<PAGE>
As filed with the Securities and Exchange
Commission on August 14, 1997
File Nos. 333-26229
811-08201
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 2 X
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2 X
_______________________________
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
<PAGE>
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
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>
<PAGE>
ALLIANCE
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GREATER CHINA
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'97 FUND
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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
August 18, 1997
================================================================================
Table of Contents Page
The Fund at a Glance ...................................................... 2
Expense Information ....................................................... 3
Glossary .................................................................. 4
Description of the Fund ................................................... 5
Investment Objective ................................................... 5
Greater China Countries ................................................ 5
Investment Policies and Practices ...................................... 5
Additional Investment Practices ........................................ 6
Certain Fundamental Investment
Policies .............................................................. 12
Certain Considerations and Risks ....................................... 12
Purchase and Sale of Shares ............................................... 14
Management of the Fund .................................................... 17
Dividends, Distributions and Taxes ........................................ 19
General Information ....................................................... 20
================================================================================
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
The Pacific Place
88 Queensway
Hong Kong
Alliance Greater China '97 Fund, Inc. (the "Fund") seeks long term capital
appreciation by investing at least 80% of its total assets 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 August 18, 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 ("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.
[LOGO]Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
<PAGE>
The Fund At A Glance
The following summary is qualified in its entirety by the more detailed
information contained 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 $199
billion in assets under management as of June 30, 1997. Alliance provides
investment management services to employee benefit plans for 29 of the FORTUNE
100 companies.
The Consultant To The Adviser Is . . .
New-Alliance Asset Management (Asia) Limited, a joint venture company
headquartered in Hong Kong formed by Alliance and Sun Hung Kai Properties
Limited, one of Hong Kong's preeminent property and business groups, which will
provide Alliance with expertise with respect to economic, financial, political,
technological and social conditions and trends in Greater China countries, all
of which significantly impact the investment environment and opportunities in
the region.
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 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.
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 Considerations and Risks." In
addition, because at least 80% of the Fund's portfolio will be invested in
equity securities issued by Greater China companies, the Fund is subject to
greater risk of being influenced by events impacting Greater 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, 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
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DIVIDEND DIRECTION PLANS
================================================================================
AUTO EXCHANGE
================================================================================
SYSTEMATIC WITHDRAWALS
================================================================================
A CHOICE OF PURCHASE PLANS
================================================================================
TELEPHONE TRANSACTIONS
================================================================================
24-HOUR INFORMATION
================================================================================
[LOGO]Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
2
<PAGE>
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EXPENSE INFORMATION
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Shareholder Transaction Expenses are one of several factors to consider when you
invest in the Fund. The following table summarizes your maximum transaction
costs and 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.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
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, decreasing first year,
1.0% annually to 0% thereafter
0% after the
fourth year(b)
Exchange fee None None None
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred sales
charge on redemptions within one year of purchase. See "Purchase and Sale of
Shares--How to Buy Shares"--page 14.
(b) Class B shares automatically convert to Class A shares after eight years.
See "Purchase and Sale of Shares--How to Buy Shares"--page 14.
<TABLE>
<CAPTION>
Operating Expenses Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Management fees 1.00% 1.00% 1.00%
12b-1 fees .30% 1.00% 1.00%
Other expenses(a) 1.60% 1.60% 1.60%
---- ---- ----
Total fund operating expenses 2.90% 3.60% 3.60%
==== ==== ====
<CAPTION>
Example Class A Class B+ Class B++ Class C+ Class C++
------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
After 1 year $ 71 $ 77 $ 36 $ 46 $ 36
After 3 years $128 $131 $110 $110 $110
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ 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.
3
<PAGE>
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GLOSSARY
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The following terms are 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"), the Hong
Kong Special Administrative Region of the People's Republic of 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.
Commission is the United States Securities and Exchange Commission.
Code is the Internal Revenue Code of 1986, as amended.
4
<PAGE>
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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
through investment of at least 80% of its total assets in equity securities
issued by Greater China companies.
GREATER CHINA COUNTRIES
In furtherance of its investment objective, 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 Hong Kong companies or companies of either of the other Greater China
countries.
In recent years, China, Hong Kong and Taiwan have each experienced a high level
of real economic growth. This growth has resulted not only from advantageous
economic conditions, including favorable demographics, competitive wage rates,
and rising per capita income and consumer demand. Significantly, the growth has
also been fueled by an easing by both China and Taiwan of government
restrictions and an increased receptivity to foreign investment. This expanded,
if not yet complete openness to foreign investment, extends as well to the
securities markets of both countries. Hong Kong's free-market economy has
historically included securities markets completely open to foreign investments.
All three countries have regulated stock exchanges upon which shares of an
increasing number of Greater China companies are traded.
With its population estimated at more than 1.2 billion as a driving force, and
notwithstanding its continuing political rigidity, China's economic growth has
been coupled with significantly reduced government economic intervention and
basic economic structural change. Recent years have seen large increases in
industrial production with a significant decline in the state sector share of
industrial output, and increased involvement of local governmental units and the
private sector in establishing new business enterprises.
With China's growth has come an increasing direct and indirect economic
involvement of all three Greater China countries. For some time, Hong Kong as a
world financial and trade center in its own right, with the world's ninth
largest stock exchange, and with offices of many of the worlds multinational
companies, has been the gateway to trade with and foreign investment in China.
With the long-awaited transfer on July 1, 1997 of the sovereignty of Hong Kong
from Great Britain to China, not only the political but the economic ties
between China and Hong Kong are expected to intensify, albeit with the
continuation of Hong Kong's economic system as provided for in the law governing
its sovereignty.
Notwithstanding the, at times, considerable political tension between the two
countries, it is generally recognized that substantially increased trade and
investment with China has been generated from Taiwan, in many cases through Hong
Kong. Along with this increased interaction with China, Taiwan is becoming a
regional technological and telecommunication center, while continuing the
process of opening its economy up to foreign investment. Although geographically
limited, Taiwan boasts an economy among the world's twenty largest and its
foreign exchange reserves are in the top five of all countries measured in U.S.
dollars. As China's economy continues to expand, it is expected that Taiwan's
economic interaction with China will likewise increase.
Alliance believes that current conditions are favorable for continuing and
expanding economic growth in all three Greater China countries. It is this
potential which the Fund hopes to take advantage of by investing both in
established and new and emerging companies.
Set forth below under "Certain Considerations and Risks" and in Appendix A to
the Statement of Additional Information is additional information concerning the
Greater China countries.
INVESTMENT POLICIES AND PRACTICES
In addition to investing in equity securities of 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 other than investment grade securities. 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 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 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 20% 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
5
<PAGE>
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 and
practices listed above may not be available to the Fund in 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 Practices."
ADDITIONAL INVESTMENT PRACTICES
The Fund may engage in the following investment practices to the extent
described above. Additional Information concerning certain of these practices is
set forth in Appendix B of the Statement of Additional Information.
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-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
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.
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 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), including 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
6
<PAGE>
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. 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
Alliance'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 readily marketable. It is the intention of the Fund to
make such investments when Alliance believes there is a reasonable expectation
that the Fund would be able to dispose of its investment within three years. 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 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.
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
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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 not invest in
lower-rated loans and other lower-rated direct debt instruments.
Options on Securities. 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. A call option written by the Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by the Fund is covered if the Fund holds a put on the
underlying securities with an exercise price equal to or greater than that of
the put option it has 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."
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.
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See the Statement of Additional Information for a further discussion of the use,
risks and costs of options on foreign currencies.
Forward Foreign Currency Exchange Contracts. The Fund may 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"). The 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 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.
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
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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.
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. The Fund will enter into currency swaps for hedging
purposes only. 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.
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). Interest rate swaps are entered 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). 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. 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. The Fund will not enter into an interest rate swap,
cap or floor transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is then rated in the highest rating category
of at least one nationally recognized rating organization. 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 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 defaults on its
repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
a vendor goes bankrupt, the Fund might be delayed in, or prevented from, selling
the collateral for its benefit. The Fund may enter into repurchase agreements
pertaining to U.S. Government Securities with member banks of
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the Federal Reserve System or "primary dealers" (as designated by the Federal
Reserve Bank of New York) in such securities. Alliance monitors the
creditworthiness of the dealers with which the Fund enters into repurchase
agreements. Currently, the Fund intends to enter into repurchase agreements only
with its custodian and such primary dealers. 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 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, Distributions and Taxes" in the 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 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 ownership
rights such as voting rights, subscription rights and rights to dividends,
interest or distributions. The Fund may pay reasonable finders', administrative
and custodial fees in connection with a loan. The Fund will not lend portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance. The Board of Directors will monitor the Fund's lending of portfolio
securities.
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 (i.e., dispose of the option) with
the result that (i) an option purchased by the Fund would have to be exercised
in order for the Fund to realize any profit and (ii) the Fund may not be able to
sell currencies or portfolio securities covering an option written by the Fund
until the option expires or it delivers the underlying futures contract or
currency upon exercise. Therefore, no assurance can be given that the Fund will
be able to utilize these instruments effectively for the purposes set forth
above.
Future Developments. The Fund may, following written notice to its shareholders,
take advantage of other investment practices 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 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
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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
Statement of Additional Information.
CERTAIN 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 the 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 CONSIDERATIONS AND RISKS
Investment in the Fund involves, among others, the considerations and risks
referred to below.
Political, Economic and Social Considerations and Interrelationships. China, in
particular, but Hong Kong and Taiwan, as well, in significant measure because of
their existing and increasing economic, and now in the case of Hong Kong, direct
political ties with China, may be subject to a greater degree of economic,
political and social instability than is the case in the United States.
China's economy is very much in transition. While the government still controls
production and pricing in major economic sectors, significant steps have been
taken toward capitalism and China's economy has become increasingly market
oriented. China's strong economic growth and ability to attract significant
foreign investment in recent years stem from the economic liberalization
initiated by Deng Xiaoping who assumed power in the late 1970s. The economic
growth, however, has not been smooth and has been marked by extremes in many
respects of inordinate growth, which has not been tightly controlled, followed
by rigid measures of austerity. The rapidity and erratic nature of the growth
have resulted in inefficiencies and dislocations, including at times high rates
of inflation.
China's economic development has occurred notwithstanding the continuation of
the power of China's Communist Party and China's authoritarian government
control, not only of centrally planned economic decisions, but of many aspects
of the social structure. While a significant portion of China's population has
benefited from China's economic growth, the conditions of many leave much room
for improvement. Notwithstanding restrictions on freedom of expression and the
absence of a free press, and notwithstanding the extreme manner in which past
unrest has been dealt with, the 1989 Tianamen Square uprising being a recent
reminder, the potential for renewed popular unrest associated with demands for
improved social, political and economic conditions cannot be dismissed.
A key unknown as to China's future relates to the political uncertainty in
connection with the succession to Deng who died earlier this year. Many
observers have cited the potential for political instability. While his policies
in many respects have effectively outdated the Communist Party and the
governmental structure, both remain entrenched and only time will tell how the
ruling structure will stabilize. There can be no assurance that the resulting
structure will continue the capitalistic steps or be able to prevent wide
economic swings and control inflation, which is in any event expected to remain
high by present Western standards. In this latter regard, the existing economic
weight of the current political and governmental structure currently adds to
inflationary pressures and impedes economic efficiency and commerce. The
Communist Party still controls access to governmental positions and closely
monitors governmental action. Essentially there exists an inefficient set of
parallel bureaucracies and attendant opportunities for corruption.
In addition to the economic impact of China's internal political uncertainties,
the potential effect of China's actions, not only on China itself, but on Hong
Kong and Taiwan as well, could be significant.
China is heavily dependent on foreign trade, particularly with the United
States, Japan and Germany. Political developments adverse to its trading
partners, as well as political and social repression, could cause the United
States and others to alter their trading policy towards China. For example, in
the United States, the continued extension of most favored nation trading status
to China is an issue of significant controversy which is reviewed regularly.
Loss of that status would clearly hurt China's economy by reducing its exports.
With much of China's trading activity being funneled through Hong Kong and with
trade through Taiwan becoming increasingly significant, any sizable reduction in
demand for goods from China would have negative implications for both countries.
China is believed to be the largest investor in Hong Kong and its markets and an
economic downturn in China would be expected to reverberate to Hong Kong's
markets as well.
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Regarding Hong Kong, although China has committed by treaty to preserve Hong
Kong's autonomy and its economic, political and social freedoms for fifty years
from the July 1, 1997 transfer of sovereignty from Great Britain to China, the
continuation of Hong Kong's current economic system is dependent on how the
government of China imposes its authority. While Deng expressed China's
commitment as a "one country, two systems" philosophy, the future of Hong Kong's
political and social system, including its independent judiciary, professional
civil service and free press, remains unclear. While many believe that the
economies of China and Hong Kong have become interdependent to such an extent
that it would not be in China's interest to alter Hong Kong's present economic
structure, a change of social policy or in the political structure could also
have negative economic implications. Investor and business confidence in Hong
Kong can be significantly affected by such developments, which in turn can
affect markets and business performance. In this connection, it is noted that a
substantial portion of the companies listed on the Hong Kong Stock Exchange are
involved in real estate-related activities.
Investment in Greater China Countries; Risks of Foreign Investment. The
securities markets of China, and to a lesser extent Taiwan, 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 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 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 is a factor to be taken into account
in the Fund's valuation of portfolio securities in this category and may affect
the Fund's ability to dispose of securities in order to meet redemption requests
at the price and time it wishes to do so. It is also anticipated that
transaction costs, including brokerage commissions for transactions both on and
off the securities exchanges in Greater China countries, will be higher than in
the U.S.
Issuers of securities in Greater China countries are generally not subject to
the same degree of regulation as are U.S. issuers with respect to such matters
as timely disclosure of information, insider trading rules, restrictions on
market manipulation and shareholder proxy requirements. Reporting, accounting
and auditing standards of Greater China countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in securities of Greater China country issuers
than to investors in securities of U.S. issuers.
Investment in Greater China companies which are in the initial stages of their
development involves greater risk than is customarily associated with securities
of more established companies. The securities of such companies may have
relatively limited marketability and may be subject to more abrupt or erratic
market movements than securities of established companies or broad market
indices.
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 these currencies. Therefore,
the dollar equivalent of the Fund's net assets and distributions will be
adversely affected by reductions in the value of foreign currencies relative to
the U.S. Dollar. Such changes will also affect the Fund's income. The Fund will,
however, consider whether to attempt to protect itself against adverse changes
in the values of foreign currencies by engaging in certain of the investment
practices listed above under "Additional Investment Practices." While it has
this ability, there is no certainty as to whether these practices are available
and, if so, whether and to what extent it will engage in these practices, and,
if it does, whether it will be successful in doing so. 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
13
<PAGE>
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.
Extreme Governmental Action; Less Protective Laws. In contrast with the United
States, foreign investment may involve in certain situations greater risk of
nationalization, expropriation, confiscatory taxation, currency blockage or
other extreme governmental action which could adversely impact the Fund's
investments. In the event of certain such actions, the Fund could lose its
entire investment in the country involved. In addition, laws in various foreign
countries, including in certain respects each of the Greater China countries,
governing, among other subjects, business organization and practices, securities
and securities trading, bankruptcy and insolvency may provide less protection to
investors such as the Fund than provided under United States laws.
U.S. and Foreign Taxes. Foreign taxes paid by the Fund may be creditable or
deductible by U.S. shareholders of the Fund for U.S. income tax purposes.
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" below and in the Statement of Additional
Information under "Dividends, Distributions and Taxes" and should consider 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 that the Fund is not limited by the 1940 Act 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--United
States Federal Income Taxation of Dividends and Distributions" in the Statement
of Additional Information. To so qualify, among other requirements, the Fund
will limit its investments so that, at the close of each quarter of each 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. Foreign government securities are subject to
these tests in the same manner as the securities of non-governmental issuers.
The Fund's investments in U.S. Government securities, if any, are not, however,
subject to these limitations. Because as a non-diversified investment company
the Fund 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.
- --------------------------------------------------------------------------------
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, however, or more are
allowed under the Fund's automatic investment program. 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 Fund shares. In this
regard, the Fund reserves the right to restrict purchases of shares (including
through exchanges) when there appears to be evidence of a pattern of frequent
purchases and sales made in response to short-term considerations.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an initial sales charge,
as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
- --------------------------------------------------------------------------------
$100,000 to less
than $250,000 3.36 3.25 3.00
- --------------------------------------------------------------------------------
$250,000 to less
than $500,000 2.30 2.25 2.00
- --------------------------------------------------------------------------------
$500,000 to less
than $1,000,000 1.78 1.75 1.50
- --------------------------------------------------------------------------------
</TABLE>
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
14
<PAGE>
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 regarding these programs.
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 on Class B shares is set forth below.
<TABLE>
<CAPTION>
Year Since Purchase CDSC
- --------------------------------------------------------------------------------
<S> <C>
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
</TABLE>
Class B shares are subject to higher distribution fees than Class A shares for a
period of eight years (after which they convert to Class A shares). The higher
fees mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares 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 time
of redemption.
Application of the CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC. The CDSC is deducted from the amount of the redemption and is paid to
AFD. The CDSC will be waived on redemptions of shares following the death or
disability of a shareholder, to meet the requirements of certain qualified
retirement plans or pursuant to a monthly, bimonthly or quarterly systematic
withdrawal plan. See the Statement of Additional Information concerning these
matters.
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
number of 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 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 making a large
investment, thus qualifying for a reduced sales charge, you might consider Class
A shares. If you are making a smaller investment, you might consider Class B
shares because 100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C shares because
there is no initial sales charge and, as long as the shares are held for one
year or more, no CDSC. Consult your financial agent. Dealers and agents may
receive differing compensation for selling Class A, Class B or Class C shares.
There is no size limit on purchases of Class A shares. The maximum purchase of
Class B shares is $250,000. The maximum purchase of Class C shares is
$1,000,000.
The Fund offers a fourth class of shares, Advisor Class shares, by means of a
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 shares, 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
15
<PAGE>
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 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.
Initial Offering
It is expected that shares of the Fund will be offered during an initial
offering period, which is currently scheduled to end on August 26, 1997. During
the initial offering period, Class A shares will be offered to the public at
their net asset value of $10.00 per share plus a sales charge which will vary
with the size of the purchase as shown in the foregoing initial sales charge
table and as described in the Application and the Statement of Additional
Information under "Purchase and Sale of Shares--Class A Shares." The maximum
offering price of the Class A shares during the initial offering period is
$10.44 per share. During the initial offering, AFD will "reallow" to dealers the
entire amount of the initial sales charge on Class A shares. Class B and Class C
shares will be offered during the initial offering period at their net asset
value of $10.00.
During the initial offering period, the Fund will not accept subscriptions for
Fund shares other than through authorized dealers and agents, and any
subscription monies sent directly to the Fund will be promptly returned. In
addition, under Commission regulations (e.g., Rule 15c2-4 under the Securities
Exchange Act of 1934), authorized dealers and agents will not be permitted to
accept subscription monies from their customers in advance of the purchase date
unless appropriate arrangements are made for the temporary investment or deposit
of such monies. Shares subscribed for during the Fund's initial offering period
will be sold to subscribers on the purchase date, which is expected to occur on
August 26, 1997 following the end of the initial offering period.
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 day's 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
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on 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 obtained from AFS, can
elect to have the proceeds of the shareholder's redemption sent to the
shareholder's 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 the shareholder's
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
16
<PAGE>
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 Subscription 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 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, with exclusive authority and responsibility to conduct the
management and investment program of the Fund, subject to the general
supervision and control of the Directors of the Fund. As described below,
Alliance has retained the Hong Kong firm of New Alliance Asset Management (Asia)
Limited ("New Alliance") as a consultant to provide Alliance with its regional
expertise as to conditions in and developments impacting Greater China
countries. See "Management of the Fund--Consultant to the Adviser."
Alliance is a leading international investment manager supervising client
accounts with assets as of June 30, 1997 of more than $199 billion (of which
more than $71 billion represented the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit funds, public
employee retirement systems, investment companies, foundations and endowment
funds. The 53 registered investment companies managed by Alliance comprising
more than 111 separate investment portfolios currently have over two million
shareholders. As of June 30, 1997, Alliance was an investment manager of
employee benefit fund assets for 29 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable 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, which is accrued
daily and paid monthly, at the annual rate of 1.00% of the Fund's average daily
net assets.
The person primarily responsible for the day-to-day management of the Fund is
Matthew W.S. Lee, a vice president of ACMC. Prior to joining ACMC in 1997, Mr.
Lee was a director of National Mutual Funds Management (Asia), responsible for
managing a wide range of funds and accounts, including region and single country
funds. Prior to 1994, he worked for James Capel & Co. in both London and Hong
Kong, with responsibility for sales of Asian securities with a specialization in
the Greater China region. Prior thereto, Mr. Lee was employed in London by
17
<PAGE>
Credit Suisse Group to manage CS Tiger Fund, an open-end unit trust investing in
South-East Asian equity securities.
