the Board of Directors shall consist of more than one director, a
quorum for the transaction of business at meetings of the Board
of Directors shall consist of two of the directors in office at
the time but in no event shall a quorum consist of less than one-
third of the entire Board of Directors. The action of a majority
of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors. If a
quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Committees. The Board of Directors may
appoint from among its members an executive committee and other
committees of the Board of Directors, each committee to be
composed of two or more of the directors of the Corporation. The
Board of Directors may delegate to such committees any of the
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<PAGE>
powers of the Board of Directors except those which may not by
law be delegated to a committee. Such committee or committees
shall have the name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the
Board of Directors designates one or more directors as alternate
members of any committee, who may replace an absent or
disqualified member at any meeting of the committee, the members
of any such committee present at any meeting and not disqualified
from voting may, whether or not they constitute a quorum, appoint
another member of the Board of Directors to act at the meeting in
the place of any absent or disqualified member of such committee.
At meetings of any such committee, a majority of the members or
alternate members of such committee shall constitute a quorum for
the transaction of business and the act of a majority of the
members or alternate members present at any meeting at which a
quorum is present shall be the act of the committee.
Section 7. Minutes of Committee Meetings. The
committees shall keep regular minutes of their proceedings.
Section 8. Informal Action by Board of Directors and
Committees. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed
by all members of the Board of Directors or of such committee, as
the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee,
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<PAGE>
provided, however, that such written consent shall not constitute
approval of any matter which pursuant to the Investment Company
Act of 1940 and the rules thereunder requires the approval of
directors by vote cast in person at a meeting.
Section 9. Meetings by Conference Telephone. The
members of the Board of Directors or any committee thereof may
participate in a meeting of the Board of Directors or committee
by means of a conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time and such
participation shall constitute presence in person at such
meeting, provided, however, that such participation shall not
constitute presence in person with respect to matters which
pursuant to the Investment Company Act of 1940 and the rules
thereunder require the approval of directors by vote cast in
person at a meeting.
Section 10. Fees and Expenses. The directors may be
paid their expenses of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors, a stated salary as director or
such other compensation as the Board of Directors may approve.
No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be
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allowed like reimbursement and compensation for attending
committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and
stockholders mailed to them at their post office addresses
appearing on the books of the Corporation shall be deemed to be
given at the time when deposited in the United States mail.
Section 2. Waiver of Notice. Whenever any notice is
required to be given under the provisions of the statutes, of the
Articles of Incorporation or of these By-Laws, a waiver thereof
in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be
deemed the equivalent of notice and such waiver shall be filed
with the records of the meeting. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting
except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or
convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation
shall be chosen by the Board of Directors at its first meeting
after each annual meeting of stockholders and shall be a chairman
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of the Board of Directors, a president, a secretary and a
treasurer. The Board of Directors may choose also such vice
presidents and additional officers or assistant officers as it
may deem advisable. Any number of offices, except the offices of
president and vice president and chairman and vice president, may
be held by the same person. No officer shall execute,
acknowledge or verify any instrument in more than one capacity if
such instrument is required by law to be executed, acknowledged
or verified by two or more officers.
Section 2. Other Officers and Agents. The Board of
Directors may appoint such other officers and agents as it
desires who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the
Corporation shall hold office at the pleasure of the Board of
Directors. Each officer shall hold his office until his
successor is elected and qualifies or until his earlier
resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. Any officer elected or
appointed by the Board of Directors may be removed at any time by
the Board of Directors when, in its judgment, the best interests
of the Corporation will be served thereby. Any vacancy occurring
in any office of the Corporation by death, resignation, removal
or otherwise shall be filled by the Board of Directors.
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Section 4. Chairman of the Board of Directors. The
chairman of the Board of Directors shall preside at all meetings
of the stockholders and of the Board of Directors. He shall be
the chief executive officer and shall have general and active
management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried
into effect. He shall be ex officio a member of all committees
designated by the Board of Directors except as otherwise
determined by the Board of Directors. He shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of
the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 5. President. The president shall act under
the direction of the chairman and in the absence or disability of
the chairman shall perform the duties and exercise the powers of
the chairman. He shall perform such other duties and have such
other powers as the chairman or the Board of Directors may from
time to time prescribe. He shall execute on behalf of the
Corporation, and may affix the seal or cause the seal to be
affixed to, all instruments requiring such execution except to
the extent that signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or
agent of the Corporation.
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Section 6. Vice Presidents. The vice presidents shall
act under the direction of the chairman and in the absence or
disability of the president shall perform the duties and exercise
the powers of the president. They shall perform such other
duties and have such other powers as the chairman or the Board of
Directors may from time to time prescribe. The Board of
Directors may designate one or more executive vice presidents or
may otherwise specify the order of seniority of the vice
presidents and, in that event, the duties and powers of the
president shall descend to the vice presidents in the specified
order of seniority.