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, a joint venture company
headquartered in Hong Kong which was formed in 1997 by Alliance and Sun Hung Kai
Properties Limited ("SHKP"). New Alliance provides Alliance with ongoing
current and comprehensive information and analysis of conditions and
developments in Greater China countries consisting of, but not limited to,
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. In addition to
its own staff of professionals, New Alliance has access to the expertise and
personnel of SHKP, one of Hong Kong's preeminent property and business groups.
SHKP is one of the largest enterprises in Hong Kong measured by market
capitalization and has considerable expertise in evaluating business and market
conditions in Hong Kong and the other Greater China countries. Its activities
complementary to property development include insurance and estate management,
and SHKP is diversified as well into telecommunications and infrastructure
projects.
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 for
distribution expenses 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. 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.
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 with
respect to the class involved and, in the case of Class B and Class C shares,
payments received from CDSCs. The excess will be carried forward by AFD and
reimbursed from distribution services fees payable under the Plan with respect
to the class involved and in the case of Class B and Class C shares payments
subsequently received through CDSCs, so long as the Plan 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
18
<PAGE>
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 counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreement. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
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 dividend or distribution. Election to receive 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
distributions. Dividends and distributions 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 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 and capital gains 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. For further information regarding foreign taxes see "Dividends,
Distribution and Taxes--Foreign Taxation" in the Statement of Additional
Information.
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. The investment objective of the Fund is such that only a small portion,
if any, of the Fund's dividends is expected to qualify for the dividends-
received deduction for corporate shareholders.
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.
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 the 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
the shareholder as described above. If a shareholder held shares six months or
less and during that period received a distribution taxable to the 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 the
distribution.
19
<PAGE>
An income 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 generally not be taxable to the plan. Distributions from such plans will be
taxable to individual participants under applicable tax rules without regard to
the character of the income earned by the qualified plan.
The Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies the Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's federal income tax return.
Under certain circumstances, if the Fund realizes losses 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
for additional information concerning the taxation of the Fund and its
shareholders. Shareholders are urged to consult their tax advisers regarding
their own tax situation. 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.
- --------------------------------------------------------------------------------
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 and that 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, 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 and distributions 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
the Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND
DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as the Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Fund. 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
determining, 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.
20
<PAGE>
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.
This Prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
21
<PAGE>
SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
ALLIANCE GREATER CHINA '97 FUND
(see instructions at the front of the application)
- --------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION (Please Print)
- --------------------------------------------------------------------------------
|_| INDIVIDUAL OR JOINT ACCOUNT
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Owner's Name (First Name) (MI) (Last Name)
|_|_|_|-|_|_|-|_|_|_|_|
Social Security Number (Required to open account)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Joint Owner's Name* (First Name) (MI) (Last Name)
*Joint Tenants with right of survivorship unless Alliance Fund Services is
informed otherwise.
|_| GIFT/TRANSFER TO A MINOR
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Custodian - One Name Only (First Name) (MI) (Last Name)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Minor (First Name) (MI) (Last Name)
|_|_|_|-|_|_|-|_|_|_|_|
Minor's Social Security Number (Required to open account)
Under the State of __________ (Minor's Residence) Uniform Gifts/Transfer to
Minor's Act
|_| TRUST ACCOUNT
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trustee
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust (cont'd)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|
Trust Dated Tax ID or Social Security Number
(Required to open account)
|_| OTHER
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Corporation, Partnership, Investment Only Retirement Plan,
or other Entity
|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Tax ID Number Trustee Name (Retirement Plans Only)
- --------------------------------------------------------------------------------
2. YOUR ADDRESS
- --------------------------------------------------------------------------------
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Street
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
City State Zip Code
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
If Non-U.S., Specify Country
|_|_|_|-|_|_|_|-|_|_|_|_| |_|_|_|-|_|_|_|-|_|_|_|_|
Daytime Phone Evening Phone
I am a: |_| U.S. Citizen |_| Non-Resident Alien |_| Resident Alien
|_| Other
---------------------------------------------------
For Alliance Use Only
---------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
3. YOUR INITIAL INVESTMENT
- --------------------------------------------------------------------------------
The minimum investment is $250 per fund. The maximum investment in Class B is
$250,000; Class C is $1,000,000.
I hereby subscribe for shares of Alliance Greater China '97 Fund and elect
distribution options as indicated.
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS: R REINVEST DISTRIBUTIONS
into my fund account.
- --------------------------
BROKER/DEALER USE ONLY C SEND MY DISTRIBUTIONS IN
WIRE CONFIRM # CASH to the address I
- -------------------------- have provided in Section
2. (Complete Section 4D
- -------------------------- for direct deposit to
your bank account.
Complete Section 4E for
payment to a third
party).
D DIRECT MY DISTRIBUTIONS
TO ANOTHER ALLIANCE FUND.
Complete the appropriate
portion of Section 4A to
direct your distributions
(dividends and capital
gains) to another
Alliance Fund (the $250
minimum investment
requirement applies to
funds into which
distributions are
directed).
- --------------------------------------------------------------------------------
MAKE ALL CHECKS PAYABLE TO: CLASS OF SHARES
ALLIANCE FUND SERVICES ------------------------------ DISTRIBUTIONS
CONTINGENT ASSET- OPTIONS
INITIAL DEFERRED BASED *CIRCLE*
SALES SALES SALES ---------------------
CHARGE CHARGE CHARGE CAPITAL
ALLIANCE FUND NAME A B C DIVIDENDS GAINS
- --------------------------------------------------------------------------------
Alliance Greater
China '97 Fund $ (160) $ (260) $ (360) R C D R C D
- --------------------------------------------------------------------------------
TOTAL INVESTMENT $ $ $
==========================================================
<PAGE>
MY SOCIAL SECURITY (TAX IDENTIFICATION) NUMBER IS: |_|_|_|_|_|_|_|_|_|
- --------------------------------------------------------------------------------
4. YOUR SHAREHOLDER OPTIONS
- --------------------------------------------------------------------------------
- ---------------------------------------
A. AUTOMATIC INVESTMENT PLANS (AIP)
- ---------------------------------------
|_| WITHDRAW FROM MY BANK ACCOUNT
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account you
wish to use).
<TABLE>
<CAPTION>
Monthly Dollar Amount Day of Withdrawal*
Fund Name ($25 minimum) (1st thru 31st) Circle "all" or applicable months
<S> <C> <C> <C>
All J F M A M J J A S O N D
- ----------------------- ---------------------------- ----------------------- -----------------------------------
All J F M A M J J A S O N D
- ----------------------- ---------------------------- ----------------------- -----------------------------------
All J F M A M J J A S O N D
- ----------------------- ---------------------------- ----------------------- -----------------------------------
All J F M A M J J A S O N D
- ----------------------- ---------------------------- ----------------------- -----------------------------------
</TABLE>
* Your bank must be a member of the National Automated Clearing House
Association (NACHA).
|_| DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to another Alliance fund within the same class of shares.
<TABLE>
<CAPTION>
"From" Fund Account #
"From" Fund Name (if existing) "To" Fund Name "To" Fund Account # (if existing)
<S> <C> <C> <C>
|_| New
|_| Existing
- ----------------------- ---------------------------- ----------------------- -----------------------------------
|_| New
|_| Existing
- ----------------------- ---------------------------- ----------------------- -----------------------------------
|_| New
|_| Existing
- ----------------------- ---------------------------- ----------------------- -----------------------------------
|_| New
|_| Existing
- ----------------------- ---------------------------- ----------------------- -----------------------------------
</TABLE>
|_| EXCHANGE SHARES MONTHLY
I authorize Alliance to transact monthly exchanges between my fund accounts as
listed below within the same class of shares.
<TABLE>
<CAPTION>
"From" Fund Account # Dollar Amount Day of Exchange* "To" Fund Account #
"From" Fund Name (if existing) ($25 minimum) (1st thru 31st) "To" Fund Name (if existing)
<S> <C> <C> <C> <C> <C>
|_| New
|_| Existing
- ------------------ ----------------------- ------------------ ------------------ ------------------ --------------------
|_| New
|_| Existing
- ------------------ ----------------------- ------------------ ------------------ ------------------ --------------------
|_| New
|_| Existing
- ------------------ ----------------------- ------------------ ------------------ ------------------ --------------------
|_| New
|_| Existing
- ------------------ ----------------------- ------------------ ------------------ ------------------ --------------------
</TABLE>
* Shares exchanged will be redeemed at the net asset value on the "Day of
Exchange" (If the "Day of Exchange" is not a fund business day, the
exchange transaction will be processed on the next fund business day). The
exchange privilege is not available if stock certificates have been issued.
- -----------------------------------------
B. SYSTEMATIC WITHDRAWAL PLANS (SWP)
- -----------------------------------------
In order to establish a SWP, you must reinvest all dividends and capital gains
and own or purchase shares of the Fund having a current net asset value of at
least:
o $10,000 for monthly payments, o $5,000 for bi-monthly payments,
o $4,000 for quarterly or less frequent payments
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your checking
account.
|_| I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
<TABLE>
<CAPTION>
Fund Name and Class of Shares Dollar Amount ($50 minimum) Circle "all" or applicable months
<S> <C> <C>
All J F M A M J J A S O N D
- --------------------------------------------------- ------------------------------ -----------------------------------
All J F M A M J J A S O N D
- --------------------------------------------------- ------------------------------ -----------------------------------
All J F M A M J J A S O N D
- --------------------------------------------------- ------------------------------ -----------------------------------
All J F M A M J J A S O N D
- --------------------------------------------------- ------------------------------ -----------------------------------
</TABLE>
(1st-31st)
I would like to have these payments occur on or about the | | of the
months circled above.
PLEASE SEND MY SWP PROCEEDS TO:
|_| MY CHECKING ACCOUNT (via EFT) (Complete Section 4D.)
|_| MY ADDRESS OF RECORD (via CHECK)
|_| THE PAYEE AND ADDRESS SPECIFIED IN SECTION 4E (via CHECK)
<PAGE>
- -----------------------------------------
C. PURCHASES AND REDEMPTIONS VIA EFT
- -----------------------------------------
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange shares
for your account. Purchase and redemption requests will be processed via
electronic funds transfer (EFT) to and from your bank account.
Instructions: o Review the information in the Prospectus about telephone
transaction services.
o If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a check
from the bank account you wish to use and attach it to
Section 4D of this application.
PURCHASES AND REDEMPTIONS VIA EFT
|_| I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to
withdraw money or credit money for such shares via EFT from the bank
account I have selected.
In the case of shares purchased by check or EFT, redemption proceeds may
not be made available until the Fund is reasonably assured that the check
has cleared, normally 15 calendar days after the purchase date.
- ------------------------
D. BANK INFORMATION
- ------------------------
This bank account information will be used for:
|_| Distributions (Section 3) |_| Automatic Investments
(Section 4A)
|_| Systematic Withdrawals (Section 4B) |_| Telephone Transactions
(Section 4C)
Please attach a voided check:
- --------------------------------------------------------------------------------
Tape Pre-Printed Voided Check Here.
We Cannot Establish These Services Without it.
- --------------------------------------------------------------------------------
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order to have EFT transactions processed to your fund account.
For EFT transactions, the Fund requires signatures of bank account owners
exactly as they appear on bank records.
- -----------------------------------
E. THIRD PARTY PAYMENT DETAILS
- -----------------------------------
This third party payee information will be used for:
|_| Distributions (Section 3) |_| Systematic Withdrawals (Section 4B)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Address - Line 1
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Address - Line 2
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Address - Line 3
- -------------------------------------
F. REDUCED CHARGES (CLASS A ONLY)
- -------------------------------------
If you, your spouse or minor children own shares in other Alliance Funds, you
may be eligible for a reduced sales charge. Please complete the Right of
Accumulation section or the Statement of Intent section.
A. RIGHT OF ACCUMULATION
|_| Please link the tax identification numbers or account numbers listed below
for Right of Accumulation privileges, so that this and future purchases
will receive any discount for which they are eligible.
B. STATEMENT OF INTENT
|_| I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
|_| $100,000 |_| $250,000 |_| $500,000 |_| $1,000,000
If the full amount indicated is not purchased within 13 months, I
understand that an additional sales charge must be paid from my account.
- ---------------------------- ---------------------------- --------------------
Tax ID or Account # Tax ID or Account # Tax ID or Account #
<PAGE>
- --------------------------------------------------------------------------------
5. SHAREHOLDER AUTHORIZATION This section MUST be completed
- --------------------------------------------------------------------------------
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange on
my behalf. (NOTE: Telephone exchanges may only be processed between accounts
that have identical registrations.) Telephone redemption checks will only be
mailed to the name and address of record; and the address must have no change
within the last 30 days. The maximum telephone redemption amount is $50,000.
This service can be enacted once every 30 days.
|_| I do not elect the telephone exchange service.
|_| I do not elect the telephone redemption by check service.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF THIS
FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR SOCIAL SECURITY NUMBER AND THAT
I HAVE NOT BEEN NOTIFIED THAT THIS ACCOUNT IS SUBJECT TO BACKUP WITHHOLDING.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACK-UP
WITHHOLDING.
- -------------------------------- ----------------------------
Signature Date
- -------------------------------- ---------------------------- ----------------
Signature Date Acceptance Date
- --------------------------------------------------------------------------------
DEALER/AGENT AUTHORIZATION For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
- ------------------------------------------- -----------------------------------
Dealer/Agent Firm Authorized Signature
- ------------------------------------------- -------------- -------------------
Representative First Name MI Last Name
- --------------------------------------------------------------------------------
Representative Number
- --------------------------------------------------------------------------------
Branch Office Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------(--------)--------------------------------------
Branch Number Branch Phone
<PAGE>
ALLIANCE SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
THE ALLIANCE GREATER CHINA '97 FUND
- --------------------------------------------------------------------------------
INFORMATION AND INSTRUCTIONS
- --------------------------------------------------------------------------------
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and mail it to:
ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
Secaucus, New Jersey 07096-1520
For certified or overnight deliveries, send to:
ALLIANCE FUND SERVICES, INC.
500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07094
- -----------
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
- -----------
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
-- Individuals, Joint Tenants and Gift/Transfer to a Minor:
o Indicate your name(s) exactly as it appears on your social
security card.
-- Trust/Other:
o Indicate the name of the entity exactly as it appeared on the
notice you received from the IRS when your Employer
Identification number was assigned.
- -----------
SECTION 2 YOUR ADDRESS (REQUIRED)
- -----------
Complete in full.
- -----------
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
- -----------
1) Write the dollar amount of your initial purchase in the column corresponding
to the class of shares you have chosen (If you are eligible for a reduced sales
charge, you must also complete Section 4F) 2) Circle a distribution option for
your dividends 3) Circle a distribution option for your capital gains. All
distributions (dividends and capital gains) will be reinvested into your fund
account unless you direct otherwise. If you want distributions sent directly to
your bank account, then you must complete Section 4D and attach a voided check
for that account. If you want your distributions sent to a third party you must
complete Section 4E.
- -----------
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
- -----------
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into
an Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund
for shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A.
B. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
C. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have
elected cash distribution options and would like the payments sent to your
bank account, please tape a voided check of the account you wish to use to
this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that
future purchases will receive discounts. Complete if you intend to purchase
over $100,000 within 13 months.
- -----------
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED)
- -----------
All owners must sign. If it is a custodial, corporate, or trust account, the
custodian, an authorized officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT:
(800) 221-5672.
<PAGE>
<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
(Advisor Class)
August 18, 1997
================================================================================
Table of Contents Page
The Fund at a Glance ...................................................... 2
Expense Information ....................................................... 3
Glossary .................................................................. 4
Description of the Fund ................................................... 5
Investment Objective. .................................................. 5
Greater China Countries ................................................ 5
Investment Policies and Practices ...................................... 5
Additional Investment Practices ........................................ 6
Certain Fundamental Investment
Policies ............................................................... 12
Certain Considerations and Risks ....................................... 12
Purchase and Sale of Shares ............................................... 14
Management of the Fund .................................................... 16
Dividends, Distributions and Taxes ........................................ 17
Conversion Feature ........................................................ 18
General Information ....................................................... 19
================================================================================
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
Two Pacific Place
88 Queensway
Hong Kong
Alliance Greater China '97 Fund, Inc. (the "Fund") seeks long term capital
appreciation by investing at least 80% of its total assets 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 August 18, 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.
This Prospectus offers the Advisor Class shares of the Fund, which may be
purchased at net asset value without any initial or contingent deferred sales
charges and without ongoing distribution expenses. Advisor Class shares are
offered solely to (i) investors participating in fee-based programs meeting
certain standards established by Alliance Fund Distributors, Inc., the Fund's
principal underwriter, (ii) participants in self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that meet certain minimum standards
and (iii) certain other categories of investors described in the Prospectus,
including investment advisory clients of, and certain other persons associated
with, Alliance Capital Management L.P. and its affiliates or the Fund. See
"Purchase and Sale of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[LOGO]Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under license from the owner, Alliance
Capital Management L.P.
<PAGE>
The Fund At A Glance
The following summary is qualified in its entirety by the more detailed
information contained 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 $199
billion in assets under management as of June 30, 1997. Alliance provides
investment management services to employee benefit plans for 29 of the FORTUNE
100 companies.
The Consultant To The Adviser Is . . .
New-Alliance Asset Management (Asia) Limited, a joint venture company
headquartered in Hong Kong and formed by Alliance and Sun Hung Kai Properties
Limited, one of Hong Kong's preeminent property and business groups, which will
provide Alliance with expertise with respect to economic, financial, political,
technological and social conditions and trends in Greater China countries, all
of which significantly impact the investment environment and opportunities in
the region.
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 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.
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 Considerations and Risks." In
addition, because at least 80% of the Fund's portfolio will be invested in
equity securities issued by Greater China companies, the Fund is subject to
greater risk of being influenced by events impacting Greater 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, 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. The Fund
offers multiple classes of shares, of which only the Advisor Class is offered by
this Prospectus. Advisor Class shares may be purchased at net asset value
without any initial or contingent deferred sales charges and are not subject to
ongoing distribution expenses. Advisor Class shares may be purchased and held
solely (i) through accounts established under a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial intermediary and
approved by Alliance Fund Distributors, Inc. ("AFD"), the Fund's principal
underwriter, (ii) through a self-directed defined contribution employee benefit
plan (e.g., a 401(k) plan) that has at least 1,000 participants or $25 million
in assets, (iii) by investment advisory clients of, and certain other persons
associated with, Alliance and its affiliates or the Fund and (iv) through
registered investment advisers or other financial intermediaries who charge a
management, consulting or other fee for their service and who purchase shares
through a broker or agent approved by AFD and clients of such registered
investment advisers or financial intermediaries whose accounts are linked to the
master account of such investment adviser or financial intermediary on the books
of such approved broker or agent. A shareholder's Advisor Class shares will
automatically convert to Class A shares of the Fund under certain circumstances.
See "Conversion Feature -- Conversion to Class A Shares." Generally, a fee-based
program must charge an asset-based or other similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be approved by AFD for
investment in Advisor Class shares. For more detailed information about who may
purchase and hold Advisor Class shares see the Statement of Additional
Information. Fee-based and other programs through which Advisor Class shares may
be purchased may impose different requirements with respect to investment in
Advisor Class shares than described above. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares."
[LOGO]Alliance(R)
Investing without the Mystery.(SM)
(R)/SM These are registered marks used under license from the owner, Alliance
Capital Management L.P.
2
<PAGE>
- --------------------------------------------------------------------------------
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 annual expenses for Advisor Class shares of the Fund. The Example
following the table shows the cumulative expenses attributable to a hypothetical
$1,000 investment in Advisor Class shares for the periods specified.
<TABLE>
<CAPTION>
Advisor
Class Shares
------------
<S> <C>
Maximum sales charge imposed on
purchases (as a percentage of offering price) ........... None
Sales charge imposed on dividend reinvestments ............. None
Deferred sales charge ...................................... None
Exchange fee ............................................... None
- --------------------------------------------------------------------------------
Operating Expenses Advisor Class
- ------------------ -------------
Management fees ............................................ 1.00%
12b-1 fees ................................................. None
Other expenses (a) ......................................... 1.60%
----
Total fund operating expenses (b) .......................... 2.60%
====
Example Advisor Class
- ------- -------------
After 1 year ............................................... $26
After 3 years .............................................. $81
</TABLE>
- --------------------------------------------------------------------------------
(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's account.
(b) The expense information does not reflect any charges or expenses imposed by
your financial representative or your employee benefit plan.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Commission regulations. "Other Expenses" are based on estimated amounts for the
Fund's current fiscal year. THE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIVE
OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
3
<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
The following terms are 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"), the Hong
Kong Special Administrative Region of the People's Republic of 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.
Commission is the United States Securities and Exchange Commission.
Code is the Internal Revenue Code of 1986, as amended.
4
<PAGE>
- --------------------------------------------------------------------------------
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
through investment of at least 80% of its total assets in equity securities
issued by Greater China companies.
GREATER CHINA COUNTRIES
In furtherance of its investment objective, 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 Hong Kong companies or companies of either of the other Greater China
countries.
In recent years, China, Hong Kong and Taiwan have each experienced a high level
of real economic growth. This growth has resulted not only from advantageous
economic conditions, including favorable demographics, competitive wage rates,
and rising per capita income and consumer demand. Significantly, the growth has
also been fueled by an easing by both China and Taiwan of government
restrictions and an increased receptivity to foreign investment. This expanded,
if not yet complete openness to foreign investment, extends as well to the
securities markets of both countries. Hong Kong's free-market economy has
historically included securities markets completely open to foreign investments.
All three countries have regulated stock exchanges upon which shares of an
increasing number of Greater China companies are traded.
With its population estimated at more than 1.2 billion as a driving force, and
notwithstanding its continuing political rigidity, China's economic growth has
been coupled with significantly reduced government economic intervention and
basic economic structural change. Recent years have seen large increases in
industrial production with a significant decline in the state sector share of
industrial output, and increased involvement of local governmental units and the
private sector in establishing new business enterprises.
With China's growth has come an increasing direct and indirect economic
involvement of all three Greater China countries. For some time, Hong Kong as a
world financial and trade center in its own right, with the world's ninth
largest stock exchange, and with offices of many of the worlds multi-national
companies, has been the gateway to trade with and foreign investment in China.
With the long-awaited transfer on July 1, 1997 of the sovereignty of Hong Kong
from Great Britain to China, not only the political but the economic ties
between China and Hong Kong are expected to intensify, albeit with the
continuation of Hong Kong's economic system as provided for in the law governing
its sovereignty.
Notwithstanding the, at times, considerable political tension between the two
countries, it is generally recognized that substantially increased trade and
investment with China has been generated from Taiwan, in many cases through Hong
Kong. Along with this increased interaction with China, Taiwan is becoming a
regional technological and telecommunication center, while continuing the
process of opening its economy up to foreign investment. Although geographically
limited, Taiwan boasts an economy among the world's twenty largest and its
foreign exchange reserves are in the top five of all countries measured in U.S.
dollars. As China's economy continues to expand, it is expected that Taiwan's
economic interaction with China will likewise increase.
Alliance believes that current conditions are favorable for continuing and
expanding economic growth in all three Greater China countries. It is this
potential which the Fund hopes to take advantage of by investing both in
established and new and emerging companies.
Set forth below under "Certain Considerations and Risks" and in Appendix A to
the Statement of Additional Information is additional information concerning the
Greater China countries.
INVESTMENT POLICIES AND PRACTICES
In addition to investing in equity securities of 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 other than investment grade securities. 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 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 receipts, instruments of supranational entities denominated
in the currency of any country, securities of multinational companies and
"semi-governmental securities;" (iv) invest up to 20% of its net assets in
equity-linked debt securities with the objective of realizing capital
appreciation; (v) invest up to 20% 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
5
<PAGE>
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 and practices listed above
may not be available to the Fund in 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 Practices."
ADDITIONAL INVESTMENT PRACTICES
The Fund may engage in the following investment practices to the extent
described above. Additional information concerning certain of these practices is
set forth in Appendix B of the Statement of Additional Information.
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-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
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.
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 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), including many
individually negotiated currency swaps and any assets used to cover currency
swaps and most privately negotiated investments in state enterprises
6
<PAGE>
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. 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
Alliance'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 readily marketable. It is the intention of the Fund to
make such investments when Alliance believes there is a reasonable expectation
that the Fund would be able to dispose of its investment within three years. 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 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.
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.
7
<PAGE>
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 not invest in
lower-rated loans and other lower-rated direct debt instruments.
Options on Securities. 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. A call option written by the Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it has written. A
put option written by the Fund is covered if the Fund holds a put on the
underlying securities with an exercise price equal to or greater than that of
the put option it has 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."
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 for a further discussion of the use, risks and costs of
options on foreign currencies.
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Forward Foreign Currency Exchange Contracts. The Fund may 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"). The 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 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.
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
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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.
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. The Fund will enter into currency swaps for hedging
purposes only. 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.
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). Interest rate swaps are entered 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). 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. 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. The Fund will not enter into an interest rate swap,
cap or floor transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is then rated in the highest rating category
of at least one nationally recognized rating organization. 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 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 defaults on its
repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
a vendor goes bankrupt, the Fund might be
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delayed in, or prevented from, selling the collateral for its benefit. 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. Alliance
monitors the creditworthiness of the dealers with which the Fund enters into
repurchase agreements. Currently, the Fund intends to enter into repurchase
agreements only with its custodian and such primary dealers. 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 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, Distributions and Taxes" in the 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 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 ownership rights
such as voting rights, subscription rights and rights to dividends, interest or
distributions. The Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan. The Fund will not lend portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance. The Board of Directors will monitor the Fund's lending of portfolio
securities.
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 (i.e., dispose of the option) with
the result that (i) an option purchased by the Fund would have to be exercised
in order for the Fund to realize any profit and (ii) the Fund may not be able to
sell currencies or portfolio securities covering an option written by the Fund
until the option expires or it delivers the underlying futures contract or
currency upon exercise. Therefore, no assurance can be given that the Fund will
be able to utilize these instruments effectively for the purposes set forth
above.
Future Developments. The Fund may, following written notice to its shareholders,
take advantage of other investment practices 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
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defensive position, please see the 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 Statement of Additional Information.
CERTAIN 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 the 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 CONSIDERATIONS AND RISKS
Investment in the Fund involves among others, the considerations and risks
referred to below.
Political, Economic and Social Considerations and Interrelationships. China, in
particular, but Hong Kong and Taiwan, as well, in significant measure because of
their existing and increasing economic, and now in the case of Hong Kong, direct
political ties with China, may be subject to a greater degree of economic,
political and social instability than is the case in the United States.
China's economy is very much in transition. While the government still controls
production and pricing in major economic sectors, significant steps have been
taken toward capitalism and China's economy has become increasingly market
oriented. China's strong economic growth and ability to attract significant
foreign investment in recent years stem from the economic liberalization
initiated by Deng Xiaoping who assumed power in the late 1970s. The economic
growth, however, has not been smooth and has been marked by extremes in many
respects of inordinate growth, which has not been tightly controlled, followed
by rigid measures of austerity. The rapidity and erratic nature of the growth
have resulted in inefficiencies and dislocations, including at times high rates
of inflation.
China's economic development has occurred notwithstanding the continuation of
the power of China's Communist Party and China's authoritarian government
control, not only of centrally planned economic decisions, but of many aspects
of the social structure. While a significant portion of China's population has
benefited from China's economic growth, the conditions of many leave much room
for improvement. Notwithstanding restrictions on freedom of expression and the
absence of a free press, and notwithstanding the extreme manner in which past
unrest has been dealt with, the 1989 Tianamen Square uprising being a recent
reminder, the potential for renewed popular unrest associated with demands for
improved social, political and economic conditions cannot be dismissed.
A key unknown as to China's future relates to the political uncertainty in
connection with the succession to Deng who died earlier this year. Many
observers have cited the potential for political instability. While his policies
in many respects have effectively outdated the Communist Party and the
governmental structure, both remain entrenched and only time will tell how the
ruling structure will stabilize. There can be no assurance that the resulting
structure will continue the capitalistic steps or be able to prevent wide
economic swings and control inflation, which is in any event expected to remain
high by present Western standards. In this latter regard, the existing economic
weight of the current political and governmental structure currently adds to
inflationary pressures and impedes economic efficiency and commerce. The
Communist Party still controls access to governmental positions and closely
monitors governmental action. Essentially there exists an inefficient set of
parallel bureaucracies and attendant opportunities for corruption.
In addition to the economic impact of China's internal political uncertainties,
the potential effect of China's actions, not only on China itself, but on Hong
Kong and Taiwan as well, could be significant.
China is heavily dependent on foreign trade, particularly with the United
States, Japan and Germany. Political developments adverse to its trading
partners, as well as political and social repression, could cause the United
States and others to alter their trading policy towards China. For example, in
the United States, the continued extension of most favored nation trading status
to China is an issue of significant controversy which is reviewed regularly.
Loss of that status would clearly hurt China's economy by reducing its exports.
With much of China's
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trading activity being funneled through Hong Kong and with trade through Taiwan
becoming increasingly significant, any sizable reduction in demand for goods
from China would have negative implications for both countries. China is
believed to be the largest investor in Hong Kong and its markets and an economic
downturn in China would be expected to reverberate to Hong Kong's markets as
well.
Regarding Hong Kong, although China has committed by treaty to preserve Hong
Kong's autonomy and its economic, political and social freedoms for fifty years
from the July 1, 1997 transfer of sovereignty from Great Britain to China, the
continuation of Hong Kong's current economic system is dependent on how the
government of China imposes its authority. While Deng expressed China's
commitment as a "one country, two systems" philosophy, the future of Hong Kong's
political and social system, including its independent judiciary, professional
civil service and free press, remains unclear. While many believe that the
economies of China and Hong Kong have become interdependent to such an extent
that it would not be in China's interest to alter Hong Kong's present economic
structure, a change of social policy or in the political structure could also
have negative economic implications. Investor and business confidence in Hong
Kong can be significantly affected by such developments, which in turn can
affect markets and business performance. In this connection, it is noted that a
substantial portion of the companies listed on the Hong Kong Stock Exchange are
involved in real estate-related activities.
Investment in Greater China Countries; Risks of Foreign Investment. The
securities markets of China, and to a lesser extent Taiwan, 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 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 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 is a factor to be taken into account
in the Fund's valuation of portfolio securities in this category and may affect
the Fund's ability to dispose of securities in order to meet redemption requests
at the price and time it wishes to do so. It is also anticipated that
transaction costs, including brokerage commissions for transactions both on and
off the securities exchanges in Greater China countries, will be higher than in
the U.S.
Issuers of securities in Greater China countries are generally not subject to
the same degree of regulation as are U.S. issuers with respect to such matters
as timely disclosure of information, insider trading rules, restrictions on
market manipulation and shareholder proxy requirements. Reporting, accounting
and auditing standards of Greater China countries may differ, in some cases
significantly, from U.S. standards in important respects and less information
may be available to investors in securities of Greater China country issuers
than to investors in securities of U.S. issuers.
Investment in Greater China companies which are in the initial stages of their
development involves greater risk than is customarily associated with securities
of more established companies. The securities of such companies may have
relatively limited marketability and may be subject to more abrupt or erratic
market movements than securities of established companies or broad market
indices.
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 these currencies. Therefore,
the dollar equivalent of the Fund's net assets and distributions will be
adversely affected by reductions in the value of foreign currencies relative to
the U.S. Dollar. Such changes will also affect the Fund's income. The Fund will,
however, consider whether to attempt to protect itself against adverse changes
in the values of foreign currencies by engaging in certain of the investment
practices listed above under "Additional Investment Practices." While it has
this ability, there is no certainty as to whether these practices are available
and, if so, whether and to what extent it will engage in these practices, and if
it does, whether it will be successful in doing so. 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
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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.
Extreme Governmental Action; Less Protective Laws. In contrast with the United
States, foreign investment may involve in certain situations greater risk of
nationalization, expropriation, confiscatory taxation, currency blockage or
other extreme governmental action which could adversely impact the Fund's
investments. In the event of certain such actions, the Fund could lose its
entire investment in the country involved. In addition, laws in various foreign
countries, including in certain respects each of the Greater China countries,
governing, among other subjects, business organization and practices, securities
and securities trading, bankruptcy and insolvency may provide less protection to
investors such as the Fund than provided under United States laws.
U.S. and Foreign Taxes. Foreign taxes paid by the Fund may be creditable or
deductible by U.S. shareholders of the Fund for U.S. income tax purposes.
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" below and should consider 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 that the Fund is not limited by the 1940 Act 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--United
States Federal Income Taxation of Dividends and Distributions" in the Statement
of Additional Information. To so qualify, among other requirements, the Fund
will limit its investments so that, at the close of each quarter of each 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. Foreign government securities are subject to
these tests in the same manner as the securities of non-governmental issuers.
The Fund's investments in U.S. Government securities, if any, are not, however,
subject to these limitations. Because as a non-diversified investment company
the Fund 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.
- --------------------------------------------------------------------------------
PURCHASE AND SALE
- --------------------------------------------------------------------------------
OF SHARES
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
The Fund offers multiple classes of shares, of which only the Advisor Class is
offered by this Prospectus. Advisor Class shares of the Fund may be purchased
through your financial representative at net asset value without any initial or
contingent deferred sales charges and are not subject to ongoing distribution
expenses. Advisor Class shares may be purchased and held solely (i) through
accounts established under a fee-based program, sponsored and maintained by a
registered broker-dealer or other financial intermediary and approved by AFD,
(ii) through a self-directed defined contribution employee benefit plan (e.g. a
401(k) plan) that has at least 1,000 participants or $25 million in assets,
(iii) by investment advisory clients of, and certain other persons associated
with, Alliance and its affiliates or the Fund and (iv) through registered
investment advisers or other financial intermediaries who charge a management,
consulting or other fee for their service and who purchase shares through a
broker or agent approved by AFD and clients of such registered investment
advisers or financial intermediaries whose accounts are linked to the master
account of such investment adviser or financial intermediary on the books of
such approved broker or agent. For more detailed information about who may
purchase and hold Advisor Class shares see the Statement of Additional
Information. A shareholder's Advisor Class shares will automatically convert to
Class A shares of the Fund under certain circumstances. For a more detailed
description of the conversion feature and Class A shares, see "Conversion
Feature."
Generally, a fee-based program must charge an asset-based or other similar fee
and must invest at least $250,000 in Advisor Class shares of the Fund in order
to be approved by AFD for investment in Advisor Class shares. Share certificates
are issued only upon request. See the Subscription Application and the Statement
of Additional Information for more information.
The Fund may refuse any order to purchase Advisor Class shares. In this regard,
the Fund reserves the right to restrict purchases of Advisor Class shares
(including through exchanges) when there appears to be evidence of a pattern of
frequent purchases and sales made in response to short-term considerations.
14
<PAGE>
How the Fund Values its Shares
The net asset value of Advisor Class shares of the Fund is calculated by
dividing the value of the Fund's net assets allocable to the Advisor Class by
the outstanding shares of the Advisor Class. Shares are valued each day the 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 other methods as the Fund's
Directors believe would accurately reflect fair market value.
Initial Offering
It is expected that Advisor Class shares of the Fund will be offered during an
initial offering period, which is currently scheduled to end on August 26, 1997.
During the Fund's initial offering period, Advisor Class shares will be offered
at their net asset value of $10.00.
During the initial offering period, the Fund will not accept subscriptions for
Advisor Class shares other than through authorized dealers and agents, and any
subscription monies sent directly to the Fund will be promptly returned. In
addition, under Commission regulations (e.g., Rule 15c2-4 under the Securities
Exchange Act of 1934), authorized dealers and agents will not be permitted to
accept subscription monies from their customers in advance of the purchase date
unless appropriate arrangements are made for the temporary investment or deposit
of such monies. Advisor Class shares subscribed for during the Fund's initial
offering period will be sold to subscribers on the purchase date, which is
expected to occur on August 26, 1997 following the end of the initial offering
period.
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 next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check or electronic
funds transfer, the Fund will not send proceeds until it is reasonably satisfied
that the check or electronic funds transfer has been collected (which may take
up to 15 days). If you are in doubt about what documents are required by your
fee-based program or employee benefit plan, you should contact your financial
representative.
Selling Shares Through Your Financial Representative
Your financial representative must receive your request before 4:00 p.m. Eastern
time, and your financial representative must transmit your request to the Fund
by 5:00 p.m. Eastern time, for you to receive that day's net asset value. Your
financial representative is responsible for furnishing all necessary
documentation to the Fund and may charge you for this service.
Selling Shares Directly to the Fund
Send a signed letter of instruction or stock power form to 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
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on 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 obtained from AFS, can
elect to have the proceeds of the shareholder's redemption sent to the
shareholder's 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 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.
15
<PAGE>
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder'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 Advisor Class shares of the Fund for Advisor Class shares
of other Alliance Mutual Funds (including AFD Exchange Reserves, a money market
fund managed by Alliance). Exchanges of shares are made at the net asset values
next determined and without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on the Fund business day in order to receive that
day's net asset value.
Please read carefully the Prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
GENERAL
If you are a Fund shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with respect to the
purchase, sale or exchange of Advisor Class shares of the Fund that are
different from those described in this Prospectus. A transaction 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.
The Fund offers three classes of shares other than the Advisor Class, which are
Class A, Class B and Class C. All classes of shares of the Fund have a common
investment objective and investment portfolio. Class A shares are offered with
an initial sales charge and pay a distribution services fee. Class B shares have
a contingent deferred sales charge (a "CDSC") and also pay a distribution
services fee. Class C shares have no initial sales charge or CDSC as long as
they are not redeemed within one year of purchase, but pay a distribution
services fee. Because Advisor Class shares have no initial sales charge or CDSC
and pay no distribution services fee, Advisor Class shares are expected to have
different performance from Class A, Class B or Class C shares. You may obtain
more information about Class A, Class B and Class C shares, which are not
offered by this Prospectus, by contacting AFS by telephone at 800-221-5672 or by
contacting your financial representative.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, with exclusive authority and responsibility to conduct the
management and investment program of the Fund, subject to the general
supervision and control of the Directors of the Fund. As described below,
Alliance has retained the Hong Kong firm of New-Alliance Asset Management (Asia)
Limited ("New Alliance") as a consultant to provide Alliance with its regional
expertise as to conditions in and developments impacting Greater China
countries. See "Management of the Fund - Consultant to the Adviser."
Alliance is a leading international investment manager supervising client
accounts with assets as of June 30, 1997 of more than $199 billion (of which
more than $71 billion represented the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit funds, public
employee retirement systems, investment companies, foundations and endowment
funds. The 53 registered investment companies managed by Alliance comprising
more than 111 separate investment portfolios currently have over two million
shareholders. As of June 30, 1997, Alliance was an investment manager of
employee benefit fund assets for 29 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable 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, which is accrued
daily and paid monthly, at the annual rate of 1.00% of the Fund's average daily
net assets.
The person primarily responsible for the day-to-day management of the Fund is
Matthew W.S. Lee, a vice president of ACMC. Prior to joining ACMC in 1997, Mr.
Lee was a director of National Mutual Funds Management (Asia), responsible for
managing a wide range of funds and accounts, including region and single country
funds. Prior to 1994, he worked for James Capel & Co. in both London and Hong
Kong,
16
<PAGE>
with responsibility for sales of Asian securities with a specialization in the
Greater China region. Prior thereto Mr. Lee was employed in London by Credit
Suisse Group to manage CS Tiger Fund, an open-end unit trust investing in
South-East Asian equity securities.
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, a joint venture company
headquartered in Hong Kong which was formed in 1997 by Alliance and Sun Hung Kai
Properties Limited ("SHKP"). New Alliance provides Alliance with ongoing
current and comprehensive information and analysis of conditions and
developments in Greater China countries consisting of, but not limited to,
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. In addition to
its own staff of professionals, New-Alliance has access to the expertise and
personnel of SHKP, one of Hong Kong's preeminent property and business groups.
SHKP is one of the largest enterprises in Hong Kong measured by market
capitalization and has considerable expertise in evaluating business and market
conditions in Hong Kong and the other Greater China countries. Its activities
complementary to property development include insurance and estate management,
and SHKP is diversified as well into telecommunications and infrastructure
projects.
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
The Fund has entered into a Distribution Services Agreement with AFD with
respect to the Advisor Class Shares. The Glass-Steagall Act and other applicable
laws may limit the ability of a bank or other depository institution to become
an underwriter or distributor of securities. However, in the opinion of the
Fund's management, based on the advice of counsel, these laws do not prohibit
such depository institutions from providing services for investment companies
such as the administrative, accounting and other services referred to in the
Agreement. In the event that a change in these laws prevented a bank from
providing such services, it is expected that other service arrangements would be
made and that shareholders would not be adversely affected.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
- --------------------------------------------------------------------------------
AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
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 dividend or distribution. Election to receive 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.
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 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.
17
<PAGE>
FOREIGN INCOME TAXES
Investment income and capital gains 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. For further information regarding foreign taxes see "Dividends,
Distributions and Taxes--Foreign Taxation" in the Statement of Additional
Information.
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. The investment objective of the Fund is such that only a small portion,
if any, of the Fund's dividends is expected to qualify for the dividends-
received deduction for corporate shareholders.
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.