Section 7. Secretary. The secretary shall act under
the direction of the chairman. Subject to the direction of the
chairman he shall attend all meetings of the Board of Directors
and all meetings of stockholders and record the proceedings in a
book to be kept for that purpose and shall perform like duties
for the committees designated by the Board of Directors when
required. He shall give, or cause to be given, notice of all
meetings of stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be
prescribed by the chairman or the Board of Directors. He shall
keep in safe custody the seal of the Corporation and shall affix
the seal or cause it to be affixed to any instrument requiring
it.
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Section 8. Assistant Secretaries. The assistant
secretaries in the order of their seniority, unless otherwise
determined by the chairman or the Board of Directors, shall, in
the absence or disability of the secretary, perform the duties
and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the chairman or
the Board of Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under
the direction of the chairman. Subject to the direction of the
chairman he shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the
funds of the Corporation as may be ordered by the chairman or the
Board of Directors, taking proper vouchers for such
disbursements, and shall render to the chairman and the Board of
Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as
treasurer and of the financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant
treasurers in the order of their seniority, unless otherwise
determined by the chairman or the Board of Directors, shall, in
the absence or disability of the treasurer, perform the duties
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and exercise the powers of the treasurer. They shall perform
such other duties and have such other powers as the chairman or
the Board of Directors may from time to time prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the
Corporation who has made full payment of the consideration for
such stock shall be entitled upon request to have a certificate,
signed by, or in the name of the Corporation by, the chairman,
the president or a vice president and countersigned by the
treasurer or an assistant treasurer or the secretary or an
assistant secretary of the Corporation, certifying the number
and, if additional shares of stock should be authorized, the
class of whole shares of stock owned by him in the Corporation.
Section 2. Fractional Share Interests. The Corporation
may issue fractions of a share of stock. Fractional shares of
stock shall have proportionately to the respective fractions
represented thereby all the rights of whole shares, including the
right to vote, the right to receive dividends and distributions
and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate
representing such fractional shares.
Section 3. Signatures on Certificates. Any of or all
the signatures on a certificate may be a facsimile. In case any
officer who has signed or whose facsimile signature has been
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placed upon a certificate shall cease to be such officer before
such certificate is issued, it may be issued with the same effect
as if he were such officer at the date of issue. The seal of the
Corporation or a facsimile thereof may, but need not, be affixed
to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be
lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate
or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with
respect to the certificate or certificates alleged to have been
lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the
registered owner of shares, and if a certificate has been issued
to represent such shares upon surrender to the Corporation or a
transfer agent of the Corporation of a certificate for shares of
stock duly endorsed or accompanied by proper evidence of
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succession, assignment or authority to transfer, it shall be the
duty of the Corporation, if it is satisfied that all provisions
of the Articles of Incorporation, of the By-Laws and of the law
regarding the transfer of shares have been duly complied with, to
record the transaction upon its books, issue a new certificate to
the person entitled thereto upon request for such certificate,
and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be
entitled to recognize the person registered on its books as the
owner of shares to be the exclusive owner for all purposes
including voting and dividends, and the Corporation shall not be
bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as
otherwise provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any
funds of the Corporation available for dividends such sum or sums
as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet
contingencies, or for such other purpose as the Board of
Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any
such reserve.
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Section 2. Dividends. Dividends upon the stock of the
Corporation may, subject to the provisions of the Articles of
Incorporation and of applicable law, be declared by the Board of
Directors at any time. Dividends may be paid in cash, in
property or in shares of the Corporation's stock, subject to the
provisions of the Articles of Incorporation and of applicable
law.
Section 3. Capital Gains Distributions. The amount and
number of capital gains distributions paid to the stockholders
during each fiscal year shall be determined by the Board of
Directors. Each such payment shall be accompanied by a statement
as to the source of such payment, to the extent required by law.
Section 4. Checks. All checks or demands for money and
notes of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board of
Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of
Directors.
Section 6. Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Maryland." The seal
may be used by causing it or a facsimile thereof to be impressed
or affixed or in another manner reproduced.
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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
Indemnification
Section 1. 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
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person. This Article shall not protect any such person against
any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office ("disabling
conduct").
Section 2. 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
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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 3. Procedure. At the request of any person
claiming indemnification under this Article, the Board of
Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, whether the
standards required by this Article have been met.
Indemnification shall be made only following: (a) a final
decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (b) in the absence of
such a decision, a reasonable determination, based upon a review
of the facts, that the person to be indemnified was not liable by
reason of disabling conduct by (i) the vote of a majority of a
quorum of disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
Section 4. 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
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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 5. 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 6. Amendments. References in this Article are
to the Maryland General Corporation Law and to the Investment
Company Act of 1940 as from time to time amended. No amendment
of these By-laws shall affect any right of any person under this
Article based on any event, omission or proceeding prior to the
amendment.
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ARTICLE IX
Amendments
The Board of Directors shall have the power to make,
alter and repeal By-laws of the Corporation.
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