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 the 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
the shareholder as described above. If a shareholder held shares six months or
less and during that period received a distribution taxable to the 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 the
distribution.
An income 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 generally not be taxable to the plan. Distributions from such plans will be
taxable to individual participants under applicable tax rules without regard to
the character of the income earned by the qualified plan.
The Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies the Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's federal income tax return.
Under certain circumstances, if the Fund realizes losses 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
for additional information concerning the taxation of the Fund and its
shareholders. Shareholders are urged to consult their tax advisers regarding
their own tax situation. 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.
- --------------------------------------------------------------------------------
CONVERSION FEATURE
- --------------------------------------------------------------------------------
CONVERSION TO CLASS A SHARES
Advisor Class shares may be held solely through the fee-based program accounts,
employee benefit plans and registered investment advisory or other financial
intermediary relationships described above under "Purchase and Sale of
Shares--How to Buy Shares," and by investment advisory clients of, and certain
other persons associated with, Alliance and its affiliates or the Fund. If (i) a
holder of Advisor Class shares ceases to participate in a fee-based program or
plan, or to be associated with an investment adviser or financial intermediary,
in each case that satisfies the requirements to purchase shares set forth under
"Purchase and Sale of Shares--How to Buy Shares," or (ii) the holder is
otherwise no longer eligible to purchase Advisor Class shares as described in
this Prospectus (each, a "Conversion Event"), then all Advisor Class shares held
by the shareholder will convert automatically and without notice to the
shareholder, other than the notice contained in this Prospectus, to Class A
shares of the Fund during the calendar month following the month in which the
Fund is informed of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum investment
requirements to purchase Advisor Class shares will not constitute a Conversion
Event. The conversion would occur on the basis of the relative net asset values
of the two classes without the imposition of any sales load, fee or other
charge.
DESCRIPTION OF CLASS A SHARES
The following sets forth maximum transaction costs, annual expenses, per share
income and capital charges for Class A shares of the Fund. Class A shares are
subject to a distribution fee that may not exceed an annual rate of .30%.
18
<PAGE>
The higher fees mean a higher expense ratio, so Class A shares pay
correspondingly lower dividends and may have a lower net asset value than
Advisor Class shares.
Shareholder Transaction Expenses are one of several factors to consider when you
invest in the Fund. The following table summarizes your maximum transaction
costs from investing in Class A shares of the Fund and estimated annual expenses
for Class A shares of the Fund. The "Example" following the table below shows
the cumulative expenses attributable to a hypothetical $1,000 investment in
Class A shares for the periods specified.
Class A Shares
Maximum sales charge imposed on purchase
(as a percentage of offering price) (a) ................... None
(sales charge
waived)
Sales charge imposed on dividend
reinvestments ............................................. None
Deferred sales charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) ............................. None
Operating Expenses Class A
-------
Management fees ........................................... 1.00%
12b-1 fees ................................................ .30%
Other expenses (b) ........................................ 1.60%
----
Total fund operating expenses ............................. 2.90%
====
Example(a) Class A
-------
After 1 year .............................................. $29
After 3 years ............................................. $90
- --------------------------------------------------------------------------------
(a) Advisor Class shares convert to Class A shares at net asset value and
without the imposition of any sales charge and, accordingly, the maximum
sales charge of 4.25% on most purchases of Class A shares for cash does not
apply.
(b) 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 Class A shares of the Fund may pay
aggregate sales charges totaling more than the economic equivalent of the
maximum initial sales charges totaling permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. The Rule 12b-1 fee for Class A
comprises a service fee not exceeding .25% of the aggregate average daily net
assets of the Fund attributable to Class A and an asset-based sales charge equal
to the remaining portion of the Rule 12b-1 fee. "Other Expenses" for Class A
shares 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 Commission regulations.
THE EXAMPLE SHOULD NOT BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES;
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
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 and that 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, 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 and distributions 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
the Statement of Additional Information.
REGISTRAR, TRANSFER AGENT AND
DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as the Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Fund.
19
<PAGE>
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Fund.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its "total return," which is computed
separately for each Class of shares including the Advisor Class. Such
advertisements disclose the Fund's average annual compounded total return for
the periods prescribed by the Commission. The Fund's total return for each such
period is computed by finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, income,
dividends and capital gains distributions paid on shares of the Fund are assumed
to have been reinvested when paid and the maximum sales charges applicable to
purchases and redemptions of 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.
This Prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
20
<PAGE>
SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
ALLIANCE GREATER CHINA '97 FUND
ADVISOR CLASS
(see instructions at the front of the application)
- --------------------------------------------------------------------------------
1. YOUR ACCOUNT REGISTRATION (Please Print)
- --------------------------------------------------------------------------------
|_| INDIVIDUAL OR JOINT ACCOUNT
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Owner's Name (First Name) (MI) (Last Name)
|_|_|_|-|_|_|-|_|_|_|_|
Social Security Number (Required to open account)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Joint Owner's Name* (First Name) (MI) (Last Name)
*Joint Tenants with right of survivorship unless Alliance Fund Services is
informed otherwise.
|_| GIFT/TRANSFER TO A MINOR
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Custodian - One Name Only (First Name) (MI) (Last Name)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Minor (First Name) (MI) (Last Name)
|_|_|_|-|_|_|-|_|_|_|_|
Minor's Social Security Number (Required to open account)
Under the State of __________ (Minor's Residence) Uniform Gifts/Transfer to
Minor's Act
|_| TRUST ACCOUNT
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trustee
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust (cont'd)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|
Trust Dated Tax ID or Social Security Number
(Required to open account)
|_| OTHER
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Corporation, Partnership, Investment Only Retirement Plan,
or other Entity
|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Tax ID Number Trustee Name (Retirement Plans Only)
- --------------------------------------------------------------------------------
2. YOUR ADDRESS
- --------------------------------------------------------------------------------
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Street
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
City State Zip Code
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
If Non-U.S., Specify Country
|_|_|_|-|_|_|_|-|_|_|_|_| |_|_|_|-|_|_|_|-|_|_|_|_|
Daytime Phone Evening Phone
I am a: |_| U.S. Citizen |_| Non-Resident Alien |_| Resident Alien
|_| Other
---------------------------------------------------
For Alliance Use Only
---------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
3. YOUR INITIAL INVESTMENT
- --------------------------------------------------------------------------------
I hereby subscribe for shares of the following Alliance Greater China '97 Fund
and elect distribution options as indicated.
Dividend and Capital Gain Distribution Options: R Reinvest Distributions
into my fund account.
- --------------------------
BROKER/DEALER USE ONLY C Send my distributions in
WIRE CONFIRM # cash to the address I
- -------------------------- have provided in Section
2. (Complete Section 4D
- -------------------------- for direct deposit to
your bank account.
Complete Section 4E for
payment to a third
party).
D Direct my distributions
to another Alliance Fund.
Complete the appropriate
portion of Section 4A to
direct your distributions
(dividends and capital
gains) to the Advisor
Class Shares of another
Alliance Fund.
- --------------------------------------------------------------------------------
Make all checks payable to:
Alliance Fund Services ADVISOR CLASS DISTRIBUTIONS OPTIONS *CIRCLE*
ALLIANCE FUND NAME DIVIDENDS CAPITAL GAINS
- --------------------------------------------------------------------------------
Alliance Greater China '97 Fund $ (460) R C D R C D
- --------------------------------------------------------------------------------
TOTAL INVESTMENT $
================================================
<PAGE>
MY SOCIAL SECURITY (TAX IDENTIFICATION) NUMBER IS: |_|_|_|_|_|_|_|_|_|
- --------------------------------------------------------------------------------
4. YOUR SHAREHOLDER OPTIONS
- --------------------------------------------------------------------------------
- ---------------------------------------
A. AUTOMATIC INVESTMENT PLANS (AIP)
- ---------------------------------------
|_| WITHDRAW FROM MY BANK ACCOUNT
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account you
wish to use).
<TABLE>
<CAPTION>
Monthly Dollar Amount Day of Withdrawal
Fund Name ($25 minimum) (1st thru 31st) Circle "all" or applicable months
<S> <C> <C> <C>
All J F M A M J J A S O N D
- ----------------------- ---------------------------- ----------------------- -----------------------------------
All J F M A M J J A S O N D
- ----------------------- ---------------------------- ----------------------- -----------------------------------
All J F M A M J J A S O N D
- ----------------------- ---------------------------- ----------------------- -----------------------------------
All J F M A M J J A S O N D
- ----------------------- ---------------------------- ----------------------- -----------------------------------
</TABLE>
Your bank must be a member of the National Automated Clearing House Association
(NACHA).
|_| DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance fund.
<TABLE>
<CAPTION>
"From" Fund Account #
"From" Fund Name (if existing) "To" Fund Name "To" Fund Account # (if existing)
<S> <C> <C> <C>
|_| New
|_| Existing
- ----------------------- ---------------------------- ----------------------- -----------------------------------
|_| New
|_| Existing
- ----------------------- ---------------------------- ----------------------- -----------------------------------
|_| New
|_| Existing
- ----------------------- ---------------------------- ----------------------- -----------------------------------
|_| New
|_| Existing
- ----------------------- ---------------------------- ----------------------- -----------------------------------
</TABLE>
|_| EXCHANGE SHARES MONTHLY
I authorize Alliance to transact monthly exchanges within the same class of
shares between my fund accounts as listed below.
<TABLE>
<CAPTION>
"From" Fund Account # Dollar Amount Day of Exchange* "To" Fund Account #
"From" Fund Name (if existing) ($25 minimum) (1st thru 31st) "To" Fund Name (if existing)
<S> <C> <C> <C> <C> <C>
|_| New
|_| Existing
- ------------------ ----------------------- ------------------ ------------------ ------------------ --------------------
|_| New
|_| Existing
- ------------------ ----------------------- ------------------ ------------------ ------------------ --------------------
|_| New
|_| Existing
- ------------------ ----------------------- ------------------ ------------------ ------------------ --------------------
|_| New
|_| Existing
- ------------------ ----------------------- ------------------ ------------------ ------------------ --------------------
</TABLE>
* Shares exchanged will be redeemed at the net asset value on the "Day of
Exchange" (If the "Day of Exchange" is not a fund business day, the
exchange transaction will be processed on the next fund business day). The
exchange privilege is not available if stock certificates have been issued.
- -----------------------------------------
B. SYSTEMATIC WITHDRAWAL PLANS (SWP)
- -----------------------------------------
In order to establish a SWP, you must reinvest all dividends and capital gains
and own or purchase shares of the Fund having a current net asset value of at
least:
o $10,000 for monthly payments, o $5,000 for bi-monthly payments,
o $4,000 for quarterly or less frequent payments
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your checking
account.
|_| I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
<TABLE>
<CAPTION>
Fund Name Dollar Amount ($50 minimum) Circle "all" or applicable months
<S> <C> <C>
All J F M A M J J A S O N D
- --------------------------------------------------- ------------------------------ -----------------------------------
All J F M A M J J A S O N D
- --------------------------------------------------- ------------------------------ -----------------------------------
All J F M A M J J A S O N D
- --------------------------------------------------- ------------------------------ -----------------------------------
All J F M A M J J A S O N D
- --------------------------------------------------- ------------------------------ -----------------------------------
</TABLE>
(1st-31st)
I would like to have these payments occur on or about the | | of the
months circled above.
PLEASE SEND MY SWP PROCEEDS TO:
|_| MY CHECKING ACCOUNT (via EFT) (Complete Section 4D)
|_| MY ADDRESS OF RECORD (via CHECK)
|_| THE PAYEE AND ADDRESS SPECIFIED IN SECTION 4E (via CHECK)
60698GEN-REIT-AC-App
<PAGE>
- -----------------------------------------
C. PURCHASES AND REDEMPTIONS VIA EFT
- -----------------------------------------
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange shares
for your account. Purchase and redemption requests will be processed via
electronic funds transfer (EFT) to and from your bank account.
Instructions: o Review the information in the Prospectus about telephone
transaction services.
o If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a check
from the bank account you wish to use and attach it to
Section 4D of this application.
Purchases and Redemptions via EFT
|_| I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to
withdraw money or credit money for such shares via EFT from the bank
account I have selected.
In the case of shares purchased by check, redemption proceeds may not be
made available until the fund is reasonably assured that the check has
cleared, normally 15 calendar days after the purchase date.
- ------------------------
D. BANK INFORMATION
- ------------------------
This bank account information will be used for:
|_| Distributions (Section 3) |_| Automatic Investments
(Section 4A)
|_| Systematic Withdrawals (Section 4B) |_| Telephone Transactions
(Section 4C)
Please attach a voided check:
- --------------------------------------------------------------------------------
Tape Preprinted Voided Check Here.
We Cannot Establish These Services Without it.
- --------------------------------------------------------------------------------
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order to have EFT transactions processed to your fund account.
For EFT transactions, the fund requires signatures of bank account owners
exactly as they appear on bank records.
- -----------------------------------
E. THIRD PARTY PAYMENT DETAILS
- -----------------------------------
This third party payee information will be used for:
|_| Distributions (Section 3) |_| Systematic Withdrawals (Section 4B)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Address - Line 1
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Address - Line 2
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Address - Line 3
<PAGE>
- --------------------------------------------------------------------------------
5. SHAREHOLDER AUTHORIZATION This section MUST be completed
- --------------------------------------------------------------------------------
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange on
my behalf. (NOTE: Telephone exchanges may only be processed between accounts
that have identical registrations.) Telephone redemption checks will only be
mailed to the name and address of record; and the address must have no change
within the last 30 days. The maximum telephone redemption amount is $50,000.
This service can be enacted once every 30 days.
|_| I do not elect the telephone exchange service.
|_| I do not elect the telephone redemption by check service.
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certificate required to avoid backup
withholding.
- -------------------------------- ----------------------------
Signature Date
- -------------------------------- ---------------------------- ----------------
Signature Date Acceptance Date
- --------------------------------------------------------------------------------
DEALER/AGENT AUTHORIZATION For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
- ------------------------------------------- -----------------------------------
Dealer/Agent Firm Authorized Signature
- ------------------------------------------- -------------- -------------------
Representative First Name MI Last Name
- --------------------------------------------------------------------------------
Representative Number
- --------------------------------------------------------------------------------
Branch Office Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------(--------)--------------------------------------
Branch Number Branch Phone
<PAGE>
ALLIANCE SUBSCRIPTION APPLICATION
- --------------------------------------------------------------------------------
ALLIANCE GREATER CHINA '97 FUND
ADVISOR CLASS
- --------------------------------------------------------------------------------
INFORMATION AND INSTRUCTIONS
- --------------------------------------------------------------------------------
To Open Your New Alliance Account...
Please complete the application and mail it to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, New Jersey 07096-1520
For certified or overnight deliveries, send to:
Alliance Fund Services, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094
- -----------
Section 1 Your Account Registration (Required)
- -----------
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
-- Individuals, Joint Tenants and Gift/Transfer to a Minor:
o Indicate your name(s) exactly as it appears on your social
security card.
-- Trust/Other:
o Indicate the name of the entity exactly as it appeared on the
notice you received from the IRS when your Employer
Identification number was assigned.
- -----------
Section 2 Your Address (Required)
- -----------
Complete in full.
- -----------
Section 3 Your Initial Investment (Required)
- -----------
1) Write the dollar amount of your initial purchase 2) Circle a distribution
option for your dividends 3) Circle a distribution option for your capital
gains. All distributions (dividends and capital gains) will be reinvested into
your fund account unless you direct otherwise. If you want distributions sent
directly to your bank account, then you must complete Section 4D and attach a
voided check for that account. If you want your distributions sent to a third
party you must complete Section 4E.
- -----------
Section 4 Your Shareholder Options (Complete only those options you want)
- -----------
A. Automatic Investment Plans (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into
an Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund
for shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A.
B. Systematic Withdrawal Plans (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
C. Telephone Transactions via EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
D. Bank Information - If you have elected any options that involve
transactions between your bank account and your fund account or have
elected cash distribution options and would like the payments sent to your
bank account, please tape a voided check of the account you wish to use to
this section of the application.
E. Third Party Payment Details - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option.
- -----------
Section 5 Shareholder Authorization (Required)
- -----------
All owners must sign. If it is a custodial, corporate, or trust account, the
custodian, an authorized officer, or the trustee respectively must sign.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
(800) 221-5672.
<PAGE>
(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
August 18, 1997
____________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the current Prospectus for Alliance Greater China '97 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 either Prospectus may be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"For Literature" telephone number shown above.
TABLE OF CONTENTS
Page
Description of the Fund................................
Management of the Fund.................................
Expenses of the Fund...................................
Purchase of Shares.....................................
Redemption and Repurchase of Shares....................
Shareholder Services...................................
Net Asset Value........................................
Dividends, Distributions and Taxes.....................
Brokerage and Portfolio Transactions...................
General Information....................................
Appendix A: Certain Investment Practices.............. A-1
Appendix B: Additional Information About China,
Hong Kong and Taiwan.................... B-1
Appendix C: Debt Securities Ratings.................. C-1
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
____________________________________________________________
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's investment objective is to seek long-term
capital appreciation through investment of at least 80% of its
total assets in equity securities issued by Greater China
companies. In furtherance of its investment objective, 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
Hong Kong companies or companies of either of the other Greater
China countries.
Investment Policies and Practices
In addition to investing in equity securities of 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 other than investment grade securities.
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. See "Appendix C--Debt Securities
Ratings."
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 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;
2
<PAGE>
(v) invest up to 20% 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 and practices 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.
With respect to currency swaps, standby commitment
agreements and other commitments that may have the effect of
requiring the Fund to increase its investment in a borrower or
other issuer, the net amount of the excess, if any, of the Fund's
obligations over its entitlements 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 account by the Fund's Custodian.
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 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
3
<PAGE>
the length of time that the 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.
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:
(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;
4
<PAGE>
(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
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. Certain Directors and officers are also
directors, trustees or officers 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.
5
<PAGE>
DIRECTORS
JOHN D. CARIFA,1 51, Chairman of the Board and President
of the Fund, is the President, Chief Operating Officer and a
Director of ACMC with which he has been associated since prior to
1992.
DAVID H. DIEVLER, 67, was formerly a Senior Vice
President of ACMC with which he had been associated since prior
to 1992. He is currently an independent consultant. His address
is P.O. Box 167, Spring Lake, New Jersey 07762.
WILLIAM H. FOULK, JR., 64, is an Investment Adviser and
an Independent Consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1992. His address is
2 Hekma Road, Greenwich, Connecticut 06831.
TAK-LUNG TSIM,* 51, is a managing director of T.L. Tsim
& Associates Limited, an independent consulting company with
which he has been associated since 1994. Before then he was a
Fellow of Shaw College of The Chinese University of Hong Kong and
a member of the Steering Committee of China Review, an annual
publication focusing on current events in China. Prior to
forming T.L. Tsim & Associates he was a member of the Central
Policy Unit of The Hong Kong Government. His address is Apt. 3A,
68 Conduit Road, Hong Kong.
OFFICERS
JOHN D. CARIFA, Chairman and President, see biography
above.
KATHLEEN A. CORBET, 37, Senior Vice President, is an
Executive Vice President of ACMC, with which she has been
associated since July 1993. Prior thereto, she was employed by
Equitable Capital since prior to 1992.
MATTHEW W.S. LEE, ____, Vice President, is a Vice
President of ACMC, with which he has been associated since 1997.
Prior thereto he was a director of National Mutual Funds
Management (ASIA) since 1994, and an employee of James Capel &
Co. since prior to 1992.
EDMUND P. BERGAN, JR., 46, Secretary, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
("AFD") with which he has been associated since prior to 1992.
_________________________
1. An interested person of the Fund as defined in the Investment
Company Act of 1940 (the "1940 Act").
6
<PAGE>
MARK D. GERSTEN, 46, Treasurer, and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc. ("AFS"), with which he has been associated since prior to
1992.
VINCENT S. NOTO, 32, Controller, is a Vice President of
AFS with which he has been associated since prior to 1992.
ANDREW L. GANGOLF, 42, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD with which he has
been associated since December 1994. Prior thereto, he was a
Vice President and Assistant Secretary of Delaware Management
Company, Inc. since October 1992 and a Vice President and Counsel
to Equitable Life Assurance Society of the United States since
prior to 1992.
DOMENICK PUGLIESE, 36, Assistant Secretary, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was a Vice
President and Associate General Counsel of Prudential Securities
since prior to 1992.
EMILIE D. WRAPP, 40, Assistant Secretary, is a Vice
President and Special Counsel of AFD, with which she has been
associated since prior to 1992.
The aggregate compensation to be paid by the Fund to
each of the Directors during its current fiscal year ended
July 31, 1998 (estimating future payments based upon existing
arrangements), and 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.
7
<PAGE>
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
___________ ____________ ______________ _____________
John D. Carifa $0 $0 51
David H. Dievler $3,000 $182,000 44
William H. Foulk, Jr. $3,000 $144,250 33
T.L. Tsim $3,000 $ 3,000 1
_______________
** estimated
As of August 15, 1997, the Directors and officers of the
Fund as a group owned less than 1% of the 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.
Alliance is a leading international investment manager
supervising client accounts with assets as of June 30, 1997 of
more than $199 billion (of which more than $71 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 June 30, 1997,
29 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 Mumbai, 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
8
<PAGE>
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA-UAP, a French insurance holding company. As of March 1,
1997, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of March 31, 1997, approximately 34% and
9% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including an employee
of the Adviser who serves as a Director 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
Exchange. 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 FF10 each
of Compagnie UAP, a societe anonyme organized under the laws of
France ("UAP"), in exchange for ordinary shares ("Shares") and
9
<PAGE>
Certificates of Guaranteed Value ("Certificates") of AXA. Each
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 has the option to
convert each Bond into 5.15 Shares. On May 15, 1997, each Bond
still outstanding was redeemed into cash at FF1,285 plus FF9.29
accrued interest. Finaxa converted the Bonds it had owned into
2,153,308 Shares. After giving effect to the conversion of all
outstanding Bonds into Shares and 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.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Fund and pays all compensation of Directors and officers of
the Fund who are affiliated persons of the Adviser. The Adviser
or its affiliates also furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers.
The 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
10
<PAGE>
daily net assets of the Fund. The fee is accrued daily and paid
monthly.
The Advisory Agreement became effective on July 29, 1997
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 July 29, 1997, and by the Fund's initial shareholder
on July 30, 1997.
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
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.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to ACM Institutional Reserves, Inc.,
AFD Exchange Reserves, Alliance All-Asia Investment Fund, Inc.,
11
<PAGE>
The Alliance 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, 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.
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 which was formed
in 1997 by Alliance and Sun Hung Kai Properties Limited ("SHKP").
New Alliance will provide Alliance with ongoing current and
comprehensive information and analysis of conditions and
developments in Greater China countries consisting of, but not
limited to, 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. In addition to
its own staff of professionals, New Alliance has access to the
expertise and personnel of SHKP, one of Hong Kong's preeminent
property and business groups. SHKP is one of the largest
enterprises in Hong Kong measured by market capitalization at
over HK$200 billion as of June 30, 1997 and has considerable
expertise in evaluating business and market conditions in Hong
12
<PAGE>
Kong and the other Greater China countries. Although SHKP is
best known for its strength in the residential sector, its
development span every major property use, including shopping
centers, office and industrial properties, hotels and warehouses.
Its activities complementary to property development include
insurance and estate management, and SHKP is diversified as well
into telecommunications and infrastructure projects.
___________________________________________________________
EXPENSES OF THE FUND
___________________________________________________________
Distribution Services Agreement
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's shares and to permit the Fund to pay distribution
services fees to defray expenses associated with the distribution
of its Class A shares, Class B shares and Class C shares in
accordance with a plan of distribution which is included in the
Agreement and has been duly adopted and approved in accordance
with Rule 12b-1 adopted by the Commission under the 1940 Act (the
"Rule 12b-1 Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge and at the same time to permit the Principal
Underwriter to compensate broker-dealers in connection with the
sale of such shares. In this regard, the purpose and function of
the combined contingent deferred sales charges and distribution
services fees on the Class B shares and Class C shares are the
same as those of the initial sales charge and distribution
services fee with respect to the Class A shares in that in each
case the sales charge and distribution services fee provide for
the financing of the distribution of the relevant class of the
Fund's shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the
Fund for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Directors who are
not "interested persons" of the Fund, as defined in the 1940 Act,
are committed to the discretion of such disinterested Directors
then in office. The Agreement was initially approved by the
13
<PAGE>
Directors of the Fund at a meeting held on July 29, 1997, and by
the Fund's initial shareholder on July 30, 1997.
The Agreement became effective on July 29, 1997 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
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
14
<PAGE>
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
("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
15
<PAGE>
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.
If you are a Fund shareholder through an account
established under a fee-based program, your fee-based program may
impose requirements with respect to the purchase, sale or
exchange of Advisor Class shares of the Fund that are different
from those described in the Advisor Class Prospectus and this
Statement of Additional Information. 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.
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.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under "Class
A Shares." On each Fund business day on which a purchase or
16
<PAGE>
redemption order is received by the Fund and trading in the types
of securities in which the Fund invests might materially affect
the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of regular trading on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern
time) by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day, on which the Exchange is open for
trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset values
of the Class A and Advisor Class shares, as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchases 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. Eastern time. If the selected dealer, agent or
financial representative fails to do so, the investor's right to
that day's closing price must be settled between the investor and
the selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
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.
17
<PAGE>
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
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.
18
<PAGE>
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
that borne by Class A shares, and Advisor Class shares do not
bear such a fee, (iii) Class B and Class C shares bear higher
transfer agency costs than that borne by Class A and Advisor
Class shares, (iv) each of Class A, Class B and Class C shares
has exclusive voting rights with respect to provisions of the
Rule 12b-1 Plan pursuant to which its distribution services fee
is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of the Class A shareholders, an amendment to
the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders, and the Class A, the Class B and Advisor Class
shareholders will vote separately by class and (v) Class B and
Advisor Class shares are subject to a conversion feature. Each
class has different exchange privileges and certain different
shareholder service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B
and Class C Shares2
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
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
_________________________
2. Advisor Class shares are sold only to investors described
above in this section under "General."
19
<PAGE>
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
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
20
<PAGE>
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
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
21
<PAGE>
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.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$50,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Fund on August 26, 1997.
22
<PAGE>
Net Asset Value per Class A Share at
August 26, 1997 $10.00
Class A Per Share Sales Charge 4.25%
of offering price (4.44% of net asset
value per share) $ 0.44
Class A Per Share Offering Price to
the Public $10.44
=====
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.
23
<PAGE>
-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 Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-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
24
<PAGE>
shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all shares of the
Fund held by the investor and (b) all shares
of any other Alliance Mutual Fund held by the
investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with
that of the investor into a single "purchase"
(see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
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
25
<PAGE>
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
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,
26
<PAGE>
under the schedule of the sales charges set forth in this
Statement of Additional Information, to an investment 13 times
larger than such initial purchase. The sales charge applicable
to each succeeding monthly purchase will be that normally
applicable, under such schedule, to an investment equal to the
sum of (i) the total purchase previously made during the 13-month
period and (ii) the current month's purchase multiplied by the
number of months (including the current month) remaining in the
13-month period. Sales charges previously paid during such
period will not be retroactively adjusted on the basis of later
purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal income tax purposes,
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including:
(i) investment management clients of the
Adviser or its affiliates;
(ii) officers and present or former Directors
of the Fund; present or former directors
and trustees of other investment
companies managed by the Adviser; present
or retired full-time employees of the
Adviser, the Principal Underwriter,
Alliance Fund Services, Inc. and their
affiliates; officers and directors of
ACMC, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates;
27
<PAGE>
officers, directors and present full-time
employees of selected dealers or agents;
or the spouse, or a 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);
(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
28
<PAGE>
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
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.
29
<PAGE>
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
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
30
<PAGE>
relative of any such person, by any trust, individual retirement
account or retirement plan account for the benefit of any such
person or relative or by the estate of any such person or
relative, or (iv) pursuant to a systematic withdrawal plan (see
"Shareholder Services - Systematic Withdrawal Plan" below).
Conversion Feature. Eight years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
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
31
<PAGE>
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
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.
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<PAGE>
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, in each case that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem the shareholder's 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
33
<PAGE>
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Redemption
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A shares, Class B shares or Class C shares, there is no
redemption charge. Payment of the redemption price will be made
within seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
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 the shareholder's shares, assuming
the shares constitute capital assets in the shareholder's 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.
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To redeem shares of the Fund for which no certificates
have been issued, the registered owner or owners should forward a
letter to the Fund containing a request for redemption. The
signature or signatures on the letter must be guaranteed by an
"eligible guarantor institution" as defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended.
To redeem shares of the Fund represented by share
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption by Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer, 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
35
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instruction to Alliance Fund Services, Inc. or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Neither the Fund
nor the Adviser, the Principal Underwriter or Alliance Fund
Services, Inc. will be responsible for the authenticity of
telephone requests for redemptions that the Fund reasonably
believes to be genuine. The Fund will employ reasonable
procedures in order to verify that telephone requests for
redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers or agents may charge a commission for handling
telephone requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time. 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
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(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
_______________________________________________________________
SHAREHOLDER SERVICES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set forth
below are applicable to Class A, Class B, Class C and Advisor
Class shares unless otherwise indicated. If you are an Advisor
Class shareholder through an account established under a fee-
based program, your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfers
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,
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<PAGE>
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
Exchange Privilege
You may exchange your investment in the Fund for
shares of the same class of other Alliance Mutual Funds
(including AFD Exchange Reserves, a money market fund managed by
the Adviser). In addition, (i) present officers and full-time
employees of the Adviser, (ii) present Directors or Trustees of
any Alliance Mutual Fund and (iii) certain employee benefit plans
for employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may on a tax-free basis,
exchange Class A shares of the Fund for Advisor Class shares of
the Fund. Exchanges of shares are made at the net asset value
next determined and without sales or 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
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shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
Each Fund shareholder and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc. receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m. Eastern time on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments (such as the market break of
October 1987) it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
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
39
<PAGE>
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
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-
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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
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 distributions paid on the shareholder's
Class A, Class B, Class C or Advisor Class Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown on the
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cover of this Statement of Additional Information. Investors
wishing to establish a dividend direction plan in connection with
their initial investment should complete the appropriate section
of the Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such withdrawal 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
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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%
quarterly of the value at the time of redemption of the Class B
or Class C shares in a shareholder's account may be redeemed free
of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
_______________________________________________________________
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
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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 Directors 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
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 Directors to reflect its fair value. All other
assets and securities are valued in a manner determined in good
faith by the Directors 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 Directors. On an ongoing basis, the Trustees
monitor the Fund's method of valuation.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each business day
in New York (i.e., a day on which the Exchange is open). In
addition, Far Eastern and European 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
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.
The assets belonging to the Class A shares, the Class B
shares, the Class C shares and the Advisor Class shares will be
invested together in a single portfolio. The net asset value of
each Class will be determined separately by subtracting the
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<PAGE>
accrued expenses and liabilities allocated to that Class from the
assets belonging to that Class.
_______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________
The following summary addresses only principal United
States federal income tax considerations pertinent to the Fund
and to shareholders of the Fund who are United States citizens or
residents or United States corporations. The effects of federal
income tax law on shareholders who are nonresident alien
individuals, foreign corporations or other foreign persons may be
substantially different. Following the summary of federal income
tax matters is a summary of principal Greater China country tax
matters pertinent to the Fund and its shareholders. The
summaries for the United States and the Greater China countries
are based upon the advice of counsel for the Fund with respect to
the country involved and upon current law and interpretations
thereof. No confirmation has been obtained from the relevant tax
authorities. There is no assurance that the applicable laws and
interpretations will not change.
In view of the individual nature of tax consequences,
each shareholder is advised to consult the shareholder's own tax
adviser with respect to the specific tax consequences of being a
shareholder of the Fund, including the effect and applicability
of federal, state, local, foreign and other tax laws and the
effects of changes therein.
United States Federal Income Taxation
of Dividends and Distributions
General. The Fund intends 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
other things, (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of
stock or securities or foreign currency, or certain other income
(including, but not limited to, gains from options, futures and
forward contracts) derived with respect to its business of
investing in stock, securities or currency; (ii) diversify its
holdings so that, at the end of each quarter of its taxable year,
the following two conditions are met: (a) at least 50% of the
value of the Fund's assets is represented by cash, 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
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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)
or of two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or
businesses or related trades or businesses; and (iii) with
respect to its taxable year beginning before August 1, 1998,
derive less than 30% of its gross income 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). 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 will also avoid the 4% federal excise tax that
would otherwise apply to certain undistributed income for a given
calendar year if it makes timely distributions to its
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
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.
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<PAGE>
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 will be 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. The investment
objective of the Fund is such that only a small portion, if any,
of the Fund's distributions is expected to qualify for the
dividends-received deduction for corporate shareholders.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
It is the present policy of the Fund to distribute to
shareholders all net investment income and to distribute realized
capital 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 dealers or certain financial
institutions. In the case of an individual shareholder, such
gain or loss 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; and otherwise short-term capital
gain or loss. The applicable tax rate imposed on long-term
capital gain differs depending on whether the shares were held at
the time of the sale or redemption for more than eighteen months,
or for more than one year but not more than eighteen months. If
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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. As discussed below under "Foreign
Taxation," income received by the Fund may be subject to foreign
income taxes, including withholding taxes. It is not possible 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, as is contemplated, 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
deduct, or claim a credit for, their pro rata share of the
foreign taxes paid by the Fund. A shareholder's foreign tax
credit with respect to a dividend received from the Fund will be
disallowed unless the shareholder holds shares in the Fund at
least 15 days immediately before or immediately after the
shareholder becomes entitled to receive the dividend. Each
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<PAGE>
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 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."
Under recently enacted legislation, the Fund could elect for
taxable years beginning after 1997 to "mark-to market" stock in a
49
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PFIC. Under such an election, the Fund would include in income
each year an amount equal to the excess, if any, of the fair
market value of the PFIC stock as of the close of the taxable
year over the Fund's adjusted basis in the PFIC stock. The Fund
would be allowed a deduction for the excess, if any, of the
adjusted basis of the PFIC stock over the fair market value of
the PFIC stock as of the close of the taxable year, but only to
the extent of any net mark-to-market gains included by the Fund
for prior taxable years. The Fund's adjusted basis in the PFIC
stock would be adjusted to reflect the amounts included in, or
deducted from, income under this election. Amounts included in
income pursuant to this election, as well as gain realized on the
sale or other disposition of the PFIC stock, would be treated as
ordinary income. The deductible portion of any mark-to-market
loss, as well as loss realized on the sale or other disposition
of the PFIC stock to the extent that such loss does not exceed
the net mark-to-market gains previously included by the Fund,
would be treated as ordinary loss. The Fund generally would not
be subject to the deferred tax and interest charge provisions
discussed above with respect to PFIC stock for which a mark-to-
market election has been made. If the Fund purchases shares in a
PFIC and the Fund does elect to treat the foreign corporation as
a "qualified electing fund" under the Code, the Fund may be
required to include in its income each year a portion of the
ordinary income and net capital gains of the foreign corporation,
even if this income is not distributed to the Fund. Any such
income would be subject to the 90% and calendar year distribution
requirements described above.
Currency Fluctuations-"Section 988" Gains or Losses.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
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
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such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. If such
distributions exceed such shareholder's basis, such excess will
be treated as a gain from the sale of shares.
Options, Futures and Forward Contracts. Certain listed
options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for
federal income tax purposes. Section 1256 contracts held by the
Fund at the end of each taxable year will be "marked to market"
and treated for federal income tax purposes as though sold for
fair market value on the last business day of such taxable year.
Gain or loss realized by the Fund on section 1256 contracts other
than forward foreign currency contracts will be considered 60%
long-term and 40% short-term capital gain or loss. Gain or loss
realized by the Fund on forward foreign currency contracts
generally will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will
increase or decrease the amount of the Fund's net investment
income available to be distributed to shareholders as ordinary
income, as described above. The Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as
described below) from the application of section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority to date 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
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over-the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, forward
foreign currency contract, currency swap, or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's
gains and losses with respect to straddle positions by requiring,
among other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position is ordinary and at least one
position is capital. No such regulations have yet been issued.
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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.
Foreign Taxation
Set forth below is information concerning the taxation
by the Greater China countries of income received by the Fund, of
shareholders of the Fund and of transactions by the Fund.
The Fund has been advised that neither the Fund nor any
of the Fund's shareholders will be considered, insofar as
relevant for tax purposes, as a resident of or having an
establishment or a permanent establishment in any Greater China
country, or as engaged in, as carrying on a trade, profession or
business in, or as rendering independent personal services from a
fixed base in, any of these countries solely as a result of the
activities contemplated by the Prospectus and this Statement of
Additional Information. Certain of the tax exemptions and
reductions referred to below are dependent on the Fund's not
having such a status, and it is the intention of the Fund to
conduct its affairs in such a manner. To the extent applicable
law or the manner in which such law is interpreted changes or the
Fund otherwise changes the manner in which it conducts its
activities, the Fund and its shareholders may be subject to
higher taxes than those indicated.
China. The Fund will not currently be subject to any
China income tax either (i) on dividends it receives on "B"
shares of a China company listed on the Shanghai or Szenzhen
Stock Exchanges or on shares of a China company listed on a non-
China securities exchange, including "H" shares listed on the
Hong Kong Stock Exchange, or (ii) on capital gains which the Fund
derives from the sale of any such shares. These shares, which
are primary categories of equities of China companies for
acquisition by the Fund, are discussed in "Appendix A: Additional
Information about China, Hong Kong and Taiwan--China--Securities
Markets" in this Statement of Additional Information. These
exemptions are pursuant to a July 21, 1993 notice issued by the
China State Tax Bureau. Absent this notice, which may hereafter
be withdrawn, such dividends would be subject to withholding tax
at the rate of 10%, the maximum rate permitted by application of
the current tax treaty between the U.S. and China (the
"U.S./China Treaty"), and such gains would be subject to
withholding at the normal rate, currently 20%. Other China-
source dividends and gains on the disposition of securities,
including debt securities, would be taxable to the Fund at the
rates of 10% and 20%, respectively. Interest on China source
indebtedness will be subject to withholding tax at the maximum
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rate of 10% as so limited by the U.S./China Treaty. Transfers of
"B" shares are subject to a stamp duty at the rate of 0.30% of
the transaction price imposed on each of the buyer and seller.
Hong Kong. Dividends and interest received by the Fund
in respect of investments in securities of Hong Kong companies,
whether or not listed on the Hong Kong Stock Exchange, will not
be subject to any Hong Kong income tax. Also, Hong Kong does not
impose any tax on capital gains realized by the Fund from the
disposition of such securities. Transfers of shares of companies
on a Hong Kong share register, including "H" Shares and shares of
other companies incorporated outside of Hong Kong which are
listed on the Hong Kong Stock Exchange, are subject to a stamp
duty at the rate of .30% of the amount of the transfer price or,
if higher, the fair value of the shares, which tax is usually
borne equally by the buyer and the seller in respect of
transactions on the Hong Kong Stock Exchange. There is at
present no tax treaty between the United States and Hong Kong.
Taiwan. Dividends and interest received by the Fund as
a QFII (See "Appendix A: Additional Information about China, Hong
Kong and Taiwan--Taiwan--Securities Transactions" in the
Statement of Additional Information for information concerning
QFIIs) from sources in Taiwan will be subject to Taiwan income
withholding tax at the rate of 20%. A tax on capital gains
arising from securities transactions is currently suspended and
gains on transactions in securities realized by the Fund are
therefore not currently subject to tax. A transaction tax on the
transaction price is imposed on the seller at the rate of 0.3%
for most stock transactions and at the rate of 0.1% for most
transactions in debt securities, other than government debt.
There is at present no tax treaty between the United States and
Taiwan.
Other Taxation
The Fund may be subject to other state, local and
foreign taxes than those discussed above. Also, distributions by
the Fund may be subject to additional state, local and foreign
taxes depending on each shareholder's particular circumstances.
_______________________________________________________________
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
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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
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
55
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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
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 3,000,000,000 shares of Class A Common Stock,
3,000,000,000 shares of Class B Common Stock, 3,000,000,000
shares of Class C Common Stock and 3,000,000,000 shares of
Advisor Class Common Stock, each having a par value of $.001 per
share. All shares of the Fund, when issued, are fully paid and
non-assessable. The Directors are authorized to reclassify and
issue any unissued shares to any number of additional series and
classes without shareholder approval. Accordingly, the Directors
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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.
Custodian
Brown Brothers Harriman & Co. ("Brown Brothers"), 40
Water 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 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.
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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.
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 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 the Fund's
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
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principal invested in the Fund is not fixed and will fluctuate in
response to prevailing market conditions.
Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc., and
Morningstar, Inc. and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers,
magazines such as 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
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.
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___________________________________________________________
APPENDIX A: INFORMATION CONCERNING
CHINA, HONG KONG AND TAIWAN
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The information in this Appendix is based on material
obtained by the Fund from various governmental and other sources
which is believed to be accurate but all of which has not been
independently verified by the Fund or the Adviser. Many of the
indicated numbers, including percentage information, is whether
or not so specified, estimated or approximate. The information
provided is not intended to be a complete description of the
subject matter covered.
CHINA
With a population estimated at more than 1.2 billion
people, China is home to approximately 22% of the world's
population. It is the world's third largest nation in terms of
land area with approximately six million square miles; it shares
borders with 13 nations, including Russia, India, North Korea and
Vietnam; its vast and diverse terrain includes the Himalayan
Mountains, the Gobi Desert and tropical areas in the southeast.
Politically, China is divided into 23 provinces, five autonomous
regions and three municipalities.
History and Politics
China claims to be the oldest continuous civilization,
first unified as a nation in 221 B.C. In this century, China's
political system has moved from its first republic (1911-1949) to
a one-party communist state, after a civil war which ended in
1949 with the victory of the communist revolutionaries led by Mao
Zedong. Under his rule, the Chinese Communist Party (the "CCP")
established China's present governmental structure under which
all aspects of the Chinese economy were centrally planned and
implemented by the CCP. After his death in 1976, China's
economic system began a process of reformation under the
leadership of Deng Xiaoping marked by a trend as described below
toward capitalism, private ownership and an easing of
restrictions on foreign investment.
Government
China, officially designated as a "people's republic",
defined by the Chinese government as a dictatorship of the
working classes, has a one party political system controlled by
the CCP, which currently consists of an estimated 57 million
members. The highest ranking legislative body in the State
hierarchy is the National People's Congress ("NPC"), composed of
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approximately 3,000 members indirectly elected from lower-level
People's Congresses held every five years. The NPC, which meets
once a year for two or three weeks, is empowered to amend the
Chinese Constitution, enact and amend laws and examine and
approve national economic and social plans. Historically, the
NPC has been viewed, however, as less of a law-making body than
as an organization structured solely to enact CCP policies. When
not in session, the powers of the NPC are vested in a Central
Committee, composed of approximately 200 members. The highest
organ of state administration is the State Council, whose members
are elected by the NPC, acting on recommendations from the CCP
and presided over by an executive board made up of approximately
15 members.
The CCP structure parallels the governmental structure,
and often, the two systems overlap, with little distinction
between government and party positions. The CCP is governed by
its 188-member Central Committee, elected every five years. The
Central Committee normally convenes twice a year. When not in
session, a 15- to 20-member Politburo is vested with the Central
Committee's power. The Politburo is further centralized by the
Politburo Standing Committee, at present comprised of seven
members. This Standing Committee is seen as the real focus of
power in China, as it sets CCP policy and controls all
administrative, legal and executive appointments. The Standing
Committee currently consists of seven members, including the
Prime Minister, Li Peng, and Jiang Zemin, who holds the positions
of President, Party General Secretary and Chairman of the Central
Military Committee. Following the death of Deng Xiaoping earlier
this year, Jiang Zemin has become the leader of the CCP. He
continues to consolidate his power, but as of yet does not appear
to have the same degree of control as did Deng Xiaoping.
Economy
China's economy is centrally planned by the government
through the use of a series of economic and social development
plans, which set overall targets for different sectors of the
economy. China is now in its Ninth Five-Year Plan, which
establishes official economic targets through the year 2000.
Since market-oriented reforms were initiated under Deng, China's
economy has been in the process of transforming from a rural
agricultural economy into a modern manufacturing nation. China's
economy has seen rapid growth in recent years, with yearly double
digit percent increases in the growth of its gross domestic
product from 1990 to 1995. In 1996, gross domestic product
("GDP") growth slowed from its past double-digit increases to
approximately 9.7%, modestly above China's target of an 8%-9%
growth rate per year between 1996 and 2000.
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Until recently, China's economy was dominated by State-
owned enterprises ("SOEs"). Increasingly, China's economy is
being transformed, in accordance with the government's economic
plans, from a state controlled system to a system of private
ownership. The collective sector includes township and village
enterprises often combined with some measure of foreign
investment or privately owned enterprises. The collective and
private sectors have played an increasingly important role in
China's economic development. The State is now responsible for
less than half of China's industrial output. In 1996, the
collective sector had the highest industrial output growth rate,
23.4%, compared with only a 7.4% increase by SOEs. The "other"
sector, consisting of foreign investors and privately owned
enterprises, showed a 19.2% growth rate in industrial output.
The rapid growth in the collective and private sectors
is expected to continue. It is anticipated by observers that
China will gain entry into the World Trade Organization ("WTO")
within the next few years. While China's export market is
expected to expand upon WTO entry, its share of sales in its
domestic markets may decline as these markets will be open to
increased foreign competition, since China would be forced to
lower tariffs under WTO regulations. In preparation for entry
into the WTO, China has reduced its average tariff rate to 23%
and has announced plans to lower tariffs to an average of 15% by
the year 2000. While the collective and private sectors continue
to expand, many SOEs are unprofitable and kept afloat by large
government subsidies, normally in the form of policy loans from
government controlled banks, which add to China's budget deficit
(see "--Banking and Finance" below). According to the press
reports, 45% of SOEs (official figures from China put the figure
at 34%) reported losses amounting to US$8.3 billion in 1996.
As indicated above, manufacturing in China has been
rapidly moving into private hands, particularly in the five
Special Economic Zones where tax incentives, among other factors,
have encouraged investment by both local and foreign investors.
Foreign investment into China rose 13.6% from 1995 to 1996, with
an estimated US$42.4 billion invested into China in 1996.
Manufacturing jobs have been moving into China from other Asian
nations based upon, among other factors, China's low wages and
large pool of comparatively cheap labor.
Another aspect of China's continued plan of economic
development is the government's continued investment in
infrastructure development programs, which are seen as necessary
to sustain China's current level of economic performance. The
government (financed in part by loans from Japan and the
International Bank for Reconstruction and Development (the "World
Bank"), has been investing heavily in infrastructure, including
the expansion of existing railways as well as the development of
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a new inland route from Beijing to Kowloon, which is expected to
help boost the economy of the inland areas of China through which
the railway runs. Other projects include development and
expansion of ports near Shanghai and the continued development of
China's road system. China also has an expanding civil aviation
industry with approximately thirty Chinese airlines and is in the
process of upgrading its telecommunications systems, which
included the launching of China's first commercial satellite in
1994.
While China's foreign trade growth rate of 3.2% in 1996
was slower than in recent years, China accrued an estimated trade
surplus of approximately US$12.2 billion. In 1996, China's
reliance upon imports rose by 7.8%. With the slow down in growth
of the trade surplus, in combination with a deficit in services
and a large deficit income, China is estimated to have run an
overall account deficit of US$9.2 billion in 1996. However,
China's foreign trade growth rose significantly in the first five
months of 1997 as exports rose 26.4% from the same period in 1996
while imports fell 1.2%, with an estimated trade surplus of
US$13.9 billion for the five-month period, larger then the trade
surplus for all of 1996. State-owned enterprise export volume
increased approximately 25% from the same period in 1996 and
accounted for an estimated 56% of total export volume.
China's strong economic performance has been coupled
with a high inflation rate in recent years, averaging
approximately 14% in the years 1992-1996. China, however, has
kept inflation for 1996 in the single digits, at an estimated
8.3%. The 1996 inflation rate was seen as a marked improvement
from recent years in which inflation increased from an estimated
6.3% in 1992 to 14.6% in 1993, 24.1% in 1994 and 16.4% in 1995.
Inflation has been controlled through a program of austerity
measures (including a tightened monetary policy and price
controls on certain commodities such as coal, oil and certain
foodstuffs) imposed in 1994 after inflation exceeded 24%. While
some of these measures were lifted in mid-1996, many remain in
place and are enforced in varying degrees. 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 the eastern seaboard cities. The
government's Ninth Five-Year Plan includes measures to increase
industrial production and the standard of living in these rural
areas, along with the continued development of Shanghai and,
particularly, the development of the Pudong New Area as a center
for international commerce.
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Banking and Finance
Banking in China is controlled by the wholly state-owned
People's Bank of China ("PBC"), the central bank of China. The
PBC has the same status under Chinese law as a department of the
government under the direct control of the State Council. In
addition to its central bank functions, which include
international settlements in connection with foreign trade and
non-trade transactions, international interbank deposits and
remittances, the buying and selling of foreign exchange and
issuing bonds and other securities in foreign currencies, the PBC
enjoys considerable autonomy in management and in operating as a
full-fledged commercial bank. It is continuing to open new
domestic branches in the more densely populated areas and is in
the process of diversifying into a wider range of banking and
financial services, including investment banking and credit
cards.
As a State owned unit, the PBC has been instrumental in
the implementation of China's planned economy, particularly
through lending in furtherance of government policies. In this
regard, the State has mandated that more than half of the PBC's
lending be in the form of policy loans, many of which are in
essence government expenditures. Many of these loans go to
subsidize unprofitable SOEs. Historically, SOEs have defaulted
on repayment of these loans. China's fiscal problems, especially
the high inflation rate prevalent during most of the 1990s, have
been exacerbated by the PBC's continued subsidization of
government programs, especially the SOEs. By continuing to
inject money into these organizations through the PBC, China has
had difficulty combatting inflation through its monetary policy
as the government has not effectively limited the amount of
currency in circulation. China, therefore, had attempted to
control monetary policy by means of annual credit plans, which
set credit ceilings for the main banks. This approach has also
not been successful, however, as local government spending, poor
coordination and unofficial financial activity, coupled with a
weak regulatory system have worked against the plans. The money
supply has grown 30% since 1992, when lending limits were put in
place and total state bank loans outstanding grew an average of
20% a year between 1990 and 1994.
Another effect of this continued subsidization of the
SOEs by the PBC is a deficit which is larger then official budget
deficit figures, since the loans are not reflected in the
official numbers. The World Bank suggests that China's
consolidated government deficit ("CGD"), which includes the
fiscal deficit plus lending to financial systems which in turn
finance the expenditures to the SOEs, is a more accurate
reflection of China's deficit. The World Bank estimates that
China's CGD amounts to 5%-6% of China's GDP. Despite this large
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current account deficit, China's external payment position is
believed by observers to be sound, and China boasts one of the
world's largest foreign exchange reserves.
China is attempting to reform its banking system, with
the goal of making the financial system a more effective means of
macroeconomic control. The changes contemplated include making
the PBC more autonomous and curbing its role in policy lending,
while reorganizing the branch system along regional instead of
provincial lines. Further changes include the establishment of
policy banks to separate policy and commercial lending and
reforming interest rate policy. The government also 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
outstanding SOE debt. These banking reforms, however, are not
expected to occur rapidly as the changes address conflicting
government policies, especially the continued use of state banks
to subsidize government programs. Along with these internal
reforms, China is in the process of liberalizing access to
foreign banks wishing to do business in China. At present, China
has opened more than twenty cities to foreign financial
organizations, and more than fifty operational units of foreign
banks have been established in China.
The monetary unit of China is the Renminbi ("RMB"), and
the rate of exchange which since 1994 has ranged between 8 and 9
RMB per U.S. dollar, was exchanged at 8.29 RMB per U.S. dollar as
of June 6, 1997. 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 centers provide an official forum where
foreign invested enterprises ("FIEs") may, under the supervision
and control of the State Administration of Foreign Exchange
("SAFE") engage in mutual adjustment of their foreign exchange
surpluses and shortfalls. The RMB is not yet fully convertible,
however, as only "current account" items, as described below, may
be converted freely. Under the rules implemented by SAFE, the
Fund, as a FIE has to establish a "current account" and a
"capital account" with a bank authorized to conduct foreign
exchange business. SAFE has the authority to determine the
maximum amount of foreign exchange a FIE may maintain in its
current account in accordance with the paid-up capital of the FIE
and its need for foreign exchange working funds. Any foreign
currency income in the current account exceeding such maximum
limit is required to be sold either to a bank authorized to
conduct foreign exchange business or traded through a swap
center. Since November 1996, FIEs have been allowed to exchange
Renminbi into foreign currencies without prior approval from SAFE
if such funds are in respect of "current account items."
However, prior approval from SAFE is needed if "capital account
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items" are to be converted into foreign currencies. "Current
account items" include dividends or profits in other forms paid
to foreign investors in FIEs. After the payment of applicable
taxes, FIEs may distribute dividends in foreign currencies either
by applying the balance in their foreign exchange accounts to
such distribution in RMB or through a foreign exchange swap
center.
Since 1994, the foreign exchange rate has not been set
by the Chinese government. Trading of RMB and foreign currencies
is conducted at a rate within a range set daily by the Chinese
government determined by reference to supply and demand. Such
market exchange rates can be highly volatile and are subject to
sharp fluctuations depending on market conditions. The initial
effect of the abolition of the government's official exchange
rate was a 50% devaluation of the RMB against the U.S. dollar by
January 1994. Since then, however, the RMB has remained
relatively stable against the dollar.
Securities Markets
China has two officially recognized securities
exchanges, the Shanghai Securities Exchange opened in December
1990 and the Shenzhen Securities Exchange opened in July 1991
(the "Exchanges") which developed out of securities exchanges set
up to trade State treasury bonds. Trading on the Exchanges has
been very volatile since their inception. This volatility has
increased recently, in part as investors speculated over the
economic effects of the transfer of Hong Kong from Great Britain
to China. Recently, trading volume has been very high, at times
exceeding the volume on the Hong Kong Stock Exchange (the "HKSE")
which has a much larger market capitalization. In May 1996, the
Chinese government took steps to quell this speculation, with the
market dropping an estimated 10% after the authorities took
various actions, including raising transaction fees and doubling
the quota for new share offerings.
The Exchanges allow for the trading of only two types of
shares: "A" shares, which may only be held and traded in
Renminbi by mainland Chinese investors, and "B" shares,
officially open, with narrow exceptions, only to foreign
investors, also denominated in Renminbi, but traded in U.S. and
Hong Kong dollars. As of May 1997, the two exchanges listed over
600 securities with a value of over RMB $35 billion. The "B"
markets, which are still relatively small with only 86 companies
listing "B" shares, typically trade at a discount to their "A"
share equivalents. Foreign investment into the securities
markets of China has been limited by this lack of adequate
investment opportunities. In response to the limited "B" market
size, China has stated that it will allow at least 30 more
companies to issue "B" shares in 1997. China has also signaled
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that it will begin to open up the "A" markets to foreign
investors. While full merger of "A" and "B" share markets is not
likely in the near future, it is anticipated that joint ventures
comprised of foreign financial houses and mainland Chinese
investors will soon be allowed to purchase "A" shares, as well as
granting Chinese investors official 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, and permitted certain companies to list
on other foreign exchanges, including two companies listed on the
New York Stock Exchange. "H" shares of over 30 issuers are
listed on the Hong Kong Stock Exchange, and there are plans to at
least add another 12 (see "--Additional Information About Hong
Kong--Securities Markets" for additional information on "H"
shares). China has also announced that it expects to allow more
than 35 additional companies to list shares on foreign exchanges.
The Exchanges continue to be very volatile and prone to
wide fluctuates. The official indices for the Exchanges are the
Shanghai Securities Exchange Index and the Shenzhen Securities
Exchange Index, respectively. These indices are comprised of all
listed "A" shares (as described below) and are market-value
weighted. The Exchanges, in part due to active trading by
domestic brokerage firms, hit record levels in early December
1996 but by December 18, 1996, prices plunged an average 20%
after government warnings of excessive speculation. As of
June 30, 1997, the Shanghai Securities Exchange Index was up to
1,306 while the Shenzen Securities Exchange Index stood at 449.
"B" shares, normally trading at large discounts on the Exchanges,
have also been affected by this volatility. The Shanghai Indices
for "B" shares ended up approximately 150% for 1996. As of
June 30, 1997, the "B" share indices for the Shanghai and
Shenzhen Exchanges stood at 81.47 and 144.71, respectively.
China also has an active bond market, as the government
issues Treasury bonds to help fund consistent budget deficits.
Prior to 1990, however, the government had difficulty raising
money through bond offerings, which were often viewed as
illiquid. Since 1990 government bond issues have been
underwritten by financial institutions resulting in the sale of
government bonds in amounts of more than 100 million RMB. In an
effort to curb inflation in 1997, China expects to increase note
issuances more than 13%. China's sovereign foreign currency debt
is currently rated investment grade by both S&P and Moody's.
Citing continued progress in carrying out economic reforms,
recent stability of government issued debt, economic growth and
manageable inflation, S&P raised the rating of government issued
debt to BBB+ from BBB on May 14, 1997. In support of the
upgrading, S&P also referred to China's solid debt-to-export
ratio, strong fiscal and balance of payment accounts,
modernization of its monetary management system and developing
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capital markets. Moody's correspondence rating is A3. China,
which is in the process of drafting a new futures law, also
allows futures trading although the government is wary of the
speculation futures markets can foster. China currently has
several futures exchanges.
HONG KONG
Hong Hong is located contiguous to China on its
southeastern coast, having an area of approximately 240 square
miles and a population estimated at 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. Hong Kong Island and Kowloon lie
across Victoria Harbor from each other and are densely populated.
History and Politics
Great Britain took control of Hong Kong Island during
the First Opium War in 1841, with the hope of using the island as
a colony from which it could open up the markets of mainland
China. In 1860, Britain extended its dominion to include
Kowloon, and in 1898 Britain forced China to turn over to it the
New Territories under a 99 year lease, which expired June 30,
1997. In 1984, Britain and China signed the Joint Declaration
which provided that sovereignty over all of Hong Kong was to 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. With the transfer of
sovereignty to China, Hong Kong is now governed under a "Basic
Law", essentially a constitution which, among other things, sets
forth the economic, markets and social protections governing Hong
Kong and its people.
Government
Until July 1, 1997, Hong Kong was a colony of the
British crown, with Queen Elizabeth II as the Head of State and
an appointed governor as her representative. The Hong Kong
legislature, referred to as the Legco, had 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, was composed of
twelve members appointed by the governor. They advised the
governor concerning legislation to be debated in the Legco.
In 1992, the governor of Hong Kong, following the
apprehension raised by China's suppression of the demonstrations
in Tiananmen Square in June 1989, proposed a plan to develop a
more democratic political system in Hong Kong prior to Great
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Britain's departure. The plan expanded suffrage, increased the
number of directly elected seats in the Legco, and introduced the
"winner take all" voting system. China believed that this
proposal violated the Basic Law. After negotiations between
Great Britain and China broke down, the plan was implemented. In
the 1995 elections held under this expanded political structure,
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 won
only two. In August 1994, the NPC voted unanimously to abolish
Hong Kong's present political structure and appointed the
Preparatory Committee on Hong Kong ("PC") which in turn selected
the provisional legislature which replaced the elected Legco on
July 1, 1997, as well as selecting Hong Kong's first chief
executive of the SAR, Tung Chee-Hwa. As with the NPC in China,
the PC is viewed by many as a rubber stamp of CCP policies.
While the people of Hong Kong did not have the right to vote for
members of this transitional legislature, general elections for
the Legco are scheduled to be held in 1998. The structure of the
electoral system and whether China will allow a freely elected
body to take effect in 1998 remains unclear.
The extent of continued democracy in Hong Kong after the
transition is yet to be resolved. The Basic Law holds that the
Chief Executive must be acceptable to China, only a minority of
the members of the Legco will be directly elected, and China will
be responsible for defense and foreign affairs. There have also
been recent indications that civil liberties will be limited by
China. These indications include amendments of local ordinances
by Tung Chee-Hwa requiring official approval prior to the staging
of a public protest and warnings from China's Foreign Minister
that Hong Kong's newspapers will not be allowed to criticize
Chinese leaders, advocate Taiwan or Tibetan independence or
publish "rumors."
Economy
Hong Kong's economy is highly cyclical and, compared to
the U.S. economy, quite volatile as the government does not
normally endeavor to restrain economic fluctuations. As Hong
Kong does not have a strong natural resource base, it is heavily
dependent on international services and foreign trade. Hong
Kong's economic growth began with the 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 developing Asian nations, such as South Korea, moved to
high-tech industry from consumer goods, Hong Kong transformed
itself into a financial and trade center. Official statistics
show that the number of foreign companies operating in Hong Kong
has been rising steadily. It is estimated that of about 4,500
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foreign companies operating in Hong Kong, about 40% have
commenced operations in the last five years. It is estimated
that approximately 800 multinational corporations doing business
in Asia have regional headquarters in Hong Kong. Currently, Hong
Kong's services sector employs approximately 60% of the
population and accounts for over 75% of Hong Kong's GDP, while
manufacturing accounts for only 8.8%. Hong Kong's economy has
been growing for the last few years, the growth rate not dropping
below 4.7% from 1992 through 1996, although its recent growth
rate has been below that of both China and Taiwan. GDP growth
has been projected to increase from an estimated 4.7% for 1996 to
5.3% for 1997 and 5.2% for 1998. Growth for the first quarter of
1997 has been estimated at 6%. Inflation during the same period
grew 9.3% in 1992, 8.5% in 1993, 8.1% in 1994, 8.7% in 1995 and
6.0% in 1996. Inflation has been estimated to rise 6.7% in 1997
and 7.5% in 1998.
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 over 150%, compared to a 4.2% drop in exports
of goods produced in Hong Kong. The growth in re-exports slowed
to 7.5% in 1996, down from 14.3% in 1995, while domestic exports
decreased 8.4% after a 2% increase in 1995. Hong Kong's role as
a re-exporter is expected to continue to decrease, while its role
in transshipment is expected to increase, as China continues to
modernize its own port facilities and direct shipping with
Taiwan, which has recently been authorized by both China and
Taiwan on a limited basis, expands. Hong Kong's shipping sector
is still expected to grow at a moderate pace, as container
throughput grew an estimated 13.4% in 1996, and the Chinese
government has made plans to directly connect Hong Kong's ports
to China's main railway lines. In line with Hong Kong's strength
as an exporter and re-exporter, its foreign exchange reserves are
estimated at US$63 billion, not including US$15 billion from the
Land Fund, which is funded through the sale of government owned
land.
In contrast to Hong Kong's large seaport, its airport is
considered inadequate, which has hindered 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 a second runway is built, which
at present is expected to be in 2000. While tourism has been
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increasing, hotel space in Hong Kong has been declining, as this
space has been converted into retail office space where demand
continues to grow. Hong Kong has also announced plans to invest
HK$2.5 billion in a science park and technology center in an
effort to stimulate growth in high technology industries.
Banking and Finance
Hong Kong has established itself as one of the most
important financial centers in the world. Together with real
estate and insurance, the financial sector accounted for 24.9% of
Hong Kong's GDP in 1996 as opposed to 15.6% in 1984. Unlike many
Asian economies, Hong Kong does not actively attract or dissuade
foreign investment, and is known as one of the most open markets
in the world. Given Hong Kong's low taxes and quality
infrastructure, many businesses 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
established to assume certain central bank type responsibilities,
including monetary management and supervision of the banking
industry. Hong Kong has more than 350 authorized banking
institutions (including licensed banks, restricted-license banks
and "deposit-taking companies"). While government regulation is
not extensive, 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 interest rates. Since 1983, the Hong Kong dollar
has been linked to the U.S. dollar at a rate of HK $7.80 to U.S.
$1.00. The free market exchange rate of the Hong Kong dollar
amount against the U.S. dollar for the non-bank public is
determined by supply and demand but has not deviated
significantly from the fixed exchange rate. Because of the tie
between the U.S. dollar and the HK dollar, Hong Kong interest
rates closely follow U.S. rates. This has effectively taken
monetary policy control away from the Hong Kong government,
leaving Hong Kong somewhat ill equipped to deal with inflationary
pressures which has contributed to periodic surges of money into
the stock and property markets. According to the Basic Law, for
50 years from July 1, 1997 the Hong Kong dollar is to remain
linked to the U.S. dollar, the Hong Kong dollar is to be freely
convertible into other currencies, and there are to be no
exchange controls or government consents to raise debt or equity
capital.
Securities Markets
Foreign investment into Hong Kong is restricted only in
a few regulated sectors which are under direct government
control, including the postal system, harbor and airport
facilities, public utilities and broadcasting. No government
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approvals are required for foreigners to invest in other sectors.
Funds invested in Hong Kong as well as gains and dividends and
interest may likewise be freely remitted abroad. Like its other
financial markets, the HKSE is completely open to foreign
investors with minimal regulations. The regulatory powers of
Hong Kong's Securities and Future Commission ("SFC") are
essentially limited to either a verbal reprimand or an outright
ban on trading with little power in between. At present, the SFC
does not have the power to levy fines. There are signs that the
SFC's power may soon be enhanced in the face of a recent scandal
in which a senior investment manager at the largest fund manager
in Hong Kong was found to have made large profits through insider
trading. The SFC has also announced plans to add more staff
investigators and it has been disclosed that the SFC and the Hong
Kong Investment Funds Association are currently drawing up
investment management guidelines covering dealing practices,
profit allocation, investment restrictions and the handling of
customer complaints. The SFC is also expected soon to issue
internal control guidelines relating to dealing compliance and
internal auditing issues.
The HKSE expanded from 310 listed companies with a
market capitalization of HK$805 billion in 1991 to 610 listed
companies with a market capitalization of US$524 billion as of
June 1997. As the HKSE is not highly regulated, the market is
prone to wide fluctuations. The SFC does not impose trading
restrictions when the market becomes volatile. The Hang Seng
index which tracks 33 blue chip companies listed on the HKSE has
risen from 4,297 in 1991 when the HKSE was created from the four
then existing Hong Kong exchanges, to over 13,000 in November of
1996 and to 15,196 as of June 27, 1997, the last day of the HKSE
was open prior to the transfer of sovereignty to China. This
growth has been marked by erratic movements. For example, 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 a 33% gain in 1996.
As the July 1, 1997 transfer of sovereignty neared,
trading on the HKSE was very active, and the Hang Seng index rose
14% during the first six months of 1997, albeit on a somewhat
erratic basis. The performance of the Hang Seng China
Enterprises index, comprised of the 31 "H" shares listed on the
HKSE rose 22% in the second half of 1996 to close the year at
980. As of June 27, 1997, this index stood at 1,015. Companies
considered to have strong ties with the mainland have performed
particularly well. The Hang Seng China-Affiliated Index, an
index which tracks the "Red-Chip" companies (see below),
including companies incorporated in Hong Kong at least 35% of
whose assets are owned by Mainland China entities, has also
increased substantially. The index rose 7.28% on June 16, 1997,
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the first day securities on the index were measured to close at
2,867. As of June 27, 1997, the index stood at 3,469.
Despite this growth, the HKSE has shown signs of
investor tensions in connection with the transition of power to
China. The market has recently seen a number of listed companies
move their domicile to other tax-friendly jurisdictions, such as
Bermuda, while other companies have obtained secondary listings
on the London and Shanghai exchanges, or have de-listed
altogether, as a reflection of doubt as to the impact of the
Chinese takeover. These departures have been replaced in part by
Chinese companies listing "H" shares on the HKSE. Companies
listing "H" shares must receive prior approval by the Chinese
government and meet minimum capital and financial disclosure
standards imposed by China and Hong Kong prior to listing their
shares. More recently, however, investors have been turning to
the "Red Chips", mainland Chinese state-controlled companies,
incorporated in Hong Kong and listed on both the Hong Kong and
Chinese stock exchanges, which are believed to better managed
then the "H" share listed companies and also provide better
company disclosure. Speculation in Red Chips has resulted in an
average increase of more than one-third in the price of their
shares since the beginning of 1997, with the increases apparently
based more on investor hopes than solid financial information. A
loss in confidence in Red Chips companies could adversely impact
the Hong Kong securities markets.
While Hong Kong has not needed to issue debt to raise
funds, as it does not run a budget deficit, the HKMA issues
Exchange Fund bills and notes in an effort to stimulate growth in
the local debt market. By the end of June 1996, the HKMA had
HK$62.3 billion of outstanding Exchange Fund bills and notes. An
Exchange Fund debt investment is one which evidences the deposit
of money in Hong Kong dollars with the HKMA and is a direct
obligation of the Hong Kong government. Beginning in 1996, the
HKMA began issuing Exchange Fund debt with a maturity of seven
years, up from the previous maximum of five years and in October
1996 began issuing ten year notes.
The HKMA is also attempting to stimulate the limited
derivatives market by cutting the tax on currency futures and
extending the tax exemption on securities options for another
year. However, it is uncertain if the stock options market will
expand, as the high concentration of a few stocks on the Hang
Seng Index causes investors to put money into index options,
which are typically more liquid.
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TAIWAN
Taiwan is an island located off the southeastern
coast of China with a land mass of approximately 14,000
square miles and a population estimated at 21.3 million, of
which 98% are ethnic Chinese. Half of the island is covered
by forests and the terrain is mountainous, especially
inland.
History and Politics
In 1949, after the Chinese Civil War when the
Nationalist leader Chiang-Kai-Shek and the remnants of his
Nationalist forces fled to Taiwan, then a province of China,
and set up a provisional government which was declared by
the provisional government to be the official government of
mainland China. The initial focus of the Nationalist or
Kuomintang Party (KMT) was to assume control of mainland
China rather than concentrating on Taiwan. An impetus for
internal development was slow in arising. The KMT imposed
marital law from 1949 until 1987, when political scandals,
among other factors, weakened the KMT government to the
point where elections and the formation of opposition
parties were allowed. The trend toward democracy has
continued since 1987. Opposition parties 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
held a majority in the legislature, and in 1996 Taiwan
elected its President by direct popular vote for the first
time.
China's official position regarding Taiwan is that
Taiwan is not an independent country but remains a province
of China, while Taiwan's official position remains the same
as in 1949, that its government is the rightful government
of Mainland China. Most countries, including the United
States, recognize the government of China as the only
official government representing China while only 29 nations
recognize the government of Taiwan as the official
government of China. While there is a growing movement in
Taiwan towards declaring independence from China, the
Taiwanese government has been wary of such a declaration out
of fear of reprisals by China. While China has from time to
time flexed its military muscle, the threat of an actual
invasion from China is generally believed not to be
imminent.
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Government
Taiwan continues in the process of moving from a
mostly one party system to a representative democracy. Its
elected branches of government consist of the National
Assembly which until 1994 elected the President and Vice
President, but is now limited to amending the Constitution,
and the Legislative Yuan which is the equivalent of a
parliament. The role of the National Assembly, which is
partially elected and partially nominated by Taiwanese
political parties, in determining government policy has been
increasingly limited as the Legislative Yuan, which was
historically viewed as a means to legitimize KMT policy, has
assumed an increasingly important role. The President, who
is directly elected by the Taiwanese people, together with
the Legislative Yuan appoint the Prime Minster and monitors
the administrative activities of the Executive Yuan.
Reforms are currently pending which would grant the
Legislative Yuan the power to dismiss the Prime Minister
through a vote of no confidence, impeach the President and
Vice President and propose constitutional amendments. It is
unclear if, and to what extent, these reforms will be
adopted and what their effect might be on Taiwan's economy
and relations with China.
Economy
Taiwan enjoyed substantial economic growth in the
1960s and 1970s when cheap labor and government tax breaks
resulted in large increases in Taiwanese consumer goods
exports. Similar to the experience of certain other
emerging Asian economies in the 1980s and 1990s, however,
prosperity brought higher labor costs and a loss of
competitiveness in the low-end consumer goods market. As a
result of these increased costs, Taiwan's manufacturing base
has moved towards the production of high-end consumer goods,
particularly into the chemical and computer sectors.
Taiwan's GDP has risen at a steady rate over recent years,
as its GDP grew a reported 6.8% in 1992, 6.3% in 1993, 6.5%
in 1994, 6.0% in 1995 and 5.7% in 1996. Estimates have been
reported that Taiwan's GDP will grow at 6% in 1997 and at
6.3% in 1998. Taiwan's inflation rate was estimated at 4.5%
in 1992, 2.9% in 1993, 4.1% in 1994, 3.7% in 1995 and 3.1%
in 1996. Reported estimates of inflation in 1997 and 1998
are 3% and 3.3%, respectively.
In 1996, manufacturing continued as Taiwan's most
important sector, accounting for 28.2% of its GDP, with an
emphasis on electronics and computers. The financial,
insurance and real estate sectors, which continue to grow,
represented 19.5% of Taiwan's GDP. While the manufacturing
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sector continues to be most important, Taiwan has been
reducing its economic reliance on this sector, with the
services sector, including the financial, insurance and real
estate sectors, at present accounting for over 60% of
Taiwan's GDP.
Due to its consistent yearly merchandise trade
surpluses, Taiwan retains one of the highest levels of
foreign reserves in the world, estimated at US$88 billion as
of the end of 1996. The annual trade surplus reached a peak
of US$18.7 billion in 1987 before declining to US$7.7
billion in 1994. In 1995 and 1996, the trade surplus again
increased, mainly due to a sharp drop in the demand for
imports as economic growth in Taiwan slowed. The 1996 trade
surplus reached a nine year high at US$14.7 billion. It has
been predicted that Hong Kong will replace the U.S. as
Taiwan's number one export market within the next few years,
in part because Hong Kong is used as a transshipment port
for goods destined for China. Taiwan's Ministry of Finance
estimates that between 60% and 70% of all exports to Hong
Kong end up in China. Taiwan and China have come to an
agreement allowing Taiwan continued access to China's
markets through Hong Kong.
Generous tax breaks for businesses, nearly
universal health coverage and heavy government investment in
infrastructure have resulted in a large government budget
deficits in recent years. From 1992 to 1995, budget
deficits ranged from 5% to 7.1% of GDP. While deficits are
being combatted by cutbacks in spending, debt-service
payments have been projected to be 13.9% of government
spending for fiscal year 1996-97.
Economic Relations with China
Taiwan and China, while separated geographically
and politically, are coming closer together economically
despite Taiwanese government warnings that Taiwan is
becoming overdependent on China, while at the same time
losing its manufacturing base to the mainland. Inexpensive
labor is the main draw for Taiwanese companies shifting
their manufacturing to China. At present, China estimates
that Taiwanese investors have invested approximately US$15.6
billion into China (unofficial estimates range from US$20 to
$30 billion), with only US$6.8 billion of this amount
approved by the government. While the government continues
to attempt to limit investments in China, including recently
enacting sanctions ranging from NT$1 million up to NT$5
million for illegal investments, trade between China and
Taiwan continues to expand. Exports to China rose 8.7% in
1996 from 1995 with Taiwan recording an estimated US$15
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billion trade surplus with China. The 1996 trade growth is
lower than in recent years, such as in 1993 when trade with
China grew almost 31%. In the first quarter of 1997,
exports to China have reportedly risen 1.9% from the same
period in 1996. Imports from China are estimated to have
increased 7.9% during the same period.
Trade between China and Taiwan is not expected to
be adversely affected by Hong Kong's transfer to China, as
limited direct trade has begun between China and Taiwan and
Taiwan's continued use of Hong Kong as a entry port into
China has been agreed to by both countries. The Taiwanese
government has, however, continued to encourage Taiwanese
investors to invest in countries other than China. As a
result, investments in countries other than China increased
by an estimated 210% in 1996 from 1995. This policy,
however, has not had a large effect on slowing investment in
China as Taiwan accounted for an estimated 8.7% of all
foreign investment in China in 1996, second only to Hong
Kong, although this percentage of investment has declined
from recent years.
Banking and Finance
Unlike Hong Kong, the Taiwanese financial markets,
including both the banking and securities markets, have
historically been highly regulated by the Taiwanese
government. Monetary policy in Taiwan is controlled by the
Central Bank of China ("CBC"). Beginning in 1989, 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.
However, significant 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.
Securities Markets
The Taiwan Stock Exchange ("TSE"), Taiwan's primary
securities exchange, is the sixth largest exchange in the
world in terms of average trading volume and the fifteenth
in terms of overall market capitalization. Unlike exchanges
in the U.S., the TSE is used far more for speculation 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,
to just below 12,500 by February 1990 and thereafter fell to
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2,500 by September 1990. Since this collapse, the market
has been less erratic and posted an increase of 34% for all
of 1996. As of June 30, 1997, the Exchange was up to 9,030
from 6,934 at the end of December 1996. The ROC
Over-the-Counter Securities Exchange ("ROSE"), which is set
up similarly to the NASDAQ system in the U.S., has grown
rapidly in recent years. That exchange is up from 28 listed
companies worth an estimated NT$41.79 billion in 1995 to, at
present, more than 90 listed companies worth an estimated
NT$108 billion. Government officials have indicated they
expect 80 new listings this year.
While Taiwan is in the process of opening up its
financial markets to foreign investors, significant
restrictions still exist, including foreign investment
restrictions on the TSE. Although recently raised from 20%,
there is still a limit on total foreign investment in an
exchange listed security of 25% of the market capitalization
of the security. At present, this restriction is not viewed
as a significant hindrance to foreign investment, as total
foreign investment under this 25% cap is estimated at over
US$90 billion, while total foreign investment on the
exchange is estimated at only US$11 billion. Along with the
25% limitation, no single CBC and TSEC qualified foreign
institutional investor ("QFII"), such as Alliance acting on
behalf of the Fund and Alliance's other clients, can acquire
more than 10% of a listed security's market capitalization.
Non-QIFFS are limited to a maximum investment in all
Taiwanese securities of US$5 million for individuals and
US$50 million for corporations. Taiwan further restricts
purchases by foreign investors of securities of certain
companies to prescribed limits or forbids foreign investment
completely in certain industries. Securities of companies
in the cement, transportation, banking and utility
industries now traded on TSE or ROSE are currently subject
to proscribed limits.
Because of the above limitations, and in part,
because of burdensome procedures that must be followed prior
to investing in Taiwanese securities, foreign investment has
never reached the maximum limits. The procedures which have
dissuaded foreign investment include requirements that a
QFII receive approvals from the CBC and Taiwan Securities
and Exchange Commission ("TSEC") prior to purchasing listed
and OTC securities. Further procedures include the need for
a QFII to obtain, on a case by case basis, government
approval to purchase non-listed and non-OTC securities, and
the restriction that only a preapproved maximum amount for
all of a QIII's accounts may be invested in TSE listed
securities. The maximum at present is US $600 million. The
TSE closely monitors trading by QFIIs. If the full
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preapproved amount is not remitted in and converted into
N.T. Dollars within six months of initial approval, the
approval to the extent of the unremitted amount is revoked
and a new application for permitted investment, not
exceeding the US$600 million limit, must be submitted. The
approval and reapproval increases can take several weeks,
resulting in the possible loss of investment opportunities
by the Fund during such times. The quotas also involve
somewhat onerous reporting requirements. The Fund will
endeavor to have an appropriate amount approved for
investment on the TSE at all times, but given the Fund's
status as an open-end investment company and changing market
conditions, there may be times when the requisite approval
has not yet been received. The Taiwanese government is
aware that these bureaucratic restrictions are limiting
foreign investment, but there is no indication of any near-
term change.
The Taiwanese bond market has been expanding
rapidly in recent years, increasing from an estimated NT$41
billion of corporate debt instruments issued in 1995 to an
estimated NT$108 billion in 1996. In 1996, the Taiwanese
government issued bonds totaling an estimated NT$175
billion, the highest level in four years. On May 28, 1997,
the Taiwan Rating Corporation, which is half owned by S&P,
began to rate debt issued by Taiwanese corporations. It is
expected that foreign investors will become increasingly
active in the local bond market as rating information
becomes available for Taiwanese firms issuing corporate
debt. This new local rating agency does not rate government
issued debt. S&P and Moody's rate Taiwanese sovereign
government debt at AA+ and Aa3, respectively.
At present, neither short selling, margin
transactions nor the lending of securities by the Fund is
permitted, although it is expected that foreign investors
will have limited access to securities lending within the
next year. Taiwan has also announced plans to open a
commodity futures exchange in October 1997 to be regulated
by a Securities and Futures Commission. Futures on indexes
of Taiwanese securities have been traded on the Chicago and
Singapore futures markets since January 9, 1997. While
Taiwan has restricted investment by its local futures
commission merchants in the Chicago or Singapore exchanges,
investors can still invest in these markets through brokers
in Hong Kong and elsewhere.
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____________________________________________________________
APPENDIX B:
CERTAIN INVESTMENT PRACTICES
____________________________________________________________
The information in this Appendix concerning
investment practices in which the Fund is authorized to
engage may not be currently permitted under applicable laws
or regulations or to engage in various of these practices
and they may otherwise be unavailable in certain countries.
The Fund intends to engage in these practices to the extent
such practices become available and permissible in the
future.
Options
The Fund may write covered put and call options and
purchase put and call options on securities of the types in
which it is permitted to invest that are traded on U.S. and
foreign securities exchanges and over-the-counter, including
options on market indices. The Fund will only write
"covered" put and call options unless such options are
written for cross-hedging purposes. There are no specific
limitations on the Fund's writing and purchasing of options.
The Fund may purchase put options to hedge against
a decline in the value of its portfolio. By using put
options in this way, the Fund will reduce any profit it
might otherwise have realized in the underlying security by
the amount of the premium paid for the put option and by
transaction costs. The Fund may purchase call options to
hedge against an increase in the price of securities that
the Fund anticipates purchasing in the future. The premium
paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the
underlying security rises sufficiently, the option may
expire worthless to the Fund.
A put option gives the purchaser of such option,
upon payment of a premium, the right to deliver a specified
amount of a security to the writer of the option on or
before a fixed date at a predetermined price. A call option
gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a
specified amount of a security on or before a fixed date at
a predetermined price. A call option written by the Fund is
"covered" if the Fund owns the underlying security covered
by the call or has an absolute and immediate right to
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acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of
other securities held in its portfolio. A call option is
also covered if the Fund holds a call on the same security
and in the same principal amount as the call written where
the exercise price of the call held (i) is equal to or less
than the exercise price of the call written or (ii) is
greater than the exercise price of the call written if the
difference is maintained by the Fund in cash and liquid
high-grade debt securities in a segregated account with its
custodian. A put option written by the Fund is "covered" if
the Fund maintains cash or high-grade 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.
A call option is for cross-hedging purposes if the
Fund does not own the underlying security but seeks to
provide a hedge against a decline in value in another
security which the Fund owns or has the right to acquire.
In such circumstances, the Fund collateralizes its
obligation under the option by maintaining in a segregated
account with the Fund's custodian cash or liquid securities
in an amount not less than the market value of the
underlying security, marked to market daily. The Fund would
write a call option for cross-hedging purposes, instead of
writing a covered call option, when the premium to be
received from the cross-hedge transaction would exceed that
which would be received from writing a covered call option,
while at the same time achieving the desired hedge.
In purchasing a call option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security increased by an amount in
excess of the premium paid. It would realize a loss if the
price of the underlying security declined or remained the
same or did not increase during the period, by more than the
amount of the premium. In purchasing a put option, the Fund
would be in a position to realize a gain if, during the
option period, the price of the underlying security declined
by an amount in excess of the premium paid. It would
realize a loss if the price of the underlying security
increased or remained the same or did not decrease during
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that period by more than the amount of the premium. If a
put or call option purchased by the Fund were permitted to
expire without being sold or exercised, its premium would be
lost by the Fund.
If a put option written by the Fund were exercised,
the Fund would be obligated to purchase the underlying
security at the exercise price. If a call option written by
the Fund were exercised, the Fund would be obligated to sell
the underlying security at the exercise price. The risk
involved in writing a put option is that there could be a
decrease in the market value of the underlying security
caused by rising interest rates or other factors. If this
occurred, the option could be exercised and the underlying
security would then be sold by the option holder to the Fund
at a higher price than its current market value. The risk
involved in writing a call option is that there could be an
increase in the market value of the underlying security
caused by declining interest rates or other factors. If
this occurred, the option could be exercised and the
underlying security would then be sold by the Fund at a
lower price than its current market value. These risks
could be reduced by entering into a closing transaction
prior to the option expiration dates if a liquid market is
available. The Fund retains the premium received from
writing a put or call option whether or not the option is
exercised.
The Fund may purchase or write options on
securities of the types in which it is permitted to invest
in privately negotiated (i.e., over-the-counter)
transactions. The Fund will effect such transactions only
with investment dealers and other financial institutions
(such as commercial banks or savings and loan institutions)
deemed creditworthy by the Adviser, and the Adviser has
adopted procedures for monitoring the creditworthiness of
such entities. Options purchased or written by the Fund in
negotiated transactions are illiquid and it may not be
possible for the Fund to effect a closing transaction at a
time when the Adviser believes it would be advantageous to
do so.
An option on a securities index is similar to an
option on a security except that, rather than the right to
take or make delivery of a security at a specified price, an
option on a securities index gives the holder the right to
receive, upon exercises of the option, an amount of cash if
the closing level of the chosen index is greater than (in
the case of a call) or less than (in the case of a put) the
exercise price of the option. There are no specific
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limitations on the Fund's purchasing and selling of options
on securities indices.
The writer of an option may have no control over
when the underlying securities must be sold, in the case of
a call option, or purchased, in the case of a put option,
since with regard to certain options, the writer may be
assigned an exercise notice at any time prior to the
termination of the obligation. Whether or not an option
expires unexercised, the writer retains the amount of the
premium. This amount, of course, may, in the case of a
covered call option, be offset by a decline in the market
value of the underlying security during the option period.
If a call option is exercised, the writer experiences a
profit or loss from the sale of the underlying security. If
a put option 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
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.
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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 a National
Exchange, (v) the facilities of a 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 then write a call option against that security.
The exercise price of the call the Fund determines to write
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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.
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
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<PAGE>
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 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
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<PAGE>
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 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.
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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.
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
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<PAGE>
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.
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
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<PAGE>
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, the option will
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<PAGE>
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
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<PAGE>
in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked to market daily.
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
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<PAGE>
currencies involve certain risks not presented by the over-
the-counter market. For example, exercise and settlement of
such options must be made exclusively through the OCC, which
has established banking relationships in applicable foreign
countries for this purpose. As a result, the OCC may, if it
determines that foreign governmental restrictions or taxes
would prevent the orderly settlement of foreign currency
option exercise, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on
exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.
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.
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<PAGE>
_________________________________________________________________
APPENDIX C
DEBT SECURITIES RATINGS
_________________________________________________________________
The ratings of securities by S&P, Moody's, Duff & Phelps and
Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's
standpoint. The rating of an issuer is heavily weighted by past
developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may
be varying degrees of difference in credit risk of securities
within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps
and Fitch are considered to be of the highest quality; capacity
to pay interest and repay principal is extremely strong.
Securities rated Aa by Moody's and AA by S&P, Duff & Phelps and
Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist
that make risks appear somewhat larger than exist with securities
rated Aaa or AAA. Securities rated A are considered by Moody's
to possess adequate factors giving security to principal and
interest. S&P, Duff & Phelps and Fitch consider such securities
to have a strong capacity to pay interest and repay principal.
Such securities are more suspectible to adverse changes in
economic conditions and circumstances than higher-rated
securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps
and Fitch are considered to have an adequate capacity to pay
interest and repay principal. Such securities are considered to
have speculative characteristics and share some of the same
characteristics as lower-rated securities. Sustained periods of
deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to
pay interest and repay principal than in the case of higher-rated
securities. Securities rated Ba by Moody's and BB by S&P, Duff &
Phelps and Fitch are considered to have speculative
characteristics with respect to capacity to pay interest and
repay principal over time; their future cannot be considered as
well-assured. Securities rated B by Moody's, S&P, Duff & Phelps
and Fitch are considered to have highly speculative
characteristics with respect to capacity to pay interest and
repay principal. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long
period of time may be small.
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<PAGE>
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps
and Fitch are of poor standing and there is a present danger with
respect to payment of principal or interest. Securities rated Ca
by Moody's and CC by S&P and Fitch are minimally protected, and
default in payment of principal or interest is probable.
Securities rated C by Moody's, S&P and Fitch are in imminent
default in payment of principal or interest and have extremely
poor prospects of ever attaining any real investment standing.
Securities rated D by S&P and Fitch are in default. The issuer
of securities rated DD by Duff & Phelps is under and order of
liquidation.
C-2
<PAGE>
Alliance Greater China '97 Fund, Inc.
Statement of Assets and Liabilities
July 29, 1997
ASSETS
Cash....................................... $100,300
Deferred organization expenses (Note A) ... 326,500
--------
Total assets............................... 426,800
--------
LIABILITIES
Deferred organization expenses payable
(Note A)................................... 326,500
--------
NET ASSETS
(Applicable to 10 shares of Class A common
stock issued and outstanding, 10 shares of
Class B common stock issued and
outstanding, 10 shares of Class C common
stock issued and outstanding and 10,000
shares of Advisor Class common stock issued
and outstanding, each with $.001 par value
and 3,000,000,000 shares authorized.)..... $100,300
========
CALCULATION OF MAXIMUM OFFERING PRICE
Class A Shares
Net asset value and redemption price per
share ($100/10 shares issued and
outstanding).............................. $10.00
Sales charge--4.25% of public offering
price..................................... .44
------
Maximum offering price.................... $10.44
======
Class B Shares
Net asset value and offering price per
share ($100/10 shares issued and
outstanding).............................. $10.00
======
<PAGE>
Class C Shares
Net asset value and offering price per
share ($100/10 shares issued and
outstanding).............................. $10.00
======
Advisor Class Shares
Net asset value, offering and redemption
price per share ($100,000/10,000 shares
issued and outstanding)................... $10.00
======
See notes to Statement of Assets and
Liabilities
<PAGE>
Alliance Greater China '97 Fund, Inc.
Notes to Statement of Assets and Liabilities
July 29, 1997
Note A-Organization
Alliance Greater China '97 Fund, Inc. (the "Fund") was
organized as a Maryland corporation on April 30, 1997, and
is registered under the Investment Company Act of 1940 as an
open-end, non-diversified management investment company.
The Fund has had no operations other than the sale to
Alliance Capital Management L.P. (the "Adviser") of 10
shares of Class A common stock for the amount of $100, 10
shares of Class B common stock for the amount of $100, 10
shares of Class C common stock for the amount of $100 and
10,000 shares of Advisor Class common stock for the amount
of $100,000, in each case on July 29, 1997. The Fund
currently offers four classes of shares. Class A shares are
sold with an initial sales charge imposed at the time of
purchase. Class B shares are sold with a contingent
deferred sales charge imposed on most redemptions made
within four years of purchase and higher distribution fees.
Class C shares are sold with a contingent deferred sales
charge imposed on redemptions made within one year of
purchase and higher distribution fees. Advisor Class shares
are sold without any initial or contingent deferred sales
charge and without ongoing distribution expenses. Costs
incurred and to be incurred in connection with the
organization and initial registration of the Fund will be
paid initially by the Adviser. The Fund will reimburse the
Adviser for such costs, which will be deferred and amortized
by the Fund over the period of benefit, not to exceed 60
months from the date the Fund commences investment
operations. If any of the initial shares of the Fund are
redeemed by a holder thereof during such amortization
period, the proceeds will be reduced by the unamortized
organization expenses in the same ratio as the number of
initial shares being redeemed bears to the number of initial
shares outstanding at the time of redemption.
Note B-Investment Advisory, Transfer Agency and Distribution
Services Agreements
Under the terms of an Investment Advisory Agreement, the
Fund will pay the Adviser a management fee at an annual rate
of 1% of the Fund's average daily net assets. Such fee will
be accrued daily and paid monthly.
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., (the "Principal Underwriter"), a wholly-owned
<PAGE>
subsidiary of the Adviser. The Agreement provides that
with respect to Class A shares, Class B shares and Class C
shares, the Principal Underwriter will use amounts payable
under the Agreement in their entirety for distribution
assistance and promotional activities. The Agreement
provides that the Adviser use its own resources to finance
the distribution of the Fund's shares.
The Fund will compensate Alliance Fund Services, Inc. (a
wholly-owned subsidiary of the Adviser) for performing
transfer agency-related services for the Fund.
<PAGE>
Report of Independent Auditors
Shareholder and Board of Directors
Alliance Greater China '97 Fund, Inc.
We have audited the accompanying statement of assets and
liabilities of Alliance Greater China '97 Fund, Inc. as of August
12, 1997. This statement of assets and liabilities is the
responsibility of the Fund's management. Our responsibility is
to express an opinion on this statement of assets and liabilities
based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards.Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
this statement of assets and liabilities is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement
of assets and liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the over all statement of
assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred
to above presents fairly, in all material respects, the financial
position of Alliance Greater China '97 Fund, Inc. at August 12,
1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
August 12, 1997
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Financial Statements
Included in Statement of Additional Information:
Statement of Assets and Liabilities.
Notes to Financial Statements.
Report to Independent Auditors.
Included in Part C of the Registration Statement:
All other financial statements or schedules are not
required or the required information is shown in
the Statement of Assets and Liabilities or the
notes thereto.
(b) Exhibits
(1) Copy of Articles of Incorporation.*
(2) Copy of By-Laws of the Registrant.*
(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.**
____________________
* Incorporated by reference from Registrant's Registration
Statement on Form N-1A (File Nos. 333-26229 and 811-08201)
filed with the Securities and Exchange Commission on
April 30, 1997.
** Incorporated by reference from Registrant's Registration
Statement on Form N-1A (File Nos. 333-26229 and 811-08201)
filed with the Securities and Exchange Commission on
July 30, 1997.
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<PAGE>
(b) Form of Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected dealers
offering shares of Registrant.**
(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 Brown Brothers Harriman & Company.**
(9) Copy of proposed Transfer Agency Agreement
between the Registrant and Alliance Fund Services, Inc.**
(10) (a) Opinion and Consent of Seward & Kissel -
filed herewith.
(b) Opinion and Consent of Venable, Baetjer
and Howard, LLP. - filed herewith.
(11) Consent of Independent Accountants - filed
herewith.
(12) Not applicable.
(13) Investment representation letter of Alliance
Capital Management L.P. - filed herewith.
(14) Not applicable.
(15) Rule 12b-1 Plan - see Exhibit 6(a) hereto.
(16) Schedule for computation of performance
quotations.***
(18) Rule 18f-3 Plan.**
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
___________________________
** Incorporated by reference from Registrant's Registration
Statement on Form N-1A (File Nos. 333-26229 and 811-08201) filed
with the Securities and Exchange Commission on July 30, 1997.
*** To be filed in a post-effective amendment.
C-2
<PAGE>
Alliance Capital Management L.P. owns 100% of its issued
and outstanding common stock.
ITEM 26. Number of Holders of Securities.
One. The Registrant is a recently organized corporation
and Alliance Capital Management L.P. owns 100% of its
issued and outstanding common stock.
ITEM 27. Indemnification.
It is the Registrant's policy to indemnify its directors
and officers, employees and other agents to the maximum
extent permitted by Section 2-418 of the General
Corporation Law of the State of Maryland, 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,
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officers, investment manager and principal underwriters
only if (1) a final decision on the merits was issued by
the court or other body before whom the proceeding was
brought that the person to be indemnified (the
"indemnitee") was not liable by reason or willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the facts,
that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the directors who are neither "interested
persons" of the Registrant as defined in section
2(a)(19) of the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
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.
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ITEM 28. Business and Other Connections of Investment Adviser.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Fund" in the
Prospectus and in the Statement of Additional
Information constituting Parts A and B, respectively, of
this Registration Statement are incorporated by
reference herein.
The information as to the directors and executive
officers of Alliance Capital Management Corporation, the
general partner of Alliance Capital Management L.P., set
forth in Alliance Capital Management L.P.'s Form ADV
filed with the Securities and Exchange Commission on
April 21, 1988 (File No. 801-32361) and amended through
the date hereof, is incorporated by reference.
ITEM 29. Principal Underwriters.
(a) Alliance Fund Distributors, Inc. 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 Environment 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
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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
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
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Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. 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
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
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<PAGE>
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
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
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<PAGE>
Matthew P. Mintzer Vice President
Thomas F. Monnerat Vice President
Joanna D. Murray Vice President
Jeanette M. Nardella Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell 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
Charles M. Barrett Assistant Vice President
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<PAGE>
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
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
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<PAGE>
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey,
07094 and at the offices of Brown Brothers Harriman &
Company, the Registrant's custodian, 40 Water Street,
Boston, Massachusetts 02109. All other records so
required to be maintained are maintained at the offices
of Alliance Capital Management L.P., 1345 Avenue of the
Americas, New York, New York, 10105.
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
(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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant has duly caused this 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 13th day of August, 1997.
Alliance Greater China
'97 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 August 13, 1997
______________________ President
John D. Carifa
(2) Principal Financial
and Accounting Officer:
/s/ Mark D. Gersten Treasurer August 13, 1997
_____________________ and Chief
Mark D. Gersten Financial
Officer
(3) A majority of the Directors
John D. Carifa
David H. Dievler
William H. Toulh, Jr.
T.L. Tsim
/s/ Edmund P. Bergan, Jr. Secretary August 13, 1997
_________________________
(Attorney-in-fact)
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Index To Exhibits
(10) (a) Opinion and Consent of Seward & Kissel.
(b) Opinion and Consent of Venable, Baetjer and
Howard, LLP.
(11) Consent of Independent Auditors.
(13) Investment representation letter of Alliance Capital
Management L.P.
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00250235.AK2
<PAGE>
August 14, 1997
[Seward & Kissel Letterhead]
Alliance Greater China '97 Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
We have acted as counsel for Alliance Greater China '97 Fund,
Inc., a Maryland corporation (the "Company"), in connection with
the organization of the Company, the registration of the Company
under the Investment Company Act of 1940, as amended, and the
registration of an indefinite number of shares of its common
stock, par value $.001 per share (the "Common Stock"), under the
Securities Act of 1933, as amended.
As counsel for the Company we have participated in the
preparation of the Registration Statement on Form N-1A relating
to such shares (the "Registration Statement") and have examined
and relied upon such corporate records of the Company and such
other documents and certificates as to factual matters as we have
deemed to be necessary to render the opinion expressed herein.
Based on such examination, we are of the opinion that:
1. The Company is duly organized and validly
existing as a corporation in good standing under the laws of
the State of Maryland.
2. The shares of Common Stock of the Company to be
offered for sale pursuant to the Registration Statement are,
to the extent of the number of shares authorized to be
issued by the Company in its Charter, duly authorized and,
when sold, issued and paid for as contemplated by the
Registration Statement, will have been validly and legally
issued and will be fully paid and nonassessable shares of
Common Stock of the Company under the laws of the State of
Maryland (assuming that the sale price of each share is not
less than the par value thereof).
As to matters of Maryland law contained in the
foregoing opinion, we have relied on the opinion of Venable,
Baetjer and Howard, LLP of Baltimore, Maryland, dated
<PAGE>
August 13, 1997, a copy of which is included in the
Registration Statement as Exhibit 10(b).
We hereby consent to the filing of this opinion
with the Securities and Exchange Commission as an exhibit to
the Registration Statement and to the reference to our firm
under the caption "General Information--Counsel" in the
Statement of Additional Information included therein.
Very truly yours,
/s/ Seward & Kissel
00250235.AJ8
<PAGE>
August 13, 1997
[Venable, Baetjer and Howard, LLP Letterhead]
Seward & Kissel
One Battery Park Plaza
New York, NY 10004
Re: Alliance Greater China '97 Fund, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel for Alliance
Alliance Greater China '97 Fund, Inc., a Maryland corporation
(the "Fund"), in connection with the organization of the Fund and
the issuance of shares of its Class A Common Stock, Class B
Common Stock, Class C Common Stock and Advisor Class Common
Stock, par value $.001 per share (each a "Class" and,
collectively, the "Shares").
As special Maryland counsel for the Fund, we are
familiar with its Charter and Bylaws. We have examined the
prospectuses included in its Registration Statement on Form N-1A,
File Nos.333-26229; 811-08201 (the "Registration Statement"),
substantially in the form in which it is to become effective (the
"Prospectuses"). We have further examined and relied upon a
certificate of the Maryland State Department of Assessments and
Taxation to the effect that the Fund is duly incorporated and
existing under the laws of the State of Maryland and is in good
standing and duly authorized to transact business in the State of
Maryland.
We have also examined and relied upon such corporate
records of the Fund and other documents and certificates with
respect to factual matters as we have deemed necessary to render
the opinion expressed herein. We have assumed, without
independent verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and
the conformity with originals of all documents submitted to us as
copies.
Based on such examination, we are of the opinion and so
advise you that:
1. The Fund is duly organized and validly existing as
a corporation in good standing under the laws of
the State of Maryland.
<PAGE>
2. The Shares of the Fund to be offered for sale
pursuant to the Prospectuses are, to the extent of
the respective number of Shares of each Class
authorized to be issued by the Fund in its Charter,
duly authorized and, when sold, issued and paid for
as contemplated by the Registration Statement, will
have been validly and legally issued and will be
fully paid and nonassessable under the laws of the
State of Maryland .
This letter expresses our opinion with respect to the
Maryland General Corporation Law. It does not extend to the
securities or "blue sky" laws of Maryland, to federal securities
laws or to other laws.
You may rely upon our foregoing opinion in rendering
your opinion to the Fund that is to be filed as an exhibit to the
Registration Statement. This opinion may not be relied upon by
any other person or for any other purpose without our prior
written consent. We consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to us
in the Statement of Additional Information supplementing the
Prospectuses under the caption "Counsel". We do not thereby admit
that we are "experts" within the meaning of the Securities Act of
1933 and the regulations thereunder.
Very truly yours,
/s/ Venable, Baetjer and
Howard, LLP
00250235.AJ0
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Shareholder Services - Statements and Reports" and "General
Information - Independent Auditors" and to the use of our report
dated August 12, 1997 included in this Registration Statement
(Form N-1A No. 333-26229) of Alliance Greater China '97 Fund,
Inc.
/s/ Ernst & Young LLP
New York, New York
August 12, 1997
00250235.AK3
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
July 30, 1997
Alliance Greater China '97 Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
Gentlemen:
In connection with our purchase of 10 shares of
Class A Common Stock, 10 shares of Class B Common Stock, 10
shares of Class C Common Stock and 10,000 shares of Advisor
Class Common Stock of Alliance Greater China '97 Fund, Inc.
(the "Corporation") for an aggregate cash consideration of
One Hundred Thousand Three Hundred Dollars ($100,300), this
will confirm that we are buying such shares for investment
for our account only, and not with a view to reselling or
otherwise distributing them.
Very truly yours,
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management
Corporation,
its General Partner
By: /s/ Robert H. Joseph, Jr.
Robert H. Joseph, Jr.
Senior Vice President and
Chief Financial Officer
00250235.AJ2
